March 17 (Bloomberg) -- Ma Ying-jeou's likely election as Taiwan's president on March 22 is raising expectations of a rapid end to military tensions and economic restrictions with mainland China. They may be misplaced.

While Ma has made clear that he wants to be more conciliatory than President Chen Shui-bian, he'll be constrained by voters' desire for incremental rather than wholesale change, and by China's military buildup near Taiwan, says Andrew Yang, secretary-general of the Taipei-based Council of Advanced Policy Studies.

``We shouldn't have over-expectations,'' says Yang, a former adviser to Taiwan's government. ``Any opening will be gradual, and unlikely to be achieved quickly in one big step.''

Ma, 57, the candidate of the opposition Kuomintang party, led Democratic Progressive Party nominee Frank Hsieh, 61, by 30 percentage points in a March 9 survey by the Taipei-based United Daily News. Taiwan forbids publication of polls conducted in the 10 days before an election.

Investors and business leaders are champing at the bit for a Ma presidency. In the Chinese city of Xiamen, ``businessmen are very excited for a likely Ma victory, preparing to grab any business opportunity,'' says Liu Bih-rong, a political scientist at Taipei's Soochow University who recently visited Xiamen, directly across from Taiwan.

Share Prices

Share prices of many Taiwan-based companies have risen since Ma's party won a landslide victory in parliamentary elections on Jan. 12. Taiwan's Taiex index gained 7.4 percent in dollar terms since the election, compared with a loss of 10.4 percent for the MSCI Asia Pacific Index.

Some improvement in China-Taiwan relations is all but certain when the new president takes office May 20, because Ma and Hsieh have both distanced themselves from Chen's policies of pressing for independence and limiting economic ties to the mainland. China considers Taiwan a breakaway province and condemned Chen, 57, throughout his eight years in office.

``I think under my presidency, there will be peace and prosperity across the Taiwan Strait instead of confrontation and tension,'' Ma said in an interview on March 14.

Ma is interested in ``reducing the chances of military conflict and enhancing economic opportunities,'' says Kenneth Lieberthal, a White House National Security Council aide under President Bill Clinton.

Pushing for independence ``is not on his agenda,'' and Chinese President Hu Jintao and other mainland leaders see Ma's ascension as ``an opportunity to reset the relationship,'' says Lieberthal, now a professor at the University of Michigan in Ann Arbor.

But rapprochement is still a long way off, analysts say.

`Slow and Gradual'

``It will be a slow and gradual process,'' says Tony Phoo, an economist at Standard Chartered Bank in Taipei. ``Though he advocates allowing more investments between the countries, Ma will still insist on protecting Taiwan's interests.'' Among Ma's goals will be protecting Taiwanese jobs and businesses from cheaper Chinese labor and products, Phoo adds.

Politically, many Taiwanese voters -- not just those who back Chen and his party -- want Taiwan to maintain its ``distinct separateness'' from China and ``have its rightful place in international relations,'' says Cynthia Watson, a China specialist at the National Defense University in Washington. ``Some outside Taiwan have a tendency to think this is just a Chen phenomenon, which it isn't.''

UN Membership

Elements in both parties support applying to join the United Nations; there are two referendums on the March 22 ballot asking voters whether Taiwan should do so. One, backed by Chen, asks if it should apply under the name ``Taiwan.'' A competing KMT proposal doesn't specify the name. While China would consider such an application to be a provocative move toward independence, neither question had enough support to pass in a United Daily News poll this month.

``A lot of people are looking at these elections and thinking that as long as Chen's no longer in office, everything is almost solved,'' Watson says. ``I don't think that's right at all. Taiwan is a much more complicated political canvas than that.''

In an illustration of how touchy relations with China are with Taiwanese voters, Ma has ruled out government-to-government talks. ``Because of the sensitivity of cross-strait relations, I think both sides want to avoid direct contact between officials,'' he said in the March 14 interview.

To maintain public support, a Ma government will have to persuade voters that the KMT has overcome its legacy of authoritarianism and corruption. The island became the last redoubt of the party and its leader, Chiang Kai-shek, after the Communists evicted them from the mainland in 1949. During its rule, which lasted until 2000, the KMT was accused of graft involving its corporate investments and government contracts.

Apologies

Ma has vowed to fight corruption if he is elected, and has made yearly apologies for the ``Feb. 28 incident,'' a slaughter of Taiwanese locals by the newly arrived KMT government in 1947.

Efforts to reduce military tensions are likely to be even more difficult than those to increase economic ties. Though China isn't threatening to force immediate unification through coercive means, bringing Taiwan under its control remains a top priority, and Chinese leaders don't rule out an invasion to achieve that aim or to counter overt moves toward independence.

China has increased its deployment of missiles, warplanes and other weaponry in the Taiwan Strait area in recent years, giving it a growing advantage in firepower over Taiwan, the U.S. Defense Department said in a report released March 3.

The U.S. is committed by law to take ``appropriate action'' in the event of a threat to Taiwan, and President George W. Bush said in 2001 that the U.S. would do ``whatever it took to help Taiwan defend herself.'' The Bush administration has also urged the island to boost its own defenses; Chen's government has increased defense spending each year since 2005 after several years of decline, the Pentagon report said.

Defense Spending

Ma vowed to increase the defense budget to more than 3 percent of gross domestic product, up from 2.85 percent last year. He also has promised to press the U.S. to approve its request to buy more F-16 C/D fighter jets from Bethesda, Maryland-based Lockheed Martin Corp.

In the March 14 interview, Ma said he hopes to forge a peace agreement with China -- negotiated through third parties - - while conditioning any such talks on China removing the missiles it has aimed at Taiwan.

``We don't want to negotiate with 1,000 missiles targeted against us,'' he said.

Wary Approach

Lieberthal says Ma is likely to approach security negotiations warily, given that any agreement by China to reduce military forces near the island could be reversed easily.

``If you read him as thinking he'll agree to everything the mainland wants, you're not reading him very carefully,'' he says. ``Both sides have affirmed their desire to effectively address these issues. That's enormously important in itself. But we all need to be realistic. We are not going to wake up on June 1 and find that all security issues have been resolved.''

On the economic front, Ma said in the interview that he hopes to establish direct air links between Taiwan and China within months and set new rules allowing Taiwan-based companies to invest a greater proportion of their assets in China within a year.

He said he eventually wants to allow more investments by Chinese companies in Taiwan. ``We won't exclude that possibility, but that has to await a careful examination of the industries,'' he said.

Limited Investment

Taiwan now allows only limited mainland investments in real estate and none in its businesses.

Chen has sought to limit Taiwan's dependence on China, which is increasing its purchases of Taiwanese goods. Exports to China and Hong Kong combined rose 31.5 percent last month from a year earlier, as exports to the U.S. dropped 8.5 percent, Taiwan's Finance Ministry reported on March 7.

Taiwan's gross domestic product grew 5.7 percent last year, slower than China's 11.4 percent, Singapore's 7.7 percent, Indonesia's 6.3 percent and Malaysia's 6.2 percent, according to data from the island's statistics bureau.

``Over the years, I've seen Taiwan missing opportunities one by one,'' says Justin Lin Yifu, incoming chief economist at the World Bank. Measured by per capita gross national product, ``Taiwan's economy used to be ahead of South Korea among the tiger economies of Asia. South Korea overtook Taiwan two years ago because it aggressively took advantage of mainland China's economic growth, and grew along with China.''

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

Last Updated: March 16, 2008 12:38 EDT