President Ma Ying-jeou’s (馬英九) pro-China strategy took a harsh thrashing last weekend. In local nine-in-one elections, young voters came out in force to reject Ma’s efforts to develop closer ties with China. The Chinese Nationalist Party (KMT) lost nine of its 15 city mayor and county commissioner positions — and Ma himself lost much of his mandate to promote cross-strait ties in his final two years in office.
The most stinging defeat came in the Taipei mayoral race. Every president since 1996 has been a former Taipei leader.
The victory by Ko Wen-je (柯文哲), backed by the Democratic Progressive Party, was “like US Republicans losing Texas,” Sean King of Park Strategies told Bloomberg News.
The loss was damning enough to prompt Premier Jiang Yi-huah (江宜樺) to resign and pundits to label Ma a lame duck.
“I have received the message sent by the people,” Ma said amid calls to step down from his party’s chairmanship. “Now my responsibility is to propose reforms as soon as possible to respond to the people’s demands.”
What should those changes be? First and most obviously, Ma must recalibrate his China policy. That much should have been clear back in March, when Taiwanese student-led protesters occupied the legislature for almost 23 days to protest Ma’s attempt to enact a service trade pact with China without public debate. Since then, Beijing’s callous handling of Hong Kong’s student-led protests has further soured Taiwanese on the idea of adopting China’s so-called “one country, two systems” framework for “reunification.”
KMT politicians went into the elections saying that their stewardship of the economy — based in large part on greater trade and integration with China — justified their re-election. Yet for all of Ma’s efforts, the nation’s economy has grown an average of 3.3 percent in the five years since the global financial crisis began in 2008, compared with close to 5 percent growth in the previous five. At the same time, wages, adjusted for inflation, fell below 1998 levels last year. Housing prices have surged 82 percent since Ma took office in 2008; so has Taiwan’s income gap.
Clearly, China’s boom has not benefited ordinary Taiwanese as much as Ma claims. They fear that even closer ties with China will hollow out Taiwanese industry and increase the nation’s dependence on Beijing. A trade deal with China is not comparable to the ones Ma negotiated with New Zealand and Singapore. Taiwan would not just be competing with Chinese companies, but Beijing-backed behemoths carrying out the Chinese Communist Party’s agenda, which includes “reunification” by force, if necessary.
Ma needs to diversify Taiwan’s growth engines. Before the elections, he said that the nation risked being left behind, as China signed its own free-trade agreements with nations such as South Korea. In fact, Ma would be wise to spend the next two years emulating South Korean President Park Geun-hye’s efforts to build a more creative economy.
Given the wage disparities between Taiwan and China, there is reason to fear closer ties would actually reduce wages in Taiwan. As per capita income approaches US$40,000, Taiwan must innovate a route to higher standards of living. That means harnessing its financial resources, human capital and rule of law to move up the technology value chain. The nation simply cannot compete with China on price. Its only hope lies in creating the new products, ideas and disruptive business processes that generate new jobs and wealth.
The economy’s strength is a service sector that employs nearly 60 percent of Taiwanese and generates almost 70 percent of GDP. Its backbone is a vibrant ecosystem of small and medium-sized enterprises in the nation’s biggest cities and municipalities and in rural areas. Nurturing their growth, inventiveness and productivity with greater investment, tax incentives and training would pay off more than helping companies like Foxconn Technology Group open more plants in China.
Ma should create new safety nets to protect Taiwanese as China’s scale and low costs encroach on their livelihoods.
There is a role for the West here, too. The US should welcome Taiwan into its Trans-Pacific Partnership. The 12 governments negotiating the trade pact — including Japan, Australia and Singapore — represent about 35 percent of Taiwan’s trade. If the Republican Party now taking control of the US Congress really wants to increase US influence in Asia and temper China’s, it would give US President Barack Obama the fast-track authority he needs to rejuvenate the talks and conclude them soon. Adding Taiwan to the mix would give Ma even less incentive to cozy up to Beijing. And it would give Taiwan’s economy what it really needs: options.
William Pesek is a commentator for Biloomberg.
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