SINGAPORE – Taiwan’s tensions with China will persist but key economic policies will continue with little change in the light of its ruling Democratic Progressive Party (DPP) securing a third presidential term, noted economists and equity analysts.

Taiwan elected vice-president Lai Ching-te of the independence-leaning DPP as president on Jan 13.

Mr Goohoon Kwon, a senior Asia economist at Goldman Sachs, said: “We expect no major changes in economic and cross-strait policy under the Lai administration.”

Political tensions with China could persist under the new administration, but the economic impact on Taiwan could be limited given that trade between the mainland and Taiwan is already at a multi-year low, he added. 

Goldman Sachs expects technology and artificial intelligence themes to drive market returns in Taiwan in 2024.

Mr Lai’s major policy proposals are aligned closely with those of outgoing president Tsai Ing-wen, said DBS Bank senior economist Ma Tieying.

These focus on innovative economic models, a shift from the traditional original equipment manufacturing model to developing cutting-edge industries and an ambitious transition to fully replace nuclear power with renewable energy by 2026. 

Efforts are also being made to diversify Taiwan’s trade and investment away from mainland China. These include the push to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and to strengthen ties with South-east Asia through a “New Southbound Policy”.

The newly elected president’s commitment to further bolster Taiwan’s semiconductor industry holds promise for major chip developers on the island, particularly those specialising in artificial intelligence, noted Yuanta Securities Investment Consulting.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest contract chipmaker, gained 0.68 per cent on Jan 15, the first trading day after the presidential election, while United Microelectronics, the second-largest chipmaker in Taiwan, climbed 0.39 per cent.

Taiwanese chipmakers such as TSMC feature prominently in global tech portfolios and are closely monitored by tech giants and investors as they produce most of the world’s advanced chips, which Western companies like Apple and Nvidia rely on.

As cross-strait tensions continue to escalate over trade and technology, Singapore has been looking at how it can gain traction on the semiconductor value chain of activities and secure its share of investments.

Mr Frederic Neumann, HSBC’s chief Asia economist and co-head of global research in Asia, reckoned Taiwanese firms, like many others, will continue to strengthen their engagement with Asean.

Mr Neumann told The Straits Times: “The election outcome is unlikely to derail this process. At the margin, Singapore can benefit from increased connectivity with Taiwan, but neighbouring economies, such as Malaysia and Vietnam, are seeing the biggest impact.

“Through this channel, Singapore also benefits indirectly, since stronger growth in the rest of Asean is generally good for the city-state.”

Mr Terence Cheng, an analyst with Morgan Stanley, said the election “overhang” has been lifted, and he expects the Taiwan stock market to show resilience in 2024, with earnings driven by a recovery in external demand. 

Mr Cheng said geopolitical risks would continue to be a factor in foreign investors’ assessment of Taiwan.

Leading European asset manager Amundi warned that there would likely be growing risk perceptions in the run-up to Mr Lai’s inauguration on May 20. 

Economists noted that while Mr Lai won the presidential election, the DPP lost the parliamentary majority, taking 51 out of a total of 113 seats, resulting in a divided government for the first time since 2004.

“With a hung Parliament, the DPP may face more difficulty with its proposed legislations and budgets,” said Ms Ho Woei Chen, an economist at UOB.

Ms Ho expects the DPP to take a more middle-ground approach on key issues, including its China policy.

Ms Ma of DBS noted that the Kuomintang (KMT) and Taiwan People’s Party (TPP) differ notably from the DPP in energy and trade policies, with the KMT and TPP backing an extended use of nuclear energy.

They also support further trade engagement with the mainland, including reopening negotiations on the Economic Cooperation Framework Agreement (ECFA) and participating in the Regional Comprehensive Economic Partnership.

On Jan 9, China’s Commerce Ministry revealed it was studying the suspension of tariff concessions on more Taiwanese goods covered by the ECFA.

This came in the wake of Beijing’s termination of tariff concessions for 12 Taiwanese petrochemical products, effective on Jan 1, 2024.

Goldman Sachs believes that the impact would be limited in the event China terminates the preferential tariff concessions to more Taiwan products. 

Taiwan’s exports covered by ECFA stood at US$15 billion (S$20 billion) in 2023, about 3 per cent of its total exports.

Taiwan’s gross domestic product growth is projected at 3.5 per cent for 2024 and 2.6 per cent for 2025, according to DBS.

Short-term growth drivers will stem from the cyclical recovery in the global semiconductor sector, propelling Taiwan’s exports and manufacturing investment in 2024 and 2025, economists said.

There is also potential for growth in government consumption and public investment, buoyed by cross-party consensus on strengthening education, healthcare and elderly care systems and constructing additional social housing to stabilise property prices, Ms Ma said.