TAIPEI (CBS.MW) -- It's Beijing's turn now. The Chinese leadership must come to grips with what, for it, is the nightmare outcome of Taiwan's second democratic election for president.
A stunning victory by pro-independence party candidate Chen Shui-bian has ended more than 50 years of one-party Nationalist rule in Taiwan. And it has put Beijing in a pickle of its own making: Either the Chinese Communists make good on their pre-election military threats against the island it regards as a "renegade province," or else the next time they huff about unification all those rattled sabers will look awfully dull.
Today on CBS MarketWatch
Fed effect can't be ignored
Federal panel debates Internet taxes in Dallas
Fed looks for magic to tame financial markets
Asia markets brace for Taiwan election fallout
Calandra: London Pacific Group sees benefit of tech investments
More top stories...
CBS MarketWatch Columns
Updated:
03/19/2000 3:54:42 PM ET
If anything, the bullying backfired by provoking voters' defiance toward the mainland. Rather than undermine Chen, it delivered him more votes, even though he had taken pains to moderate his views on the sovereignty issue during the campaign.
The other by-product of Beijing's posturing: Asian markets are on tenterhooks.
Despite conciliatory notes in Chen's victory speech Saturday night aimed at his adversaries at home and across the Straits, look for an initial sharp sell-off in the stock markets of Taipei, Hong Kong, Shenzhen and Shanghai when they open Monday.
Taiwan's government last week resorted to using state-controlled funds -- including insurance, pension and postal funds -- to arrest an 8.4-percent plunge in Taipei share prices. Purchases from a hastily assembled stock-market stabilization fund of 500 billion Taiwan dollars ($16.2 billion) managed to spark a rebound late Thursday and Friday.
The benchmark Weighted Index still ended the week down 7.1 percent at 8,763.27, and it will likely drop to test 8,000 early this week. This is because the president-elect's extending an olive branch to China isn't enough to calm nervous investors. Chen invited Chinese President Jiang Zemin, Premier Zhu Rongji and top negotiator Wang Daohan to Taiwan, and offered to go to China before his May 20 inauguration.
He also advocated establishing direct trade links -- something China has wanted, yet always rejected by Taiwan's Kuomintang (Nationalist Party) governments.
But Chen essentially refuted the notion of "one country, two systems," saying that "Taiwan must never become a second Hong Kong." Not until Beijing responds to this message and his overtures will volatility and instability in local stock markets abate.
Regional ripples
Equity analysts quoted in local papers reporting on the election outcome predicted that Hong Kong's Hang Seng Index could easily give up the 724 points it gained in a rebound Friday.
Ditto for hard-currency Shenzhen B shares, which recovered 6.36 percent Friday, and Shanghai B shares, up 5.1 percent. These bounces came after China's Zhu bluntly warned Taiwanese voters they wouldn't get a second chance if they elected Chen.
And a more bearish view for Taiwan stocks has it that the Weighted Index could tumble 20 percent to 7,000 soon -- even though government authorities are prepared to let the state-funds loose in the market again. In addition to cross-Straits tensions, perceptions of an untested administration and the image of Chen's Democratic Progressive Party as "anti-business" worry investors.
Chen, a former mayor of Taipei, can compensate for his own lack of experience on the national and world stages if he picks his ministers well.Yet his winning plurality of 39 percent and the Nationalists' control of the legislature could limit the administration's effectiveness -- particularly in its efforts to widen social services and clean up government corruption. Those are longer term objectives that, like expanded ties with China, could benefit business if achieved.
Now, the hard part
China's interest in becoming a member of the global trading community is a key reason that it's unlikely to lob missiles into the Taiwan Straits, as it did during the last presidential election campaign in 1996. Such hostility would virtually sink U.S. legislation to admit China into the World Trade Organization.
Yet even if it shows restraint by not testing missiles now, Beijing's increasingly strident rhetoric on unification seems like a one-way path to escalated ultimatums and a deadline.
Meanwhile, Taiwan's embrace of democracy deepens. Not only are it's people headed down a different path, but they've just demonstrated to others in the region and the world that it's possible to replace one-party rule peacefully.
The harder job is to make sure that great achievement, and the impasse it has more starkly defined, doesn't now lead to crisis. |
