Weekly Geopolitical Report By Bill O’Grady February 1, 2016 several miles inland along the Yangtze River. Although the Ming eventually Trouble in Taiwan regained control of Taiwan and ended the Kingdom of Tungning, Zheng’s exploits Taiwan held elections on January 16th and serve as a reminder to modern PRC leaders the Democratic Progressive Party (DPP) that Taiwan can be a “launch pad” for won a resounding victory over the invaders and thus they see an independent Kuomintang (KMT). This election will Taiwan as a significant threat. likely raise tensions between Taiwan and Mainland China (People’s Republic of China maintained control of Taiwan until China, PRC). 1895, when China was defeated in the First Sino-Japanese War. As part of the peace In this report, we will begin with a history of treaty, China ceded Taiwan to Japan. The Taiwan. Next, we will recap the election Japanese began industrialization of the results, discussing what the election means island, building transportation networks, for Taiwan’s foreign and domestic policies, public infrastructure and public schools. It the PRC’s problems with the DPP’s victory also embarked on a program of suppression and the election’s potential impact on and assimilation of the aboriginal people. It regional stability. As always, we will conducted aggressive military actions conclude with market ramifications. against tribes that resisted Japanese rule but also allowed groups that cooperated to earn The History of Taiwan second-class citizenship. At the onset of the There is evidence that suggests the Han Pacific War and World War II, thousands of Chinese began settling in Taiwan in the 11th Taiwanese joined the Japanese military. century, although it appears that hostile The Imperial Navy operated a base out of indigenous tribes hampered development. It Taiwan. In general, many native Taiwanese wasn’t until 1624 that the Dutch established have a favorable view of Japan, which is a commercial base in Taiwan. The Chinese unusual in the region. ousted the Dutch in 1662, and the area was ruled by Chinese warlords who were Japan’s defeat in World War II ended its remnants of the collapsing Ming dynasty control of Taiwan. The Nationalist Chinese that was being ousted by the incoming Qing under General Chiang Kai-shek were given dynasty. One of the Ming loyalists was control over the island. The military Captain Zheng Chenggong, who was government run by the Nationalists was responsible for removing the Dutch from corrupt, inefficient and very unpopular with Taiwan. Zheng1 successfully began a series the native Taiwanese. In 1949, after the of raids on the mainland and built the Nationalists were defeated in the Chinese Kingdom of Tungning, which, at its peak, Civil War, Chiang Kai-shek and his included parts of the central coast of the followers fled to Taiwan and established the mainland, partial control of Shanghai and Republic of China (ROC). As they departed, the Nationalists carried many 1 Also known at Koxinga. national treasures and all of China’s gold Weekly Geopolitical Report – February 1, 2016 Page 2 and foreign currency reserves. Mainland In the 2000 election, Chen Shui-bain of the China, controlled by the communists, DPP won the presidency on a platform of established the PRC. defending native Taiwanese rights. He persistently pushed for independence from Both nations considered themselves the China. The PRC viewed these threats as the legitimate government of China. The ROC equivalent of civil war, since it treats maintained seats in its legislature for the Taiwan as a province of China. The United districts on the mainland even though it was States was also unhappy with Chen’s impossible to hold elections in those areas. policies as they constantly increased Chiang Kai-shek ruled Taiwan under martial tensions in the region. The Chen law. The KMT, the political party of the administration persisted in not allowing Nationalist Chinese, was the only legal party direct transportation, mail and trade links. in Taiwan. This did not stop Taiwan investment into the PRC, but it made such activity more The United States, the primary protector of difficult. Although the DPP controlled the Taiwan, considered the ROC to be the executive branch, the KMT maintained legitimate government of China until control of the legislature. The legislature January 1, 1979, when official recognition prevented proposals designed to trigger shifted to the PRC. The ROC lost its status confrontations with the PRC. Chen won two in the United Nations at this time. That terms in office but the DPP failed to hold same year, the United States passed power in 2008, and the KMT, led by Ma legislation indicating it would protect Ying-jeou, prevailed in the presidential Taiwan from mainland Chinese military election. threats. In 1992, the PRC and the ROC agreed on the “1992 Accord,” which