Taiwan's 2024 Elections: Balancing Geopolitical Realities and Economic Pragmatism

Introduction

Taiwan is holding presidential and legislative elections on January 13th. With three pairs of candidates vying for the presidency for the next four years starting in May, the elections not only decide the presidency but also concurrently determine the composition of the Legislative Yuan, Taiwan's unicameral legislature. In this short overview, we look into the candidates, the latest poll results, and the potential implications on the markets.

Elections on the Horizon

As voters prepare to flock to polling stations, they are armed with the ability to cast three votes. The primary choice is for the President and Vice President, with three pairs of candidates in the fray. The Democratic Progressive Party (DPP) fields Lai Ching-te and Hsiao Bi-Khim, the Kuomintang (KMT) presents Hou Yu-ih and Jaw Shau-kong, and the Taiwan People’s Party (TPP), formed in 2019, puts forward Ko Wen-je and Wu Hsin-ying.

The presidential election adopts a "first-past-the-post" system, wherein the pair securing the highest number of votes claims victory. There is no runoff election. Along with the Presidential election, the 113-seat Legislative Yuan – the unicameral legislature in Taiwan, is also holding an election at the same time. Voters can cast two ballots for the Legislative Yuan. One ballot is for picking one legislator from candidates in the voter’s electoral district. There are 73 district seats. For aboriginal communities, a voter can cast a ballot for the six seats reserved for indigenous legislators. A voter can then cast his or her third ballot to vote for a party to fill one of the remaining 34 seats at the legislature by party-list proportional representation.

Latest Poll Results

As anticipation builds, the latest poll results paint a dynamic picture of the electoral landscape. Lai and Hsiao of the DPP lead, with 33% to 39% of people surveyed choosing the pair as their next President and Vice-president. Trailing behind, Hou and Jaw of the KMT gather support in the range of 28% to 36%, while Ko and Wu of the TPP secure 15% to 25%, with variations across different polling agencies. The competition is fierce, and the fluidity of the results keeps the political atmosphere charged. Moreover, the DPP may not be able to retain its majority in the Legislative Yuan. If that happens, the power of a DPP presidency will be somewhat constrained by a KMT-controlled legislature.

Cross-Strait Relations and Economic Strategies

While the electoral discourse often emphasizes the potential ramifications on cross-Strait relations and the economic dynamics, it is crucial to dissect the nuanced positions of the candidates. The divergent stances on the 1992 Consensus, a framework crucial to mainland China, do not necessarily imply seismic shifts in the medium-term trajectories of relations. Lai's rejection of the Consensus is balanced by his commitment to the status quo, as is the case with Ko, who is more fluid about the Consensus but explicitly leans towards dialogue with Beijing. Hou supports the 1992 Consensus under the principle of no unification, no independence, or force and advocates more dialogue with Beijing.

In the economic realm, all candidates emphasize the need for increased supply chain resilience, acknowledging the risks associated with over-dependency on mainland China. Lai and the DPP, however, adopt a more aggressive strategy, advocating for diversification of trade and investment away from mainland China. This includes pursuing bilateral trade agreements and incentivizing Taiwanese businesses to relocate to Southeast Asian Nations (ASEAN, particularly Vietnam), South Asia (mainly India), Australia, and New Zealand under the DPP’s New Southbound Policy. Domestically, Lai has a more progressive orientation among the three pairs of candidates, advocating for labor rights, social welfare, decommissioning of nuclear plants, and taking a more progressive stance on other key social issues.

Ko, while sharing concerns about economic dependency on China, leans towards promoting trade liberalization rather than forging official bilateral agreements. In energy policy, Ko supports keeping nuclear plants in operation.

Acknowledging the risk of overly depending on the mainland, Hou of the KMT is more inclined towards enhancing economic ties with mainland China, favoring the revision of talks on the Cross-Strait Trade Agreement. His approach aligns with sustaining export-led growth and retaining closer economic relations with mainland China. Domestically, Hou opposes the phase-out of nuclear power and has a more conservative stance on social issues.

Investment Implications

As Taiwan stands on the precipice of its presidential and legislative elections, the multifaceted dynamics of the political landscape come to the fore. While the potential implications on cross-Strait relations and the investment environment are a focal point of discussions, the nuanced positions of the candidates suggest a more measured impact than sensational narratives may convey. The status quo, it seems, will likely be maintained irrespective of the election outcome. Moreover, the economic policies of the contenders reveal a shared acknowledgment of the need for supply chain resilience, albeit with varying degrees of emphasis on diversification away from mainland China.

As the world watches Taiwan's elections unfold, the market reactions to the election results are anticipated to be subdued and short-lived. Regardless of the winning pair, the candidates' measured approaches suggest that Taiwan will continue to navigate its complex geopolitical landscape with pragmatism.