Concerns of potential political turbulence in the region have heightened due to China’s dissatisfaction with Taiwan’s recent elections. Our view is that this risk should not be overstated.
While China may exert somewhat more pressure on Taiwan, the resulting frictions are likely to be episodic and mostly in line with China’s past approach. Over time, it is more likely that the main political actors on both sides of the Taiwan Strait will start to rethink their strategies, given the results, giving rise to new political dynamics and a better risk profile in the region.
The Taiwan issue stokes strong emotions on each side, making it potentially explosive. The fundamental problem is that China sees Taiwan as an integral part of the Chinese mainland, while most Taiwanese do not want to be part of China.
In a way, it is like Germany and Austria. Given their shared language and culture, if a poll had been taken at the end of the First World War, most Austrians would probably have voted to join Germany. But after many decades of being apart, Austrians have developed their own national identity and are determined to be a separate nation even though they share language and culture with Germany.
Similarly, for decades, Czechs and Slovaks were satisfied to be part of a single country — Czechoslovakia — because of their language and cultural similarities. But in 1993, they chose their own ways and became two different countries.
Times change, and people’s views and nationalist aspirations change as well. When political structures do not accommodate these shifts, tensions grow — which is the problem in Taiwan.
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For China’s leaders, Taiwan’s return to the mainland is non-negotiable. Taiwan is the final issue to be resolved out of the century of humiliation that China suffered after the middle of the 19th century when it was torn apart by foreign interventions such as Japan’s takeover of Taiwan in 1895. For President Xi Jinping, the Taiwan issue seems to have particular resonance, which is why he has set China the goal of ensuring the reunification of Taiwan with the mainland within a reasonable period.
But, if countless surveys taken over the years are to be believed, the Taiwanese people think differently. In the early days of the surveys conducted by the Election Study Centre of Taiwan’s National Chengchi University, roughly half of those polled felt both Taiwanese and Chinese, and just a quarter reflected a distinct Taiwanese identity.
However, since the mid-2000s, Taiwanese identity has changed quite dramatically. Around two-thirds of the people surveyed see themselves as uniquely Taiwanese, while only 30% identify as Chinese and Taiwanese. A poll by the World United Formosans for Independence shows 44.3% saying that they want to “forever maintain the status quo,” while 35.8% supported “maintaining the status quo while working toward independence.”
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Taiwan’s main political parties represent these different strands in Taiwan politics — the ruling Democratic People’s Party (DPP) leans towards independence, the Kuomintang (KMT) favours closer integration with the mainland, and the Taiwan People’s Party (TPP) takes a middle course.
Big powers such as the US and Japan also have a stake in Taiwan, which is a second reason the Taiwan issue could lead to a serious conflict. Although the US initially considered recognising the People’s Republic of China (PRC), it changed tack after 1950, when the Korean War led to bloody clashes between Chinese and American troops, and the Cold War turned bitter.
Under the KMT, Taiwan became an essential bulwark in the US efforts to contain China. This did not change even when the US cooled on Taiwan and switched its recognition to China in 1979. At that time, Congress passed the Taiwan Relations Act, committing the US to protect Taiwan to a certain extent, something China was prepared to live with at that time.
With the US and China engaged in a bitter contest for dominance in the western Pacific, the US again sees Taiwan as vital to its security, while China views this continued support as a hostile act against it. Similarly, Japan’s suspicions of an increasingly powerful and threatening China incline it to see Taiwan as crucial to its security. It is unlikely that the US and Japan will stand aside if Taiwan were to come under attack from China.
What difference does the January election make?
Last week’s election results reflect an evolving political dynamic within Taiwan and its relations with China. The big takeaway is that voting trends do not augur well for China’s desire to win Taiwan over to its side, but neither will they be of comfort to the DPP or the KMT, the main political parties in Taiwan. China needs a new strategy towards Taiwan, while the major Taiwanese parties must also rethink the way forward. Whether and how these adjustments in strategies emerge will determine Taiwan’s future.
China probably was not surprised that William Lai of the DPP, whom Beijing detests for his past support for independence, won the presidential election. But Beijing cannot take too much comfort from Lai’s 40.1% of the vote, which is sharply down from the 57.1% landslide that current President Tsai Ing-wen won in 2020. Lai did not do too badly, considering that Tsai’s 2020 majority was boosted by Taiwanese voters’ aversion to China’s crackdown on Hong Kong and given that Lai faced two credible rivals in a three-horse race.
China has the consolation that Lai’s Democratic People’s Party (DPP) lost its majority in the 113-seat Legislative Yuan, where it fell one seat short of the KMT’s 52 seats, with neither commanding a majority.
