After the election of Tsai Ing-wen, what next for Taiwan and China?

Following the victory of the candidate of the independence-inclined Democratic Progressive Party (DPP) to Taiwan’s presidency, Tsai Ing-wen, and the significant DPP majority in the Parliament, there are bound to be repercussions in the Taiwan-China relationship. This is all the more the case in that 2016 looks like it is going to be a rather turbulent year. Whether the repercussions turn out to be in the form of ripples or the size of tsunamis of course remains to be seen. The fact is that there is a lot at stake. The situation of Taiwan is a unique anomaly. There is no precedent, there is no legal case study that can be drawn upon to throw comparative light on Taiwan’s position. The anomaly has lasted almost seven decades. Can an anomaly be sustainable and last for several more decades? What are the scenarios?

Under previous President Ma of the KMT party, Taipei had pursued an especially close relationship with Beijing. One thing both the KMT and the CCP (Chinese Communist Party) emphatically agree on is that there is only one China. Both renounce the very thought of Taiwanese independence. Tsai’s DPP favors independence. Tsai is the second DPP President, but her predecessor, President Chen Shui-bian (2000-2008), did not control Parliament.

Though polls show overwhelmingly that the vast majority of Taiwanese have no desire whatsoever to be reunited with the mainland, and that a significant majority, especially among the younger generation, feel first and foremost Taiwanese and only second Chinese, those favoring outright independence are few. In her initial post-election speeches Tsai has sought to send a message of conciliation and an implicit commitment not to rock the boat across the Taiwan Straits.

Furthermore, while there are clear indications that the Taiwanese voters rejected the KMT candidate because of Ma’s excessively cuddly rapprochement with Beijing, evidence clearly shows that voters were also expressing deep dissatisfaction with the manner in which the economy has been managed. Though Taiwanese enterprises continue racking up success in the Chinese and global markets, the Taiwanese economy is in the doldrums; things look pretty glum as Taiwan both economically and demographically seems to be catching the Japanese disease. Among other implications is the fact that China may need Taiwan far less than it did. Taiwan is adrift. A socio-economic environment of that nature is one that can be quite receptive to populism. It is also not clear how much de facto economic policy independence Taiwan in fact has. To date all economic agreements, forums, etc, that Taiwan belongs to include China. Some Taiwanese economic policy makers and thinkers are flirting with the idea of joining the Trans Pacific Partnership (TPP), which is the economic salvo of the US “pivot to Asia” and from which China is excluded. Were Taipei to move in a TPP direction, this could prove explosive.

But without doubt the greatest concern will be on developments in respect not just to the Chinese economy, but more specifically to the Chinese political-economy. For the first time in thirty years the question whether the Chinese model of political economy is sustainable is not only legitimate, but indeed urgent and imperative.

The Chinese narrative over the last three decades has been a success: massive poverty reduction, the equally massive rise of a middle class, the opening up of the country and society, including the hundreds of thousands of Chinese studying abroad and the more than a hundred million Chinese outbound tourists. China is no Utopia, very far from it, there are huge problems and defects, notably in environment and human rights, but compared to what it was several decades ago, the change is quite remarkable.

While the CCP has been in power since 1949 and has remained so in spite – or because of? – the 180° change in economic and social policies adopted following the reform program of the late 1970s, it is not popular. Party members are notoriously corrupt, greedy, cynical, materialistic, nepotistic, secretive, harsh, inhumane, aloof and arrogant. But, for the course of the last thirty years, in view of the Chinese success narrative, the party has been respected and most importantly it has gained – and until recently maintained – the people’s confidence. It has delivered the goods!

While opinions vary enormously as to how serious the current downturn in the Chinese economy may be and whether it is heading for a soft or hard landing, a number of observers point out that the data per se – e.g. the highly contested growth rate – is not so important but rather what really matters are the interpretations and political implications of the data. Recent official gaffes in the handling of the Renminbi devaluation and the stock market “crash” provide a stark image of amateurish incompetence. The Beijing authorities appear not to be the superlative economic managers that they were believed to be. It is on this specific facet – economic management – that the entirety of the legitimacy of the CCP resides. If it is seen not to deserve confidence and hence loses its legitimacy what might happen?

Here are two alternative scenarios out of more than a plethora of possible ones.

The sunny scenario:

The CCP recognizes it is in trouble and that it has far from all the answers. It also realizes that its competence is being called into increasingly intensive question and hence its legitimacy is becoming more fragile – like what happened to the Golkar Party that ruled Indonesia from 1973 to 1998 under the presidency of Suharto and collapsed in the aftermath of the Asian 1997/98 financial crisis. Indonesia abandoned one-party rule and eventually became a democracy. The CCP may decide to go down the same route. It is bound to be very rocky, but would be welcome by the global community and especially by Taiwan. Democracy might be able to lay the foundations for some form of reconciliation and unification.

The stormy scenario:

The economy goes from bad to worse, unemployment rises, social unrest proliferates, the CCP is up the proverbial creek and losing its grip on the paddle. What to do? One rather alluring option, well tried and tested, is to find a stringent nationalist populist cause and of course a scapegoat. Jingoistic foreign warfare helps distract attention from domestic ills and bolster popularity: this is true of virtually all regimes, including democracies – as Margaret Thatcher would know from her escapade in the Falklands/Malvinas – but especially of course for dictatorships. Taiwan could be the ideal scapegoat!

There are more likely to be both sunny and stormy spells, with outcomes a confusing but possibly muddling through mix. It will be critical to watch developments closely, not only in terms of relations between Beijing and Taipei, but also in what is happening domestically to their respective political economies.

Jean-Pierre Lehmann is emeritus Professor of International Political Economy at IMD. Professor Lehmann teaches on the Orchestrating Winning Performance program.

This article was based on a piece by Jean-Pierre Lehmann published in Forbes.