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Guidance Overseas business risk for Taiwan

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Guidance Overseas business risk for Taiwan

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Information on key security and political risks which UK businesses may face when operating in Taiwan.

Politics

Taiwan is a stable, liberal democracy with a free press, independent judiciary, and a vibrant civil society. Taiwan is routinely ranked in global freedom indexes as amongst the top democracies with strong democratic rights in Asia. The last set of Presidential and Legislative Elections were held in January 2024 and elected representatives serve a fixed four-year term.

There are three main parties in Taiwan, the governing Democratic Progressive Party (DPP), the main opposition Chinese Nationalist Party / KMT (KMT), and an emergent third party called the Taiwan People’s Party (TPP).

Taiwan has 22 local administrative divisions, including 6 special municipalities and the remainder as cities and counties. Local Elections for mayors, county magistrates and district level representatives are held every four years. The last elections took place in November 2022. Referendums are also common in Taiwan, with issues such as energy policy, food safety and the voting age voted upon in recent years. Taiwan has a population of 23.4 million and the voting age is 20 or older.

The UK’s longstanding policy on Taiwan has not changed: we have no diplomatic relations with Taiwan but a strong, unofficial relationship, based on deep and growing ties in a wide range of areas, and underpinned by shared democratic values. Only 12 countries, mainly in the South Pacific and Latin America, formally recognise Taiwan (as the “Republic of China”). The PRC does not object to other countries’ commercial, cultural and other non-political links with Taiwan, but protests against anything it views as formal official contact.

Elections

In January 2024, serving Vice President LAI Ching-te (DPP) won the presidential election alongside his running mate, HSIAO Bi-khim, for a historic third DPP presidential term with 40.05% of the popular vote (5.58 million votes). KMT candidate HOU Yu-ih had won 33.49% while TPP contender KO Wen-je came third with 26.46% of the vote. The turnout was 71.86% amongst an electorate of 19.5 million.

This is the first time since Taiwan’s democratisation in the 1990s that a political party has retained the presidency for a third term. Presidents are elected in a first-past-the-post system. Compared to 2020, the governing DPP’s vote share has reduced from 57.13% (8.1 million) of the popular vote.

The DPP lost its legislative majority in the concurrent legislative elections securing 51 seats compared to the KMT’s 52 and the TPP’s 8. A total of 57 seats are required in the 113-member Legislative Yuan to reach an overall majority. 2 Independents are aligned with the KMT. The incumbent legislative Speaker is HAN Kuo-yu from the KMT. Legislators in Taiwan have the power to propose and amend legislation, as well as to freeze and cut budget proposals by the Executive Yuan.

Taiwan’s legislative elections produce 79 constituency/indigenous seats by first-past-the-post and 34 party list seats by proportional representation. Taiwan has a dual executive system – the presidency and the Executive Yuan (executive branch of government, headed by the Premier, who appoints cabinet ministers).

Compared to previous instances when the legislature was controlled by the opposition (2000 to 2008), opposition parties have been particularly proactive at proposing new laws and amendments to existing laws in the Legislative Yuan. In May 2024, the opposition parties were able to pass a package of reforms to the powers of the Legislative Yuan, which sparked street protests (known as the “Blue Bird movement”). However, the main reforms were overturned by the Constitutional Court in October 2024.

Domestic policies

President Lai pledged a new “National Project of Hope” during his election campaign to tackle a range of domestic issues in Taiwan, including the cost of living, low wages, inequality and unequal development, healthcare and social warfare, crime, corruption and scams, and public safety. The Lai Administration has been developing further a focus on various socioeconomic issues begun by former President TSAI Ing-wen.

Lai has set out a vision for innovative, inclusive growth, with Taiwan continuing to be a vital link in global supply chains. He plans to build on existing technology strategies with the “Five Trusted Industries”, first mentioned at his inauguration in May 2024 (semiconductors, AI, military, security and surveillance, and next-generation communications).

In June 2024, President Lai has announced three new presidential committees on health, climate change, and whole-of-society defence and resilience. These committees intend to engage across government, the private sector and civil society to develop national strategies and consensus on the DPP Administration’s priorities.

Cross-Strait relations

Managing the cross-Strait relationship with China remains a high political priority for the current Administration.

The People’s Republic of China (PRC) has claimed sovereignty over Taiwan since the end of the Chinese civil war in 1949, when the defeated Chinese Nationalist Party (Kuomintang or KMT) government fled to the island. The PRC maintains its threat of forceful unification if Taiwan ever declares independence.

Although cross Strait links have grown, with direct flights and shipping links across the Taiwan Strait, trade and investment in both directions, and large numbers of Taiwanese business people studying and working in the PRC, Taiwan is working to diversify away from its reliance on China and insulate its supply chains. Numbers of visitors from China have reduced and there is little to no official level dialogue between the two sides.

Following the 2016 election of the DPP, the PRC government broke off official contact between the two sides of the Strait, making DPP acceptance of China’s “One China” framework a precondition for resumption of contact. Since his election in 2024, Lai’s Administration has committed to continue former President Tsai’s policies, remaining open to dialogue with China, but also calling out increasing levels of grey zone military activity around Taiwan and pushing back on Chinese misuse of UN resolution 2758 to block Taiwan’s international participation.

Chinese pressure on Taiwan has continued to increase. PLA air incursions into Taiwan’s Air Defence Identification Zone (ADIZ) - an area where air traffic controllers ask incoming aircraft to self-identify - have now become a near-daily occurrence. There have also been increased Chinese Coast Guard activities around Taiwan’s outlying islands of Kinmen, Matsu and Penghu. A total of 1714 aircraft entered Taiwan’s ADIZ in 2023 compared to 961 in 2021. Chinese military activities around Taiwan can increase around the time of political events. In August 2022, following Nancy Pelosi’s visit to Taiwan, China conducted live fire exercises around Taiwan. Following President Tsai’s transit through the USA and meeting with Speaker McCarthy in April 2023, the PLA simulated surrounding and attacking Taiwan. China has undertaken two large scale exercises in the Taiwan Strait in 2024, Operation Joint Sword A & B. In addition, China has enacted anti-secession laws which place an emphasis on penalising those China regards as “secessionists”. A successful conviction under these laws can carry heavy sentences, including the death penalty.

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