[Expert Analysis②] Taiwan Choosing Tsai Ing-wen: What Impact Does Cross-Strait Relations Have on the Economy?

[Asia Economy Taipei (Taiwan) = Special Correspondent Sunmi Park] Wang Jianquan, Vice President of the Chung-Hua Institution for Economic Research (CIER), a Taiwanese government think tank, pointed out that the deterioration of cross-strait relations caused by the recent Taiwan presidential election could be the biggest risk factor for Taiwan's economy this year. Although Taiwan's economy showed more robust growth than expected last year due to the trade war between the U.S. and China, he expressed concern that if relations with China worsen further, the losses would outweigh the gains.

In an interview with this publication on the topic of the Taiwan presidential election and the economy, Vice President Wang said, "Last year, export orders shifted to Taiwan to avoid tariffs amid the U.S.-China trade war, significantly promoting investment by Taiwanese companies. The government also actively pursued public sector infrastructure investment in line with this trend." He explained, "The growth rates of fixed asset investment and private investment were 2.95% and 2.25% respectively in 2018, but surged to 7.58% and 7.36% in 2019, which contributed to the relatively steady economic growth rate (2.54% last year, as expected)."

He asserted, "Taiwan's economy this year will not be worse than last year and will remain at a similar level." However, he expressed concern that if President Tsai's re-elected administration adopts a tougher stance toward China, the deteriorated cross-strait relations could definitely impact the economy. He emphasized that boosting growth through infrastructure and corporate facility investments, as seen last year, is a temporary and short-term effect lasting only one to two years.

Wang identified tourism and agricultural exports as sectors that could suffer concentrated economic damage due to worsening cross-strait relations. He also viewed Taiwan's limited freedom in concluding free trade agreements (FTAs) with other countries as a side effect of deteriorating cross-strait relations. Taiwan's Economic Cooperation Framework Agreement (ECFA), a de facto FTA signed with China in 2010, will expire this year, and if it is not extended due to worsening relations, Taiwanese companies could be directly hit.

Vice President Wang noted that exchanges and cooperation between the economic and industrial sectors have already weakened considerably, and further deterioration in cross-strait relations could weaken the economic ties between Taiwan and China. He said, "In 2018, I participated in four to five forums and cooperative research projects held in China, but last year I went only once. Other research institutes are in the same situation. The reduction in exchanges and cooperation means there is a high possibility that Taiwan and China will become economically more distant in the future."

Although cross-strait relations are drifting apart, it may seem that Taiwan has a strong supporter in the United States, but Wang diagnosed that the U.S. is insufficient to fill the gap left by China in Taiwan's economy. He said, "Close ties with the U.S. have a positive impact on Taiwan's security, but economically, Taiwan is more dependent on China than on the U.S."

Accordingly, he believes that the Tsai administration's economic policy direction may be adjusted to minimize the side effects caused by worsening cross-strait relations.

He predicted that President Tsai, who was re-elected, might expand the New Southbound Policy and public infrastructure investment to prepare for reducing China's influence. He also mentioned the possibility of actively fostering new industries such as green energy, the Internet of Things, and smart machinery to create new economic benefits.

He viewed the fact that President Tsai failed to create economically equitable "wealth" during her previous four years in office as an issue that could be improved during this term.

He advised, "Although Taiwan's economy will improve numerically this year as it did last year, the fact that ordinary citizens do not feel this improvement is something the current government should consider. Since President Tsai received particularly strong support from the younger generation in this election, we should also keep in mind the possibility of a flood of policies supporting startups and entrepreneurship."

Since Taiwan places importance on strengthening relations with neighboring countries due to its awareness of China, he also recommended that neighboring countries such as South Korea and Japan take this opportunity to promote cooperation with Taiwanese companies. He said, "If cross-strait relations worsen in the future, many opportunities could go to Taiwan's neighboring countries. In the case of South Korean companies, although they have often been competitors with Taiwan in sectors like semiconductors, finding areas for cooperation could help them compete against Chinese companies armed with huge capital and markets."

This content was produced with the assistance of AI translation services.