Ma Ying-jeou, unlike Chen Shui-bain, indicated that there was only one legitimate worked hard to improve relations with the government of China; however, using PRC. Tourism between the two regions “strategic ambiguity,”2 both considered increased; in 2008 less than 10% of themselves to hold that honor. Taiwan’s tourists came from the PRC. That number is now over 40% and total tourism is By the mid-1980s, Chiang Kai-shek’s 2.75% of GDP, up from less than 1% in successor, his son Chiang Ching-kuo, began 2008. Ma signed 23 different cross-strait to liberalize the government. Martial law economic agreements, virtually all the pacts was eased in 1984 and abolished in 1987. negotiated in secret. Currently, about 25% Political parties were allowed; the DPP was of Taiwan’s exports go to the PRC. Last established to represent the interests of the November, he met personally with General native Taiwanese, which account for 80% of Secretary Xi in Singapore, the first time two the island’s population. In 1991, the KMT leaders from the PRC and Taiwan have met finally forced those legislators that held since the schism in 1949. seats for mainland districts to retire, paving the way for legislative elections. In 1996, Unfortunately for the KMT, integrating with the ROC held its first presidential election. the PRC’s economy has led to a “hollowing Lee Teng-hui of the KMT won. out” of Taiwan’s manufacturing base. Taiwanese firms, like many firms around the 2 Strategic ambiguity is a diplomatic tactic where two world, found it difficult to compete with the parties say exactly the same thing but derive PRC’s low cost manufacturing base. The completely different meanings from the words. Weekly Geopolitical Report – February 1, 2016 Page 3 DPP tends to represent those who have been behind” by globalization and technological “losers” in globalization and technological change. These policies will likely include a change, whereas the KMT mostly represents reduction in economic integration with the the corporate elite who, like establishment PRC. Given her control of the legislature, elites everywhere, benefit from these we expect many of these proposals to factors. Thus, to a great extent, the most become law. recent election reflects the populist sentiment being observed globally. The Risks from the Election Although Ms. Tsai may not want to The 2016 Election necessarily antagonize the PRC leadership, The DPP was led by Tsai Ing-wen, a law we would expect relations to deteriorate. professor who studied in the U.S. and The Xi government would much rather deal Britain. She is a trade expert who with the KMT; although they may have been negotiated Taiwan’s entry into the WTO. mortal enemies at one point, they both tend She won a decisive victory, capturing 56.1% to agree that Taiwan is part of China. The of the vote, far outpacing the KMT’s DPP isn’t so sure about that position. DPP candidate, Eric Chu, who gathered 31.0% of leaders have rejected the 1992 Accord, the ballots. James Soong of the People First pointing out the strategic ambiguity of the Party, which caucuses with the KMT, agreement. finished third with 12.8% of the vote. Ms. Tsai is the first woman president in Asia Polls suggest that the position of the who did not come from a political dynasty. Taiwanese people is steadily moving toward supporting a future outside of Mainland Perhaps even more impressive is that the China. In 1996, only about 20% viewed DPP also won control of the legislature, the themselves as “Taiwanese,” about 26% saw first time since 1949 that the KMT hasn’t themselves as “Chinese” and the rest saw controlled this body. themselves as “Taiwanese/ Chinese.” Now, a full 60% see themselves as Taiwanese and Ms. Tsai won by promising generational only 4% see themselves as Chinese. Other equality; she won widespread support from polls indicate that 80% of Taiwanese are younger voters for her positions against the happy with the status quo, which would best KMT’s PRC-favorable policies and for be defined as autonomy with limited promises of pension reforms that would not sovereignty; we suspect they would prefer overly burden younger workers. She also independence but realistically understand campaigned for more international trade that such a policy would likely lead to deals,3 while supporting some degree of military conflict. trade protection from the PRC. Other policy goals include a hike in the minimum wage Under the Ma government, relations with and more affordable housing. Most of these the PRC were greatly improved. Although positions are “standard issue” populist the PRC leadership is clearly more policies. In other words, the DPP didn’t win comfortable with the KMT in power, it because it ran on a platform of should be noted that Ma mostly dealt with independence; it won by supporting policies Hu Jintao during his terms in office.