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Q+A-What local Taiwan elections mean for markets, China
Reuters - Thursday, November 25
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(For a related story, see [ID:nTOE68J046] and for a factbox, see [ID:nTOE6A805I])
TAIPEI, Nov 24 - Taiwan voters will pick mayors in five major cities on Saturday, setting a stage for the 2012 presidential race and likely chilling financial markets if the anti-China party picks up seats.
Here are questions and answers on election result impacts:
HOW WILL FINANCIAL MARKETS REACT?
Taiwan stocks <.TWII> and the Taiwan dollar <TWD=TP> will slip in the short term if the anti-China Democratic Progressive Party gains one or two seats in greater Taipei as forecast by media and political analysts.
Short-term investors may shun Taiwan for fear that the opposition DPP's new influence would lead it to the presidency in 2012 and threaten the ruling Nationalist Party's recent trade momentum [ID:nECFA] with Beijing after a 60-year chill.
"Some of their support for the Taiwan dollar is due to improved ties, so any sign that those may not continue would be negative," said Patrick Bennett, currency strategist with Standard Bank in Hong Kong.
But longer-term investors will keep their positions in Taiwan and short-term investors will return as they realise the DPP is unlikely to risk votes by rolling back the ruling party's widely supported trade deals with China.
A strong showing for the Nationalists on Saturday would see the markets firm slightly on hopes for more tie-ups with China.
CAN THE RESULTS BE USED TO FORECAST 2012 PRESIDENTIAL RACE?
A gain in seats for either party on Saturday means more money and public exposure that can be leveraged into votes in 2012.
If the DPP keeps the two mayoral posts it controls and takes Taipei from the Nationalists, it also indicates a broader public discontent with President Ma Ying-jeou, whose poll ratings have slipped since a strong start when he took office in 2008.
However, Taiwan's political landscape changes fast, meaning the 2012 race will most likely hinge not on 2010 issues but on whatever issues dominate the news late next year.
Continued strength in Taiwan's export-reliant economy [ID:nTOE67F075] after last year's recession would give the ruling party a solid foundation for 2012.
WHAT IS CHINA PREPARED TO DO?
Beijing is hoping the Nationalists, its former Chinese civil war enemies who fled to Taiwan in the 1940s, will stay in power. Chinese officials believe that party is more receptive to their goal of political reunification.
But China is preparing at the same time for a change.
It is engaging the once more hawkish DPP through informal talks focused on the economy. But the DPP has not given up support for Taiwan's de jure independence from Beijing, a bottom line that China says would lead to war if put into practice.
A strong DPP showing on Saturday would prompt China to step up efforts to back Ma's expected re-election campaign with economic sweeteners. But it would also stop Beijing from offering political concessions.
"If China stops its buying spree , that hurts Ma even more, but it's not giving away everything," said Lin Chong-pin, strategic studies professor at Tamkang University in Taiwan. "Beijing hasn't given the ultimate concessions yet, like removing missiles. It's playing a waiting game."
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