- DPP's third term implies continuity in innovation-focused industrial policies
- A divided legislature poses challenges, …
- … with KMT and TPP differing from the DPP in energy and trade approaches
- Beijing's termination of ECFA tariff concessions indicates cross-strait tensions, …
- … but KMT and TPP support for renegotiation may delay escalation
Related Insights
Taiwan's presidential and legislative elections, held on January 13, concluded with the victory of Democratic Progressive Party (DPP) candidate Lai Ching-te, who secured the presidency with 40.05% of the popular vote. Kuomintang (KMT) candidate Hou Yu-ih and Taiwan People’s Party (TPP) candidate Ko Wen-je secured 33.49% and 26.46% of the votes, respectively.
In the legislative election, the KMT secured 52 seats in the 113-seat legislature, while the DPP closely followed with 51 seats. The TPP also gained 8 seats. None of the parties reached the 57-seat threshold required for a majority.
Policy impacts
With the DPP securing a third term in the presidency, many observers anticipate the key economic policies pursued by the government over the past eight years will continue. Lai's major policy proposals align closely with the outgoing president, Tsai Ing-wen. Emphasizing innovative economic models, Lai aims to shift away from the traditional OEM manufacturing model and focus on developing cutting-edge industries like semiconductors and AI. He envisions an ambitious transition to green energy, entirely replacing nuclear power with renewable energy by 2026. Meanwhile, Lai is committed to diversifying Taiwan's trade and investment, steering away from mainland China. This includes efforts to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and strengthen ties with Southeast Asia through the "New Southbound Policy."
Due to the divided nature of the legislature, the smooth passage of government budgets and economic policy proposals requiring legislative approval may be challenging compared to the previous eight years. The KMT and TPP differ notably from the DPP in energy and trade policies. Both Hou and Ko advocate for an extended use of nuclear energy as part of Taiwan's energy mix. Additionally, they support further trade engagement with mainland China, including reopening negotiations on the Economic Cooperation Framework Agreement (ECFA) and participating in the Regional Comprehensive Economic Partnership (RCEP).
The relatively balanced election outcomes also indicate a lower risk of deterioration in cross-strait economic ties. In December, Beijing announced the termination of tariff concessions for 12 Taiwanese petrochemical products, effective January 1, 2024. Moreover, the Ministry of Commerce signaled in January that it is contemplating the suspension of tariff concessions for more Taiwanese products under ECFA, spanning agricultural and fishing, machinery, auto parts, and textiles. Considering that both the KMT and TPP support renegotiating ECFA, there is a possibility that Beijing will exercise patience before escalating trade tensions in the short term.Top of Form
Forecast implications
We maintain our macro projections, keeping GDP growth forecasts at 3.5% for 2024 and 2.6% for 2025. Short-term growth drivers will predominantly stem from the cyclical recovery in the global semiconductor sector, propelling Taiwan's exports and manufacturing investment this and next year. There is potential for an uptick in government consumption and public investment during the forecast period, buoyed by cross-party consensus on strengthening education, healthcare, and elderly care systems and constructing additional social housing to stabilize property prices.
A further suspension of tariff concessions by China under the ECFA could inflict targeted damage on specific Taiwanese industries. Given the substantial reliance on mainland exports, petrochemicals and machinery would be particularly affected. Agricultural exports also face notable impacts due to significantly higher tariff rates when entering the Chinese market without ECFA.
We expect the overall impact on Taiwan's economy to be limited. In 2022, ECFA-covered Taiwanese exports amounted to USD 20.5 bn, constituting 17% of Taiwan's exports to the mainland and 4% of its total exports. The average tariff rate on these products before ECFA implementation in 2009 was approximately 9%. Assuming a price elasticity range of 2-5, we project the ECFA termination to result in a GDP growth loss, which is estimated to be 0.3-0.7 ppt.
To read the full report, click here to Download the PDF.
Topic
Explore more
E & S ChartbookGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.
Related Insights
Related Insights
