Since President Ma Ying-jeou (馬英九) took office in May last year, financial analysts have shown an alarming tendency to attribute rises on the Taiwanese stock market to “closer relations with China” or the signing of agreements between Taipei and Beijing, while drops on the local bourse have often been blamed on rallies organized by the Democratic Progressive Party (DPP). Those assessments — which are picked up by news wire agencies and newspapers — often ignore macroeconomic variables and regional trends that explain stock fluctuations far better than local political developments.
For example, a modest rise on the Taiwanese stock exchange on July 27 was far more likely to have resulted from global optimism about a financial recovery than the “election” the previous day of Ma as chairman of the Chinese Nationalist Party (KMT). And yet, news agencies — quoting or paraphrasing analysts from global financial institutions, both “local and international,” as a reporter at a major wire agency told me during a telephone interview on July 29 — wrote that the 0.79 percent rise was the result of Ma’s election and a congratulatory missive from Chinese President Hu Jintao (胡錦濤).
That very same day, every market in Asia was up, not because of developments in Taiwan or even warming ties across the Taiwan Strait, but because investor sentiment was turning optimistic, as a number of wire agencies reported.
This begs the question: Why are financial analysts and news agencies attributing fluctuations in the Taiwanese stock exchange on local-specific events rather than general macroeconomic trends?
Part of the answer lies in the general belief that Ma’s KMT is pro-business, while the DPP is against business (ironically, during his second term, former president Lee Teng-hui [李登輝] of the KMT was far more radical in his opposition to cross-strait economic liberalization than former president Chen Shui-bian [陳水扁] of the DPP was during the first two years of his first term). Still, given the DPP’s pro-independence ideology, the perception that the pan-green camp is not “business friendly” — especially on cross-strait investment and integration — is almost universal, which invites the belief that its actions are aimed at derailing efforts to increase cross-strait financial cooperation launched by the Ma administration.
These perceptions alone, however, do not explain why financial analysts would deliberately attribute stock exchange negatives to the DPP and positives to the KMT. Something else must be at play, such as institutional biases or self-interest.
Starting in the mid-1990s, the nature of Taiwanese investment in China changed dramatically after a revaluation of the New Taiwan dollar severely increased the cost of manufacturing domestically, forcing Taiwanese companies to increase their investments abroad. Cultural and linguistic affinities, along with cheap labor and investment incentives, made China a logical choice. Over the years, the size of the Taiwanese companies investing in China also increased dramatically, as did the nature of the products that were manufactured there. In recent years, powerful companies in the electronics and computer sectors, among others, have established a foothold in China.
At least part of the billions of dollars required by those companies to develop business operations in China likely came in the form of loans by financial institutions and other private investors, who have an interest in seeing those investments prosper. Anything that threatens the return on investment — such as tensions in the Taiwan Strait, the threat of embargoes or war — is therefore unwelcome by banks and investors who have a stake in stability.