On Sunday, members of the Chinese Nationalist Party's (KMT) legislative caucus referred to a Merrill Lynch report suggesting that markets will react positively if the Democratic Progressive Party (DPP) suffers a big loss in Saturday's elections, and that this would be the only way to force the DPP to seriously consider relaxing cross-strait policy.
This prediction just ahead of an election by a major financial institution has now been used to influence the results.
In response, Merrill Lynch stressed that it has no desire to take sides and that the report does not predict a big win for the KMT. Adding to this line of thought, Financial Supervisory Commission Chairman Kong Jaw-sheng (
Secondly, foreign investors are behind the recent boost to the stock market, as local investors have tended to adopt a more wait-and-see attitude. And Merrill Lynch's increasing investment in Taiwan shows it is confident in the nation's political and economic prospects, contrary to the KMT's interpretation of the report.
Moreover, even if the DPP sustains losses in the elections, it will have relinquished control of local government positions. The loss of several DPP seats might be embarrassing for the party, but the impact will be less than many pundits have claimed.
The main reason the DPP has come under unprecedented pressure prior to these elections is the recent scandals involving former presidential adviser Chen Che-nan (
As for economic reform, President Chen Shui-bian (
The government, facing pressure on the electoral front, has resorted to tackling the economy. With its policy of revitalizing traditional industries, the government is focusing on domestic demand and is placing opening up to China on the back burner. Taiwan's efforts to open up direct transport links have hit a brick wall, given China's refusal to negotiate with the government. Without a change in attitude from Beijing, Taiwan risks putting itself in a humiliating and disadvantageous position if it unilaterally deregulates cross-strait trade.
In addition, Taiwan's bilateral trade with China already accounts for 19 percent of total trade. To blindly push ahead and increase the level of dependence would put even more eggs into the basket. This will increase economic and political risks for Taiwan, which would be dragged down by any political or economic crises that occur in China.
The DPP is unlikely to lift commercial restrictions on China in the wake of the elections, as such a move won't win pan-blue or swing voters over to the party, and may even cost it its grassroots support -- quite apart from selling out Taiwan's future.
The DPP has responded in a restrained manner to the report. The KMT, by contrast, appears to have seized upon a chance to take a cheap shot at its rival.
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