While Taiwan stood its ground, Beijing negotiated trade deals with South Korea and countries in Southeast Asia, hurting Taiwan’s export competitiveness as its rivals got a piece of China’s economy, now No. 2 in the world with a GDP of about $7 trillion.
But Taiwan President Ma Ying-jeou set aside political differences after taking office in 2008 to establish trade, transit, and tourism links with China, ties worth billions of US dollars to the island economy. Mr. Ma was reelected this year with pledges to pick up the momentum.
Growing economic ties also reduce the risk of war, Taiwan's government has argued. As late as 2005, officials in Beijing said they would strike Taiwan if the two sides could not unify through peaceful means. But Beijing has not repeated the threat since Ma took office, signalling a record low in tensions over the past six decades.
“The so-called peace dividend from China will only continue to grow following President Ma’s re-election,” says Chang Ching-I, chief investment officer with HSBC Global Asset Management in Taiwan.
New capital from China would buffer Taiwan’s stock market whenever the island’s exports slow during economic downturns in Europe or the US. Inflows would particularly lift the island’s best firms, in turn raising employment at home and sales overseas.