Will He...or Won't He? 

* Though the presidential nomination was made official in mid-May, the Kuomintang (KMT) is apprehensive over what former Foxconn Chairman Terry Gou plans to do next.

* There are more than one option available for Gou. The worst-case scenario would be for Gou to team up with former Taipei Mayor Ke Wen-je, the current chairman of the Taiwan People's Party (TPP), on the same ticket. According to most opinion surveys, a Gou-Ke ticket would be the one to beat in the 2024 presidential election.

* Gou is taking a temporary hiatus from the public eye. He has not commented publicly about the KMT primary, and he has declined to answer calls from those concerned with his next step. The expectation is for Gou to stay behind the scenes until he is ready to re-insert himself into the political realm.

* On the other hand, the KMT nominee, Hou You-yi, has not made any progress in opinion polls since the official nomination on May 17. In addition, he has been elusive on sensitive issues like cross-Strait policy toward China. He doesn't seem prepared to accept the "1992 consensus," which is at the core of KMT's China policy. That is one of many policy differences that he has to reconcile with the KMT HQ and its think tank in the coming weeks.

 Nvidia's Victory Lap

* Nvidia's founder and CEO Jensen Huang has been the shining star in Taiwan the last few days. As a global Taiwanese American corporate leader in chip technology, Huang captured media attention from his unannounced visit to the night market to the commencement speech at the National Taiwan University on May 27. He was undoubtedly the focal point following the rapid rise in Nvidia stock price to the widespread hype over artificial intelligence (AI).

* Huang is expected to deliver the keynote speech on May 29 to a houseful attendees from around the world at the 2023 Computex Taipei. His views on the future of AI, and the norms of its applications, are believed to have an impact on the market beyond the TaiEx.

* Riding on the AI fever, a number of local stocks are expected to outperform the index, including TSMC (2330), Pegatron (4938), Unimicron (3037), Aspeed (5274), Sunonwealth (2421), and eMemory (3529). Following the tentative deal between the White House and the House of Representatives on the debt ceiling limits, many expect the TaiEx to break north of 17,000 points this week.

 Taiwan Export still sluggish...

* According to numbers released by the Directorate General of Budget, Accounting and Statistics (DGBAS) on May 22, Taiwan's economy suffered another blow as the island's exports dropped another 18.1% y-on-y. It marked the eighth consecutive month of decline. Worse yet, responsible officials believed exports have not bottomed out, with most anticipate another 20%-plus drop in May.

* Out of the four major export destinations, only the ASEAN countries have registered a slim growth of 0.1%. Markets in the US, China/Hong Kong, and the EU all declined 15.2%, 24.2%, and 26.6% respectively. With overstocked inventory following the pandemic, the outlook isn't particularly promising. The spillover may inch into Q3 and handicap the overall economic performance this year.

* Following the release of these disappointing export numbers, economy will likely become one of the central issues in the upcoming 2024 presidential and legislative elections. Though this is not an ideal situation for the ruling party, playing "anti-China" card, and escalating ideological conflicts both in and out of Taiwan, may have carry the same weight with the island's electorate as in the 2020 contest.

* On the other hand, China is expected to put additional economic pressure in the coming months. Including the recent relaxation on tourist groups from Taiwan, the measures that Beijing will likely pursue will be uni-direction, unilateral, and uni-personal in general. These measures require no prior consultation with Taiwan, and they are aimed to appeal to the grassroots. Decisions will be made primarily by individuals, not families or companies. It's a risky move, as Beijing's past goodwill overtures did not translate to heightened identification toward China. The vote on January 13, 2024, will be the first litmus test.

A Bridge Too Far?

*  Foxconn Founder, and one-time KMT presidential hopeful, Terry Gou returned to Taipei following a two-day private visit to Japan with his family. Though short, the trip was aimed to "cool down" Gou's displeasure with the KMT over its nomination process. In fact, during his absence, a number of news reports came out and seemingly indicated that the party central, under Chairman Eric Chu, had preferred New Taipei Mayor Hou You-yi from the beginning. In addition, as a political outsider, many were apprehensive that Gou would be as strong as Hou in leading the islandwide campaign for the Legislative Yuan (LY), besides the presidency itself.

