The real winner of Taiwan's election

It's neither the DPP nor Xi. [View in browser]( [Bloomberg]( Hi, this is Cindy Wang in Taipei with a special edition of the Next China newsletter. You may be receiving this because you subscribe to one of our other newsletters, including [Economics Daily](, [Five Things: Asia]( and [Balance of Power](. If you’d like to keep reading Next China, sign up [here](. What a weekend! Taiwan chose a new leader in the hardest-fought election in decades. But while the Democratic Progressive Party held onto the presidency, the political landscape changed dramatically. Taiwan’s current vice president, Lai Ching-te, won with just [40% of the vote]( — the lowest winning percentage since 2000. His ruling DPP also lost its majority in the legislature. Opposition votes were split between the Kuomintang, which failed to gain enough seats to control the assembly, and the upstart Taiwan People’s Party, which holds the balance of power. Lai Ching-te on election night. Photographer: An Rong Xu/Bloomberg That makes the big winner of the election the status quo, which may bode well for the sensitive, three-way relationship between Taiwan, China and the US. Strong checks and balances between the executive and legislative arms of government make sharp changes in policy unlikely, potentially lowering the risk of changes that could, in turn, increase tensions between Washington and Beijing. The president-elect’s weak mandate and the divided assembly mean he must work with the opposition on crucial decisions, including on military funding. The [64-year-old]( has already pledged to look at his rivals’ policies, and to appoint officials from other parties to government. Lai, a man Beijing has previously branded an “[instigator of war](,” has toned down the rhetoric of his early political career, vowing to continue the foreign policy of current President Tsai Ing-wen — who is stepping down due to term limits — and maintain the status quo. China has refused to deal with Tsai during her administration, but in his victory speech on Saturday, Lai again said he’s open to talks with Beijing on an equal footing. China’s Taiwan Affairs Office repeated President Xi Jinping’s stated aim of unification with the island, and — without naming Lai — said his victory didn’t reflect mainstream public opinion. Six People’s Liberation Army warplanes, four navy vessels and one balloon were seen around Taiwan by Monday morning, according to the island’s defense ministry. That’s not particularly unusual. Supporters celebrate outside the DPP’s headquarters on Jan. 13. Photographer: An Rong Xu/Bloomberg In their campaigns, both the KMT and TPP had pledged to restart talks with China. In the words of TPP leader Ko Wen-je before the vote: “Taiwan’s relations with the US will remain resilient no matter who becomes the new president,” he said. “What [will change]( is how the new government engages with China.” The failure of either the KMT or TPP to win the presidency — and the [collapse of their talks]( last year for a joint bid — is a [setback for Xi](, as it shows how little China’s intimidation and influence operations have swayed public opinion. Political observers say China may now need to consider another way to exist peacefully with its neighbor after military and economic coercion failed to work. The DPP also lost votes because of domestic concerns, including the rising cost of living, and Lai signaled on Saturday night that he’ll form a more collaborative government. How did the US respond? “We do not support independence,” Joe Biden told reporters Saturday, a statement in line with existing US policy and conciliatory to China. US Secretary of State Antony Blinken said the election shows the strength of Taiwan’s “[robust democratic system](” and reiterated the US is committed to “cross-Strait peace and stability.” Republicans, including House Speaker Mike Johnson, also congratulated Lai. On Monday, a group of [former US officials]( arrived in Taiwan to meet President Tsai and her successor Lai. While that is customary following presidential elections, the talks will be a test of ties between Washington and Beijing, which have been improving. What do markets think of the result? Taiwan’s currency edged lower on Monday morning. Stocks posted modest gains, though tourism stocks were the worst-performing group, signaling investors may be pessimistic about prospects for a resumption of tours from China. While sentiment has been helped by the absence of any shock results, [investors are watching]( to see if the hung parliament leads to deadlock, or if Beijing takes stronger measures. What about Taiwan’s friends? It actually lost one more on the heels of the vote, with just 12 remaining diplomatic allies after the [Pacific island Nauru]( decided to cut ties in favor of Beijing. Nauru’s government said in a statement Monday that it “will sever ‘diplomatic relations’ with Taiwan as of this day and no longer develop any official relations or official exchanges with Taiwan.” And one more thing... In all the excitement of Saturday night, we noticed a lot of interest around Taiwan’s very transparent vote count. From outside a New Taipei City polling station, Bloomberg TV’s Yvonne Man gave the world a peek at the old-school process involving paper, white boards and a lot of shouting. And the public is able to watch it all unfold — and call out any possible discrepancies. 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