If you visit the southern city of Kaohsiung in Taiwan, you will be recommended to visit this tourist attraction. Known as the “Dome of Light”, it is a coloured glass construction in the Formosa Boulevard Mass Rapid Transit (MRT) station.
The station was originally called Jhongsang Road. It was remodelled for the 2009 World Games, when the Dome of Light was also commissioned. The then-president, Chen Sui-Bian, changed the station's name. Chen was the first elected president of the Democratic Progressive Party (DPP). He changed the station's name to commemorate the Formosa Incident (also known as the Kaohsiung incident).
A group of opposition politicians staged a pro-democracy protest on 10 December 1979, which the ruling Kuomintang (KMT) government did not approve. They were arrested. And Chen was one of their defence lawyers. The incident was often recognised as a turning point in Taiwan's political history and a launch pad for the DPP.
Fast forward to now; the DPP has won the presidential election three times in a row. The DPP disagreed with KMT’s traditional view that Taiwan is part of China. Chinese authorities see the DPP as a pro-independence party. President Xi warned in his New Year address that further movement for Taiwan's independence would not be tolerated. With the DPP winning again, political commentators are busy figuring out what China may do – which could have repercussions for Asian markets.
But the election results this time reflect more than such a simplistic conclusion, though it fits the rhetoric of the Chinese government.
I was in Taiwan recently to meet some friends. Compared to what I saw in the UK, many people in Taiwan were far more excited about the presidential and legislative elections. One friend delayed her travel for the election. Asking them why they were so passionate about the election, the answer was more than just about China or unification. It was about the life of people in Taiwan. They recognised, with strong belief, that the democratic process would matter about how Taiwan would be governed, how public money should be spent, and the position of Taiwan in the global theatre.
This probably explains why, while the DPP has won the presidential election, they have not managed to win an overall majority in the parliament. China could take comfort in the fact that the support for the DPP candidate, Lai Ching-Te, fell. Yes, people in Taiwan may want a head that can be assertive against the mainland Chinese government. But at the same time, they recognised that an elected Taiwan government is more than just a political stance. It needs to govern and rule properly. Many people in major cities like Taipei did not vote for DPP as they were unhappy with the lack of prudent economic policies.
Of note is the rise of the “white camp”, the Taiwan’s People Party (TPP) led by Ko Wen-Je. Throughout the campaign, TPP managed to capture support from young people in Taiwan, who were tired or cared less about the politics of Taiwan's independence. As many analysts pointed out, with neither DPP nor TPP gaining a majority in the parliament (52 and 51 seats, respectively, out of a total of 113 seats), the TPP can play an important role. Both big parties need the TPP’s support in voting, which could hamper Lai’s effort in pursuing policies like increased defence spending, how to engage with mainland China, and how public money should be spent.
The market can take comfort that while the Chinese government will continue its strong rhetoric against the DPP and its military pressure against Taiwan, the risk of an invasion has not increased massively. If the Chinese government starts recognising why the people in Taiwan were so keen about this election and plays this card smartly as a party that also cares about Taiwan’s people living standards, it can open up a new way to garner support (at least) for the island to get closer to mainland China.
But the risk has not completely gone away, which could cap potential upside in Taiwanese stocks (and, to a certain extent, Chinese stocks). The real risk is that the DPP will start playing the diplomatic card more strongly, especially with the US. The US may be busy with the conflicts in Ukraine and Gaza, but President Biden may be forced to do something if Xi starts pushing the DPP to a corner about unification. Remember, it is also a presidential election in the US this year. So, in looking at the China-Taiwan relationship, don’t forget the actions and narratives of the US.
James Chu CFA
Head of Investment Solutions