friendly ruling party lost all three legislative seats contested this month and dropped a county magistrate seat in December, signs of growing discontent ahead of more electoral tests later this year. The losses are a blow for President Ma Ying-jeou and his centrepiece policy of using trade talks to ease tension with China, which claims sovereignty over the self-ruled island and has threatened force to bring it under Beijing's rule. A magazine survey said approval ratings for Ma and his Nationalist Party, or KMT, fell in December. But the KMT still controls 75 percent of the seats in parliament, while the opposition won only four of the 17 cities and counties that voted in local elections last month. How will markets react? Short-term investors, keen to see more integration between export-reliant Taiwan and economic powerhouse China, may take money out of the island's stock and currency markets in response to setbacks for the ruling party. Those investors will watch especially for signs that Taiwan's anti-China opposition has a chance at regaining power, possibly freezing the island's efforts to sign trade deals with China. “Short-term flows are always very volatile,” said Tony Phoo, an economist with Standard Chartered Bank in Taipei. “If things appear not to be moving as expected, they'll take other opportunities elsewhere.” Why is the ruling party losing ground? Analysts say controversial policies are explained too late or too poorly, sometimes leaving senior Nationalist leaders out of the loop. The communication gap has hurt Ma's credibility in unifying the party and leading campaigns. Spotty communication over hot-button issues such as a prospective free trade-style pact with China and US beef imports has confused swing voters and allowed the opposition to steer debate, analysts say. The opposition Democratic Progressive Party, which ruled from 2000 to 2008, seeks Taiwan's formal independence from China. Some voters fear the trade pact will flood Taiwan's smaller market with Chinese goods, hurting business. The late October decision to allow U.S. beef imports met with a backlash over fears of mad cow disease. How will China-Taiwan relations be affected? The KMT is expected to continue talking to China about new trade links but hold back on any move that might upset the island's electorate. Ma's government has said the China trade pact, described as an “economic cooperation framework agreement,” needs 60 percent public support in Taiwan, a goal that could delay earlier hopes of getting the deal signed in the first half of 2010. What can the party do to gain popularity? The KMT, a 100-year-old party that once ruled all of China before losing the Chinese civil war to Mao Zedong's Communists and fleeing to Taiwan in 1949, says it needs to work on how it sells major policy moves to voters. “We need to do earlier and more communication on policy,” KMT spokeswoman Chen Shu-jung said. “That's Ma's promise.” The party should also develop a long-term strategy that makes sense to the public and cede more decision-making power to some of its senior legislators, analysts say. Where are the next battlegrounds? Four legislative districts will hold special elections on Feb. 27 to fill seats vacated by law-makers who left after being elected to local offices. At the end of the year, Taiwan's five biggest cities and counties, comprising about 60 percent of the electorate, will pick mayors and county magistrates. “It's a big test, and the result of that is a predictor for 2012,” said Lin Chong-pin, a strategic studies professor at Tamkang University in Taipei. In 2012, Ma is widely expected to seek re-election for another four-year term. Voters also choose a new parliament that year.
