Jan. 14 (Bloomberg) -- The opposition Kuomintang party's landslide victory in Taiwan's parliamentary elections may herald lower tensions with China and eased restrictions on Taiwanese investments in the communist mainland.

Ma Ying-jeou, the KMT's candidate for the March 22 presidential election, has promised both, and that campaign is his to lose after the Jan. 12 rout of the independence-leaning Democratic Progressive Party, analysts said. The KMT will have a two-thirds majority in the new parliament, leaving President Chen Shui-bian's DPP with only about half the seats it had said it expected to win.

The DPP's defeat also suggests Taiwanese voters probably would reject a bid to join the United Nations in a referendum that Chen wants on the March 22 ballot. China, which considers Taiwan part of its territory, has said it won't tolerate a referendum.

``All this should diminish Beijing's deep concerns about what may happen in Taiwan between now and when a new president takes office, and should diminish American concerns about a rapid increase in cross-strait tensions,'' said Kenneth Lieberthal, former senior director for Asia at the U.S. National Security Council and a University of Michigan professor.

The KMT won 51 percent of the popular vote; DPP received 37 percent. The result gave the KMT 81 seats and the DPP 27 in the new, smaller 113-member parliament, according to the Central Election Commission. Going into the election, the KMT and its coalition allies had 114 of 225 seats.

Stocks Rise

The benchmark Taiex stock index rose 1.8 percent to 8,173.41 at the 1:30 p.m. close after rising as much as 2.9 percent, while the Taiwan dollar advanced on speculation of better economic ties with China.

``Saturday's vote is in part a rejection of the president's anti-China policy,'' said Andrew Chen, who oversees the equivalent of $2.4 billion as chief executive officer at HSBC Asset Management Taiwan in Taipei. ``Even if the DPP's candidate Frank Hsieh manages to somehow win in March, investors are expecting him to be more open toward the mainland.''

Hsieh, 61, who replaced Chen as DPP chairman today, said he accepted the position as ``the DPP has to rise again,'' after the party's Central Executive Committee approved him as the acting chairman. Hsieh has said he would allow Chinese to buy property and invest in Taiwan.

``My philosophy is to seek co-existence and co-prosperity,'' he said in June. ``I'll do whatever it takes to push for cross- strait dialogue.''

China's Peace Offer

China has offered to discuss peace with any Taiwanese party that rejects independence, while maintaining its threat to invade the island, 150 kilometers (98 miles) off the coast, if a formal split is attempted.

Chen, who resigned as DPP chairman after the defeat, yesterday urged Taiwan to remain wary of its neighbor. He has argued that Taiwan's investments in China already are too high and that greater integration threatens the island's sovereignty.

``China shows no signs that it will ease its military threats, diplomatic suppression and economic seduction of Taiwan,'' said Chen, 56, who is barred from running again after two terms in office.

About 1 million of Taiwan's 23 million citizens live in China, and companies like Taiwan Semiconductor Manufacturing Co. and Cathay Financial Holding Co. have invested a total of $150 billion in the mainland, the island's biggest export market.

Taiwan has restricted direct shipping, air and postal links with the mainland since the KMT retreated to Taiwan in 1949 after losing China's civil war to the Communist Party. Taiwanese going to the mainland are forced to travel via other ports such as Hong Kong or Macau.

Ma's Pledges

Ma, 57, has pledged to allow direct links, to reach a peace agreement, and to ease a ban on Taiwanese companies investing more than 40 percent of their assets in China.

His lead over Hsieh widened to 42 percentage points in an opinion poll after Saturday's vote, the Taipei-based, Chinese- language newspaper United Daily News reported today.

Analysts cautioned that Ma's victory isn't assured.

``The KMT has an amazing ability to screw things up,'' said Emile Sheng, a political science professor at Taipei's Soochow University. ``This legislative election is not a vote for the KMT, but against Chen Shui-bian's style and personality.''

Chen, who campaigned on an anti-corruption platform in 2000, has been accused by prosecutors of misusing funds and escaped prosecution because of presidential immunity.

Economic Handling

Ma has faulted Chen for his handling of the economy. A slowdown after Chen took office helped South Korea overtake Taiwan on an economic-output-per-person basis in 2006.

``Many voters feel the DPP has simply lost its way,'' said the University of Michigan's Lieberthal. ``It can't stand up against corruption, it can't guarantee prosperity, and in the view of some number of people, it has taken actions adversely affecting Taiwan's future security.''

The KMT retained control of parliament after losing the presidency to Chen, leading to gridlock and delays in enacting laws, including last year's budget.

``This is the beginning of our responsibility,'' Ma said Saturday. ``We must use this victory as the biggest tool to help win the presidential election.''

To contact the reporters on this story: James Peng in Taipei at jpeng7@bloomberg.net; Ken Fireman in Washington at kfireman1@bloomberg.net

Last Updated: January 14, 2008 02:24 EST