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But the DPP raised its share of the legislative election vote over 2020 and won a larger vote share than the KMT, despite voter dissatisfaction with the DPP’s management of the economy and failure to deliver on bread and butter issues. This indicates that a significant proportion of Taiwanese favour the firm stance versus China that the DPP takes, nothing to provoke China but quietly building up Taiwan’s defences and its alliance with the US and others.
The voting patterns also show that the KMT, in which Beijing placed its hopes, is struggling to remain relevant. It relies mainly on support from older voters and does not appear to be gaining traction with younger voters. For the KMT to regain voter enthusiasm, it will need to induct a new generation of more youthful leaders while making its approach to China more in sync with the growing sense of Taiwan identity among voters. But that would diminish the KMT’s usefulness to China.
The KMT also has to contend with a new force in Taiwan politics — the Taiwan People’s Party (TPP). The TPP downplayed the China issue, criticising the DPP’s assertive stance towards China without fully embracing the KMT’s inclination to get close to China. Focusing on economic issues rather than cross-strait divisions struck a chord with Taiwanese voters, especially younger ones.
What will China do now?
Given these factors and Chinese President Xi’s emphasis on Taiwan’s unification as a historical inevitability, it seems unlikely that China will tone down its assertive stance towards Taiwan just yet. In the short term, seeing more military, economic and diplomatic coercion from China will not surprise us. It could conduct manoeuvres around the island in the coming months and continue deploying fighter jets, reconnaissance drones, and naval ships close to Taiwan’s air and maritime space.
In addition, we should expect China to signal to Taiwan that it could step up economic pressures. China’s reimposition of tariffs on various Taiwanese imports covered by the Economic Cooperation Framework Agreement (ECFA), a cross-strait free trade agreement, hints at things to come. It is possible that China might even scrap the ECFA.
In exerting pressure on Taiwan’s new president, China will be careful not to go too far. Its domestic economic troubles and the recent revelations of corruption in the Chinese military, which undermined the effectiveness of its strategic missile forces, suggest that China is far from being in a position to risk a clash with the US. President Xi will want to maintain the momentum of recent improvements in US-China relations.
Even as China may ramp up pressure on Taiwan in the short term, we think China will reconsider its strategy towards Taiwan over time, given all the abovementioned trends. Note the relatively dovish comments from Wang Huning, the fourth-ranking leader in the Chinese Communist Party, who is in charge of Taiwan policy. He has emphasised business and people-to-people ties, indicating a more restrained approach. This is a hint that Wang might be exploring ways to better appeal to Taiwan.
China may want to prepare the ground for the opportunities that could arise if the more transactional Donald Trump were to win the American presidential elections in November. Trump’s past criticism of Taiwan and his questioning of the benefits of defending it could lead Xi to think that Taiwan could become more accommodating to Beijing if the prospects of US support are diminished.
How will the new Taiwanese president act?
William Lai will likely adopt a cautious approach to relations with China while focusing on domestic issues. After all, there is no reason for him to upset the current status quo under which Taiwan is effectively independent and key allies such as the US and Japan are quietly helping to beef up Taiwan’s defences. Moreover, as argued above, China will be preoccupied with its domestic issues and is unlikely to go beyond some additional military and economic measures to show its displeasure over the election.
But the main factor is domestic. Lai knows that to secure the DPP’s future against a rising TPP that is capturing the imagination of young voters, he has to ensure that the DPP delivers a material improvement in job prospects, real incomes, and housing affordability. In other words, he will have to re-orient the DPP from its roots as an advocate of Taiwanese identity towards bread-and-butter issues.
As his DPP has lost its majority in the Legislative Yuan, he will have to cut deals with the TPP or the KMT. Their cooperation will not be forthcoming if he is provocative towards China. When looking at the domestic platforms of the main political parties, there is not much fundamental difference, except perhaps over nuclear power, which the DPP opposes.
This broad consensus suggests that, if he is skilful in managing relations with his political opponents, he will be able to push through programmes in the Legislative Yuan that could improve housing supply, raise minimum wages, pro-natal policies such as higher subsidies for families with young children and expectant mothers, and continued diversification of the economy through a more activist industrial policy.
Cautious optimism
China might ramp up pressure on Taiwan to signal President-elect Lai and the US that they should be careful about China’s red lines. Over time, China will likely refine its strategy towards Taiwan, while Taiwan’s new presidential administration will want to focus on improving the economy.
The Taiwan issue will not go away as a potential flashpoint, but in this scenario, apart from occasional bouts of concern, the major risks around Taiwan can be contained in the next few years.
Manu Bhaskaran is CEO of Centennial Asia Advisors
