Election Hints of New Cooperation by Taiwan, China

Taiwan's presidential election ended in victory for the opposition on Saturday, and will likely result in a new era of cooperation between Taiwanese and Chinese technology companies.

Taiwanese companies, which have been part of the global IT economy since the beginning of the personal computer age in the 1970s, face an easier time working in China with the change in power. The victor in the election, Nationalist Party (Kuomintang) candidate Ma Ying-jeou, has pledged to work for direct flights and shipping with China, allow companies to invest more there, and ease technology transfer restrictions.

Ma won 58 percent of votes in the election, compared to 42 percent for rival Frank Hsieh, of the ruling Democratic Progressive Party.

The changes will be big for both sides. Taiwanese companies have invested an estimated US$150 billion in China over the past few decades, and another US$20 billion stands ready to head across the Taiwan Strait thanks to Ma's victory, according to CLSA Asia-Pacific Markets.

In return, Taiwanese companies gain cost advantages due to tax and other incentives to build factories in China, in addition to a huge potential market of consumers that share the same language and a similar culture.

"Ma has received a mandate to improve cross-Strait relations," said Jean-Pierre Cabestan, professor at Hong Kong Baptist University, during a panel discussion on the election results Sunday. The vote was a huge win, and Ma's key campaign message centered on Taiwan working to benefit from its economic relationship with China, he added.

Many Taiwanese have been dissatisfied with the current government because its pro-independence platform has held back potential economic gains from working with China.

"The economy [in Taiwan] has been deteriorating for at least the past four years now as has, arguably, the standard of living," said Cabestan.

Some Taiwanese hope the island one day will reunify with China, while others yearn for independence. Most people prefer the status quo because Taiwan already enjoys a standard of living much higher than China. Globally, tensions between Taiwan and China remain a danger to peace in Asia, akin to hostilities between North and South Korea.

"Don't let Taiwan become a second Hong Kong or a second Tibet," admonished Taiwan's current president, Chen Shui-bian, after voting on Saturday.

China's recent crackdown on Tibet had threatened Ma's potential for victory Saturday by fanning anti-Chinese sentiment just ahead of the poll. China gave Taiwan to Japan in 1895 as part of a war settlement, but took the island back in 1945, after World War II. Civil war in China ended in 1949 with the Nationalists retreating to Taiwan, protected from the mainland by 160-kilometers (100 miles) of ocean and the U.S. Navy. China has vowed ever since to take back the island, by force if necessary.

During Taiwan's first-ever free presidential election in 1996, China fired missiles over the island to warn voters not to elect candidate Lee Teng-hui, who China regarded as a force for independence. The U.S. sent the aircraft carrier USS Nimitz and its battle group to the Taiwan Strait to keep the peace. Lee won by a landslide.

"The most important thing is to love Taiwan, to love your country," said Lee, after casting his ballot Saturday.

Despite the Tibet issue, Saturday's election focused more on economics than independence.

The new president-elect of Taiwan will be able to start making changes immediately after he takes office on May 20. His party also secured more than a three-fourths majority in Taiwan's parliament earlier this year, giving him a green light to move forward with economic reforms.

Business people already see the writing on the wall. The Taiwan Stock Exchange's main index opened up 6.2 percent Monday morning due to Ma's victory.

Ma plans to work towards creating a common market with China, over time, which could give Taiwanese companies a potent 'home market' to build their brands. The biggest near-term change will be allowing chip makers to transfer better technology to China. Taiwan has tightly controlled chip technology for fear it could be used by China to make weapons.

But Ma pledged to allow Taiwanese companies to use whatever technology the U.S. allows its chip makers to transfer to China. It's a major change. Intel, the world's largest chip maker, has already been granted permission from U.S. authorities to build a 12-inch (300-millimeter) semiconductor factory in China, able to produce chips with 90-nanometer etching technology. Current restrictions in Taiwan only allow chip makers to build old 8-inch chip (200-millimeter) factories using 180-nanometer technology there.

"Taiwanese chip makers will be able to build a foothold in China now," said Rick Hsu, chip analyst at Nomura Securities in Taipei. So far, only Taiwan Semiconductor Manufacturing (TSMC) and ProMOS Technologies have built China plants. New regulations will likely allow them to upgrade their production lines to 130-nanometer or 110-nanometer technology in the near term, which will enable them to grab more business, said Hsu.

United Microelectronics (UMC) will likely be able to work more closely with China's He Jian Technology, a contract chip maker UMC executives advised during its start-up phase. He Jian has tried to pay UMC a 15 percent stake, but Taiwanese regulations have made the transaction difficult. Hsu believes UMC will be able to take this stake in He Jian once Ma is in office.

China will also see benefits. The country has been trying to jump-start its chip sector for years, with little success. Semiconductor Manufacturing International (SMIC), the largest chip maker in China, has had a tough go of the contract chip business. The company's stock has plunged nearly 83 percent since listing in Hong Kong in 2004.

China will likely accommodate changes in Taiwanese investment policies and work to build the economic relationship between the two sides, said Tom Hart, from the Stockholm School of Economics. China wants to draw Taiwan closer economically, and the island can help build Chinese technical expertise in a number of areas.