Previous Quarterly Editions
Expropriation Risk: HK: 40 39 38 51 ▲. T: 40 39 38 40 ▲Political Violence Risk:HK:48 48 48 48 ► T: 35 35 35 48 ▲Terrorism Risk:HK:15 15 15 12 ► T: 15 15 15 12 ►Exchange Transfer and Trade Sanction Risk: HK:13 13 13 13 ► T: 13 13 13 13 ►Sovereign Default Risk:HK:15 15 15 15 ► T: 15 15 15 26 ▲
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: - Food/fuel policy protests: Low
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: High Low
Cost-of-living protest risk in 2023*Wage protest: - Food/fuel policy protests: -
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Taiwan escaped the worst of recent global inflation, largely because the government controls the price of gas, electricity, and water. Electricity prices, for example, have been frozen since 2018. There were, however, significant rises in the price of food during the COVID-19 pandemic that eroded the wage growth of, among others, service sector workers, which represents the largest proportion of the labour force. High housing prices, moreover, have been a driver of resentment for years, and many young people in major cities complain that they will never own a home if the situation continues.
Widespread perceptions the current government has failed to address sluggish wage growth, rising food prices, and out-of-reach housing, led to a sharp rebuke for the ruling party in local elections held in November 2022. In the municipal and county elections, the opposition Kuomintang (KMT) defeated ruling Democratic Progressive Party (DPP) candidates in a number of important mayoral races and recaptured control of most of northern Taiwan including the capital, Taipei.
The KMT, which ruled Taiwan unchallenged for decades, garnered only 31% of the vote in the 2016 national elections. The party’s resurgence in the 2022 elections resulted chiefly from discontent with the government’s handling of bread-and-butter economic issues.
While protests over food prices are not uncommon in Taiwan, instability is unlikely. The public was generally satisfied with the government’s handling of the pandemic, and there is little faith among the electorate that either of Taiwan’s main political factions will handle persistently low wages and high housing costs sufficiently. This suggests political apathy over public upheaval.
Moreover, in the run-up to the 2024 presidential election, the attention of voters will pivot from local economic conditions to national security. China, which claims Taiwan as territory of its own, has grown increasingly aggressive in its rhetoric and military posturing. It is Taiwan’s chief national security concern and the sole focus of defence preparations. The ruling DPP, which has traditionally advocated a permanent separation from China, is the more trusted pair of hands when it comes to managing this all-important issue. This suggests the political rebuke suffered by the DPP in 2022 is unlikely to be repeated in 2024.
Meanwhile, Hong Kong’s inflation rate hit a seven-year high of 4.4% as it eased out of COVID restrictions in September 2022. Although inflation has slowed since then, rising food and electricity prices have caused public anger. Traditionally, the Hong Kong government has sought to control inflation by buying Hong Kong dollars to strengthen the local currency. To offset rising prices, the government has also been making stimulus payments directly to residents.
While public protests are possible, they are unlikely. In recent years, Beijing has sought to undermine civil liberties in Hong Kong, and local police have quashed the pro-democracy protests of the recent past. In June 2020, China passed a national security law for Hong Kong that has already been used to prosecute pro-democracy activists. Opponents of the government have been demoralised by the crackdown. Thus, further instability is unlikely at present.
There is nothing to suggest a significant risk of Taiwan’s government expropriating foreign assets. Taiwan is a politically stable liberal democracy with robust rule of law. Moreover, Taipei courts foreign investment and has long hoped to make Taiwan attractive to foreign businesses and entrepreneurs.
For its part, Hong Kong's government recognises that foreign business is central to the city’s economy and would not want to alarm investors by expropriating foreign property. There were initially fears that the Anti-Foreign-Sanctions Law passed in mainland China would be extended to Hong Kong. The law authorizes the government to seize assets of individuals and organisations that participate in sanctions against China.
However, China did not impose the law on Hong Kong, and does not appear poised to do so. There remains a risk, however, China’s increasing assertiveness regarding the West will erode confidence in Hong Kong as a gateway to the China market and the rest of East Asia.
TREND HK ► T ▲
The protest movement that disrupted business, transport, and air travel in Hong Kong for much of 2019 has been crushed, and its leaders and most extreme members arrested. Many of the less-committed protesters will be deterred from further activism. We cannot rule out another round of protests at some point, but these it is unlikely these would approach the same level of disruption and destruction. Indeed, many pro-democracy activists are now moving abroad.
Taiwan, meanwhile, is a stable liberal democracy, as noted above. However, political engagement is high and protest rallies about various issues are not uncommon. It is possible a controversial issue, probably relating to China, could galvanise another mass movement, but it would most likely be localized, brief, and largely peaceful.
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Taiwan has no known terrorist threat, either indigenous or from overseas. Were tensions with China to reach a crisis level, sabotage by Chinese operatives is plausible.
In Hong Kong, the authorities have dismantled the organizational structures that have mobilized and channelled political opposition to the government. This could make some activists more susceptible to radicalisation.
There is a small risk of lone-wolf or small-scale, organized attacks. These would probably be unsophisticated, given the perpetrators’ likely inexperience. Government facilities and personnel would be the preferred targets, but more accessible infrastructure and businesses perceived as pro-China are possibilities.
The U.S. administration has maintained its predecessor’s revocation of Hong Kong’s special trade status and expanded targeted sanctions on senior officials. Hong Kong’s economy depends on international trade and on the financial sector, which in turn depends on the free capital flow. This, along with its small size, means Hong Kong’s government is not in a strong position to impose sanctions or capital controls on a large scale. If mainland China's Anti-Foreign-Sanctions Law is extended to Hong Kong, tit-for-tat targeted sanctions would be possible.
The sanctions risk in Taiwan, meanwhile, relates entirely to China. Political tension poses an ever-present threat to cross-Strait trade. Beijing has a record of using undeclared, de facto trade sanctions to try to coerce other governments, including Taiwan’s, and can implement them quickly and without warning.
Taiwan’s fiscal position is strong, with public debt around 30% of GDP. Foreign exchange reserves are among the highest in the world and as of February 2023, were at a high of more than USD558.4 billion. For its part, Hong Kong has almost no public debt and its currency is fully backed by foreign exchange reserves under a currency board system.
There is nothing to suggest that government entities in Taiwan would, nor easily could, withhold payment from creditors for political reasons. Hong Kong might plausibly do so if it adopts mainland China’s Anti-Foreign-Sanctions Law. Such counter sanctions are likely to be employed conservatively if at all and imposed in a tit-for-tat rather than escalatory manner.
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