* It remains to be seen over how Gou would respond to the various speculations and reports. It is believed that he'll launch a week-long tour around the island to thank the KMT rand-and-file and stay politically relevant as the 2024 campaign heats up. On the other hand, he has not publicly declined being on the same ticket with Hou, though the prospects are not particularly bright. It will be a few weeks before the dust settles on Gou being Hou's running mate.

* Taiwan People's Party (TPP) Chairman and former Taipei Mayor Ke Wen-je presents another option for Gou, whether on the presidential ticket with Ke or collaborate in the upcoming campaign. If and when that happens, however, Gou could be under criticism for going back on his earlier pledge of supporting Hou's presidential bid. If Gou wants to remain in the political sector, it is advisable that he takes his next step very carefully.

2024 Presidential Campaign Issues

*  The nominees are set. Taiwan's 2024 presidential and legislative elections will dominate news headlines in the next seven months. The race will be tight and the competition is fierce. No matter who wins, the margin of victory will be small.

* The following is a list of likely campaign issues that will determine the next Taiwan president:

(1) Cross-Strait relations: first and foremost, people are concerned how the next president will manage this critical relationship deemed to the island's continued growth and development. Parties differ greatly over, for instance, how to treat the 1992 consensus, which Beijing thinks it's a precondition to the resumption of cross-Strait dialogue. The opposition Kuomintang (KMT) has traditionally accepted the highly controversial concept, and it has subsequently been the target of criticism for being a "China sympathizer." It remains to be seen as to how the nominee--Hou Yu-yi--would handle this thorny issue without alienating the rank-and-file.

(2) The economy: Taiwan has suffered export declines in recent months, casting a shadow over the outlook of the island's post-COVID recovery. Unemployment and those furloughed, though steady around 5%, could spike if the export engines cools further.

(3) War and peace: this is expected to be the centerpiece of KMT's campaign theme, implying the election of William Lai will likely push Taiwan to the brink of war since the incumbent vice president once said he was a "pragmatic pro-independence practitioner." Lai has moderated his position since, but it's unlikely he would abandon his ideological stance during the campaign.  

 And the nominee is...

* The opposition Kuomintang (KMT) is set to nominate New Taipei City Mayor Hou You-yi this afternoon (May 17). Ever since his reelection victory last November, Hou has been widely regarded as the likely KMT nominee for the 2024 presidential race. With a 30-plus-year career in law enforcement, Hou is a conservative, cautious politician who lacks the charisma and national policy experiences needed to win a tight national contest. Though he has consistently received high approval ratings as mayor, he needs to make up ground on foreign and cross-Strait relations--areas completely foreign to him as a local administrator.

* There are two things that the KMT HQ needs to do following the nomination: (1) transparency: make the process leading up to Hou's nomination as transparent as possible, so there are no grudges for all those participated in the undertaking, and (2) damage repair: though this time the KMT bypassed primary and went directly to draft the person "most likely to succeed" in next January's general election, divisions were caused that could make unity a difficult goal to reach. If the party stays fragmented, it's extremely difficult, if not impossible, to win the presidency. Everyone knows that, but getting it done is a different story.

* There are options available for Foxconn's Terry Gou following the disappointing outcome: (1) He can consider joining the ticket and teaming up with Hou to be the No.2. As a successful tech tycoon, however, Gou did not participate in the process to be No.2. Though it would be a winning formula, it's likely to be a "bridge too far."

(2) He can stay within the KMT and be a key campaign contributor to Hou. In the meantime, the KMT can entice him with, for instance, being the next premier, or a legislative at-large seat and a potential shot at being the speaker of Taiwan's Legislative Yuan (LY), similar to the Speaker of the House in the U.S.

(3) He can work out an arrangement with Ke Wen-je, former Taipei mayor, of the Taiwan People's Party (TPP), and possibly form a joint ticket for the 2024 race. Gou and Ke are friends, but unsure if their personalities would mesh well since both want to be the boss calling the shots. This is also a risky move for Gou politically. His credibility could be under attack since this would significantly undermine the KMT's chances to reclaim power and go against his earlier pledge that he would wholeheartedly support the eventual KMT nominee, even if that's not him.

