Ma Balances Taiwan’s Concerns About Autonomy While Backing Ties With China

Taiwan President Ma Ying-jeou was re-elected emphasizing his success easing tensions with China. Now comes the hard part: building on those gains in his final four-year term without diluting the island’s autonomy.

After signing economic deals in his first term, Ma will face more difficult issues such as China’s military buildup and Taiwan’s political status with the mainland, which claims sovereignty over the island, said Abe Denmark, a former China desk officer at the U.S. Defense Department.

“There is some concern that the progress between the mainland and Taiwan has been low-hanging fruit,” said Denmark, now with the Washington-based National Bureau of Asian Research. Addressing the military buildup and Taiwan’s status “will be harder for both Taiwan and Beijing.”

Continued success in building links with the mainland keeps the relationship from infecting ties between the U.S. and China, the world’s two biggest economies, and may bolster financial markets as improved relations draw investors. Ma must balance that progress against concerns voiced by the Taiwanese opposition that many of the island’s 23 million people don’t want cooperation with the mainland to infringe on their sovereignty and economy.

Challenge Not Lost

The challenge is not lost on Ma, who told reporters after his rain-soaked Jan. 14 victory speech that he would learn from criticisms leveled by Tsai Ing-wen, the Democratic Progressive Party leader who won more than 45 percent of the vote, that he was moving too fast in seeking closer ties with China. Ma won with 51.6 percent of the vote.

While noting that people “obviously” approve of his cross-strait policy, “that doesn’t mean that I will go even faster,” Ma said. “I will control the pace to make sure people can support it.”

The Democratic Progressive Party accepted Tsai’s resignation today, party spokeswoman Hsu Chia-ching said. Tsai will step down effective March 1, and the party will elect a new leader in May, Hsu said.

Ma’s Kuomintang Party ended a six-decade ban on direct transport links with China after he was elected in 2008, and forged trade and transport agreements with the mainland that boosted two-way trade to $160 billion last year, a 10 percent increase from 2010, according to Chinese customs statistics.

The next four years could see new tariff concessions by the two countries, more free trade agreements between Taiwan and other nations, more Chinese investment in infrastructure, and fewer restrictions on visits by Chinese citizens to Taiwan, Goldman Sachs Group Inc. analyst Shirla Sum wrote in a research note today.

Taiex Performance

The Taiex Index (TWSE), the island’s benchmark stock gauge, fell 1.1 percent to 7,097.52 as of 11:30 a.m. local time on Monday, amid European debt concerns. Taiwan’s dollar was little changed at NT$30.006 after advancing 0.1 percent, according to Taipei Forex Inc. The yield on 1 percent notes due January 2017, the most-traded securities, fell 1 basis point to 0.961 percent, prices from Gretai Securities Market show.

“In Ma’s second term, we could see not only continuation but probably an acceleration of cross-strait economic links and that will certainly be positive for the market,” Peter Kurz, head of Taiwan research at Citigroup Inc., said by phone yesterday.

Ma’s re-election is conducive to the economic development of the island and China, Justin Lin, the World Bank’s chief economist, said in Beijing. The president’s policies are good for Taiwan and China’s economies, Lin said at a forum, adding that he was “happy” about Ma’s election as the two were classmates.

One China

The agreements Ma engineered were possible because both sides agree there is only one China, with each party differing on the meaning. China’s Taiwan Affairs Office said in a statement issued through the Xinhua News Agency that Ma’s victory shows that the “peaceful development of cross-straits ties” in the last four years was “the correct path.”

The U.S., which wants China’s help in confronting nuclear programs in Iran and North Korea, also wants to ensure ties between Taiwan and the mainland remain conflict-free.

“Cross-strait peace, stability and improved relations, in an environment free from intimidation, are of profound importance to the United States,” the White House said in a statement congratulating Ma on his victory.

Political Limits

Polls in Taiwan show voters believe there are limits to political rapprochement. A poll in April by Taiwan’s Academia Sinica found 66 percent of respondents opposed unification.

“The 45 percent of voters who supported the DPP mostly wanted a leader who truly represents Taiwan’s interests,” said Samson Tu, who helps oversee $1.6 billion of fixed-income securities at Uni-President Assets Management Corp. in Taipei. “Ma will have to be aware of the sensitivity toward sovereignty of his people in the future when dealing with China.”

One source of voters’ concern is the continued Chinese arms buildup across the Taiwan Strait. China had as many as 1,200 short-range missiles deployed opposite Taiwan as of December 2010, according to an annual review by the U.S. Defense Department. Another is China’s autocratic government, criticized by the U.S. and European nations for its human-rights violations, that contrasts with Taiwan’s democracy.

Tsai’s Policy

“Tsai’s loss doesn’t mean Taiwanese people disagree with her policy on China,” 60-year-old caterer and Tsai supporter Lien Mei-Lin said at a rally where the DPP leader conceded defeat. “The KMT has more money, and a better campaign strategy.”

Ma also faced criticism from the opposition that Taiwanese jobs have been lost to the mainland. Manufacturing jobs have declined since reaching a high of 2.97 million in June. In his Jan. 14 victory speech, Ma said he will look to reverse a widening wealth gap.

Economic growth will slow to 4.05 percent this year from 4.5 percent in 2011 and 10.7 percent in 2010, according to economists’ estimates compiled by Bloomberg.

Closer political cooperation also opens the door for greater economic influence for Taiwan. The island’s democracy, combined with increasingly closer ties with China, may give it a creative edge in a regional economy increasingly focused on technology, said Terry Gou, chairman of Apple Inc. supplier Foxconn Technology Group (2317), which employs more than 1 million people in China.

Democratic Transition

“We’re living in a free society compared to Hong Kong, compared to Singapore, compared to China,” Gou, who backed Ma, told reporters yesterday in Taipei. “Taiwan has a good chance. Why? Because Taiwan has very good culture and DNA with China, and this is one of only a few growth markets or growth engines in world economics.”

Both Ma’s Kuomintang and the mainland’s Communists were founded on Leninist principles and have historical links to Republic of China and KMT founder Sun Yat-Sen. The KMT in Taiwan transitioned from authoritarianism to democracy, with the first free presidential elections taking place in 1996.

While Beijing may expect Ma to move more quickly on closer ties, he will also need to spend time implementing policies already agreed to in his first term, Charles Morrison, president of the East-West Center, said in an interview with Bloomberg Television today.

“There may be expectations in Beijing now that he has won his second term, that he will be able to move faster on cross- strait relations than he has -- that probably would be a mistake,” said Morrison, speaking from Kuala Lumpur. “There are lots of things to consolidate right now, China and Taiwan have 550 direct flights a week, so a lot of human movement, the free trade agreement is just now beginning to take effect.”

To contact the reporters on this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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