Political Risk Analysis - Cross-Strait Ties To Remain Challenging - SEPT 2017


BMI View: The ending of diplomatic relations with Taiwan in favour of China by Panama reinforces our view that China will continue to seek to curtail Taiwan ' s international space amid increasingly challenging bilateral relations. Cross-Strait ties are unlikely to improve anytime over the near future in the run up to the 19th Party Congress in China, but we do not expect this to have a negative impact on Taiwan's economic growth and maintain our forecast for real GDP to expand by 2.0% in 2017.

We had previously stated that we expect Beijing to continue with its efforts to curtail Taiwan's ability to manoeuvre on the international stage and we are seeing this play out in Panama's ending of diplomatic relations with Taiwan in favour of those with the mainland in mid-June (see ' Cross-Strait Ties To Face Increasing Challenges ' , January 18). This incident is yet another in a series of moves on the part of Beijing in its efforts to isolate Taiwan amid increasingly challenging relations. With Taiwanese President Tsai Ing-wen refusing to acknowledge the One China principle as the basis by which cross-Strait relations should be conducted, we believe that cross-Strait ties are unlikely to improve anytime over the near future. This is further exacerbated by the run up to the 19th Party Congress in H217, where Chinese President Xi Jinping is looking to strengthen his position as the party undergoes its leadership reshuffle. With Xi needing to present a strong image and Tsai unlikely to back down lest she alienate her pro-independence core support base, we believe that cross-Strait relations are unlikely to improve anytime over the near future. However, political tensions are unlikely to have a negative impact on Taiwan's economic growth, and we maintain our forecast for 2017 real GDP growth to come in at 2.0%.

China To Seek To Further Isolate Taiwan

Trade Remains Unaffected By Politics
Taiwan - Exports To China, USDmn (3 month moving average)
BMI, Bloomberg

This article is part of our China & North East Asia coverage. To access this article subscribe now or sign up for free trial