On 17 January, Tsai Ing-wen of the opposition Democratic Progressive Party (DPP) was elected as Taiwan’s first female president. Her victory was no surprise. She had consistently led her rival, Eric Chu of the ruling Kuomintang Party (KMT), by a large margin in opinion polls. Incumbent president Ma Ying-jeou had become unpopular, partly due to a flagging economy, but also because of his close relationship with mainland China (PRC), a country which younger voters in particular view with caution. Tsai offered new hope for economic regeneration and a more balanced approach to relations with the mainland.
Tsai’s mandate is impressive. She won 56% of the popular vote, almost twice as much as Eric Chu, while the DPP also took control of the legislature with 68 seats (against 35 for the KMT). Expectations are correspondingly high that the DPP administration will tackle Taiwan’s economic problems (low growth, stagnant wages, and declining exports) and address key social issues, including the growing gap between rich and poor, and LGBT rights.
On paper, Tsai is well qualified to accomplish these objectives. She has a substantial academic background, including a PhD in law from the London School of Economics and Political Science, plus a strong track record in government, having served as: a senior negotiator on Taiwan’s entry into the World Trade Organisation (WTO); national security adviser; and head of the Mainland Affairs Council, which handles relations with China. She is seen as an experienced, capable and persuasive technocrat, and a tenacious negotiator.
However, her talents as a politician are less well tested. Despite seeing herself somewhat in the mould of Margaret Thatcher (and she is an admirer of Angela Merkel), Tsai has little experience in politics. When she takes office in May she will find it challenging to balance conflicting political interests.
One of the biggest challenges is how to manage relations with mainland China (cross-strait relations). The PRC still regards Taiwan as a province of China and is deeply opposed to any indication, however slight, that Taiwan might be moving towards declaring independence. In fact, the PRC has said publicly that it would take all measures at its disposal to prevent such an action.
Taiwan is a vibrant modern democracy with a highly developed economy and an increasing sense of its own identity, however, it has consistently adopted a cautious line on the question of independence in order not to provoke its powerful neighbour. The peaceful status quo with the mainland has been built on the 1992 consensus of “One China, Respective Interpretations”. But the DPP has never accepted that such a consensus exists, insisting that Taiwan is an independent sovereign country.
Tsai herself has adopted a more nuanced approach in her public statements but she is regarded with suspicion by Beijing, which has sent veiled warnings to her not to challenge the status quo. For example, the first China/Taiwan summit for 60 years was held in Singapore in December 2015 between President Xi Jing Ping and President Ma Ying-jeou. The clear message to Taiwan was that the mainland is open to good relations if the Taiwanese play their part.
Tsai has said that she is keen to maintain peaceful and stable relations. But she will need to keep her supporters on board by emphasising Taiwan’s sovereignty and separate identity. Following her election, Tsai made clear that she intended to do this. Beijing replied with a warning that Taiwan should not push for independence, saying that such a move would be “poison” and that the mainland’s “attitude is unswerving on the principal matter of safeguarding national sovereignty and territorial integrity”.
Tsai Ing-wen knows that good relations with the PRC are essential to re-invigorate the Taiwanese economy, as trade and investment between the two has grown substantially over the past 10 years. But as the events which split the island off from the mainland in 1949 recede into the distant past, the Taiwanese are beginning to see themselves as increasingly distinct. Whereas in 1992 a quarter of the population regarded themselves as Chinese, today that figure is only 3.5 percent. Conversely, only 17.6 percent identified themselves as Taiwanese in 1992 but today nearly two-thirds do so. This trend is certain to continue, putting an increasing strain on cross strait relations with potentially serious consequences for peace in the region. The Chinese would take military action on the threat of Taiwanese independence.
Despite their differences, China and Taiwan find themselves in close agreement in the South China Sea (SCS), where their sovereignty claims are identical, based as they are on territory claimed by the former Republic of China before Taiwan and the mainland split. This is awkward for Taiwan because, although it shares China’s interpretation of sovereignty, it believes that China’s way of asserting its claim is aggressive and a threat to regional stability.
In 2009 China submitted a map to the UN with a nine dash line stretching over most of the SCS, an area of 1.4 million square miles. While the status of the line remains vague, and indeed the Chinese themselves have given different interpretations as to what it actually means, its purpose is clearly to send a strong signal to other claimants in the region that the territory encompassed by the line belongs to China.
To back this up, the Chinese have recently engaged in a massive building programme to extend artificially a number of atolls and rocks under their control in order to support military and commercial activities, an undertaking dubbed by some as the “Great Wall of Sand”. This behaviour has unsurprisingly irked the smaller littoral states, all of whom have claims and overlapping counter-claims of their own. Vietnam and the Philippines, but also other states in the region, have increasingly turned for support to the US, in whom they have found a willing ally, and more recently to Japan, where legislative changes in 2015 have paved the way for the Japanese to take a more pro-active security stance in the region.
The SCS is of vital strategic importance for a number of reasons. It is one of the world’s busiest sea lanes, with more than 50 percent of global oil tankers passing through it (of particular concern to Japan given its dependence on imported oil after the suspension of its nuclear power programme following the Fukushima disaster). Half of the world’s largest ports are situated around its coast. Freedom of navigation is essential for the continued growth of the region.
Natural resources, in particular oil and gas, are also a focus of attention. While there is no consensus on the amount of actual recoverable reserves, friction and even armed incidents have been a constant occurrence as China (mainly but not only) seeks to assert its rights to exploration and exploitation. In some ways, fisheries are an even more important cause of contention as depleted fish stocks drive local fishermen further into disputed waters.
But the greatest strategic challenge lies in managing the balance between growing Chinese power and strategic ambition on the one hand and the established US military presence on the other. China’s perception of the SCS challenges the status quo and threatens to destabilise the region.
Tensions are likely to escalate in 2016; the arbitral tribunal at the Permanent Court of Arbitration in The Hague is expected to deliver its ruling on a case brought by the Philippines challenging the validity of China’s nine dash line. The case also asks for a ruling on whether eight disputed features occupied by China qualify as low tide elevations, rocks or islands according to the definitions laid down in the UN Law of the Sea Convention (UNCLOS). The definitions are important as they determine the maritime entitlements each feature generates, ie 12 mile territorial waters or 200 mile Exclusive Economic Zone (EEZ).
The ruling will be final and legally binding. However, despite being a signatory to the Convention, China has refused to recognise the proceedings and will certainly ignore them if, as expected, the ruling goes against them. While nothing is likely to deter China from continuing its attempts to control the SCS, a clear rejection of its claim by an international court will put diplomatic pressure on Beijing and embolden the smaller states to push their claims more actively. More frequent incidents can be expected.
While such tensions over territory continue, there can be little incentive for international oil and gas companies to invest in exploration in the SCS, particularly with the oil price at its current level. Immediate business opportunities in the SCS will therefore remain limited. However, on a different level the SCS should remain on corporate radar screens, as heightened tension in the region could have serious global economic implications at a time when China’s growth is already declining more rapidly than many had predicted. In a worst case scenario, an armed clash, possibly involving the US, cannot be ruled out.
However, if Taiwan can maintain stable relations with China under the new Tsai administration and the economy regains its former vigour, Taiwan may offer investors opportunities. These will be particularly in services and consumer goods (the average Taiwanese person has more disposable income than their Japanese counterpart), and as a gateway to China where more than 80,000 Taiwanese companies are operating.