 It's the economy, Stupid!

* Taiwan's economy has performed poorly in 2023, suffering from negative GDP growth for two consecutive quarters. The numbers meant the economy entered into a recession in the first quarter of 2023. GDP was -3.02% year-on-year in the first quarter after a 0.41% YoY contraction in the fourth quarter of last year. This is not something that the administration welcomes in an election year. 

* Besides export declines, geopolitical uncertainties played a part in the poorer-than-expected economic performance. According to most news reports, China appears to be on the verge of launching an imminent invasion as relations across the Taiwan Strait continue to deteriorate. Though the sentiment on the ground may not be as gloomy, a sense of malaise nevertheless permeates throughout the Taiwan society that has slowed consumption and suspended investment decisions for local businesses and multinationals (MNCs) alike. If the trend holds up, economy and quality of life issues, e.g. inflation and employment, could overtake others and become a priority issue in the upcoming presidential campaign.

* The opposition Kuomintang (KMT) hopes to fashion the presidential race on the choice between war and peace, implying the risk of a cross-Strait military conflict would be significantly higher if the ruling Democratic Progressive Party (DPP) stays in power. Though nothing is written in stone, the fear of war is definitely a factor in polling decisions.

* It remains a formidable challenge for the DPP to convince the electorate that war is not inevitable, especially cross-Strait dialogue had broken down since 2016. Its presidential nominee, William Lai, can't seem to shake off the image that he once publicly stated he is a "pragmatic pro-independence advocate" in Taiwan's parliament, the Legislative Yuan (LY). Though he has moderated his position since, that declaration in the LY will continue to haunt him throughout the campaign.

 

Off to the Races.....

* The opposition Kuomintang (KT) is expected to draft and nominate a presidential candidate on May 17. Among the two leading contenders, most believe New Taipei Mayor Hou You-yi will get the nod next week. However, since the two are neck-to-neck in most opinion polls, it remains to be seen how the KMT would reconcile differences, and possibly divisions, caused during the party primary.

* No matter who gets the nomination, it will be a tough uphill battle against the current vice president and presidential nominee of the ruling Democratic Progressive Party (DPP), William Ching-Te Lai. Besides being the incumbent vice president, Lai is ahead in most polls by a margin of 5-8 percentage points. Following the KMT's formal nomination, however, the margin is expected to shrink, though not significantly.

* KMT's other presidential contender, Foxconn founder Terry Gou, is doing his best to earn the trust of the party's rank-and-file. In fact, many party die-hards still hold grudges against Gou for breaking with the party in 2020 after failing to secure nomination. Gou has publicly apologized for what transpired four years ago, but it remains a bitter pill for the grassroots to swallow following suffering a devastating defeat four years ago.

* The knock on New Taipei Mayor Hou rests on his lack of experience in managing international and cross-Strait relations. With a career in law enforcement, Hou only got into politics in 2010 after becoming New Taipei City's vice mayor, and eventually was elected mayor in 2018. He has never been known for strong ideological orientation, hence the deep-Blue (KMT's fundamentalists) doesn't expect him to pursue KMT's traditional stance on cross-Strait relations, e.g. the acceptance of the1992 consensus. This may indeed be the key to how the non-partisan and middle-of-the-road voters would cast their ballots on January 13, 2024.

Measures to Stimulate Taiwan's Economy

* Taiwan's export continued to decline in Q1 2023. With economic and geopolitical uncertainties abound, there is not indication that the world economy will rebound anytime soon. As a key player in the global supply chain, sluggish performance will likely continue for Taiwan's export-oriented economy.

* For a report on the recent measures by Taiwan government to stimulate local economy, please see: https://www.scmp.com/economy/global-economy/article/3219533/taiwan-doubles-down-stimulus-halt-recession-tourist-handouts-cash-citizens, including Dr. Raymond Wu's commentary.