December 2013 in Taiwan was damp and chilly. Showing no signs of letting up any time soon, the cold weather was strikingly similar to the results of CommonWealth Magazine's 2014 State of the Nation survey. This first survey done in President Ma Ying-jeou's second term indicated that people are still feeling the cold front that has enshrouded Taiwan's political, economic and social landscape, with nobody sure what the future holds.

The biggest challenges currently facing Taiwan, according to the survey, are a decline in government authority – public anger being at a boiling point over the rich-poor gap – and whether Taiwan's increasingly stressed national finances are strong enough to meet demands for economic growth and social equity. On the foreign affairs front, a Taiwan-China trade in services agreement and talk of political contacts (including a potential meeting between the presidents of the two countries) show that cross-Taiwan Strait relations have entered "deep waters."

Can Taiwan turn the situation around in 2014? The country's seven-in-one local elections late in the year will be an important litmus test for the Ma administration.

Plunging Government Credibility

In this year's survey, popular dissatisfaction and anxiety were higher than ever before. When asked about "Taiwan's current economic performance," 87.7 percent of respondents were dissatisfied (Table 1), far exceeding the previous high of 73.3 percent in the 2010 State of the Nation survey in Ma's first term.

Particularly worth noting is that 46.8 percent of respondents were not merely dissatisfied, but "very dissatisfied."

"When people are dissatisfied with the way things are and have no way out, their sense of discontent only becomes more intense," Chen Don-yun, chairman of National Chengchi University's Department of Public Administration, said with resignation after seeing the survey's results.

Looking back at 2013, Taiwan's statistics bureau – the Directorate General of Budget, Accounting and Statistics (DGBAS) – revised its GDP growth downwards four times and ultimately concluded economic growth would fall below 2 percent. At the same time, two of the few brands that represent Taiwan internationally – smartphone maker HTC Corp. and computer maker Acer Inc. – struggled, and the combination of weak economic growth and underwhelming performances by benchmark companies engendered a suffocating sense of gloom.

These and other blows have resulted in a near complete breakdown of public confidence in the government.

In late 2013, Council of Economic Planning and Development chief Kuan Chung-ming forecast relatively strong economic growth of 3.2 percent for 2014, but the public's confidence continued to waver, hesitant to move forward. That was reflected in the assessment of this year's economic prospects by State of the Nation survey respondents, with only 23.8 percent (Table 2) saying they were optimistic about the country's future development.

"The government's authority has plunged dramatically," says Huang Hsin-ta, an assistant professor in Tunghai University's Department of Political Science, attributing the problem to the lack of public trust in officials' expertise and credibility.

"Not only economic problems, but also a whole series of national land issues and food safety scares have surfaced, leaving the government's image riddled with holes. Aside from central bank governor Perng Fai-nan, no officials are seen as authoritative," Huang says.

That may be why the Ma government's approval rating has fallen so precipitously. Nearly 83 percent of respondents to this year's survey said they were "dissatisfied" with the Ma government's performance, a record high (Table 3). Premier Jiang Yi-huah only fared slightly better, with dissatisfaction in his performance at nearly 65 percent.

Rich-Poor Divide Disconnect

Government officials and the public differ on more than just expectations for the economy. They also are at odds on the severity of Taiwan's rich-poor divide, another issue on which the mutual trust between average citizens and the authorities has been torn.

Survey respondents cited the biggest threats to Taiwan as "a weak economy" (50.5 percent), "political infighting" (30 percent), and the "growing rich-poor divide" (15 percent). (Table 4)

A closer look at the results shows that the percentage of respondents who saw the rich-poor gap as a serious problem rose to 93.8 percent, the highest ever in any State of the Nation poll (Table 5). Indeed, 72.1 percent of respondents characterized the problem as"very serious."

"The rich-poor divide is a real issue. It's not like a more abstract issue such as identity where people can choose sides. For such a high percentage of people to be dissatisfied with the wealth gap is quite scary," says Huang, describing it as a time bomb that could threaten Taiwan's political stability.

Paradoxically, official figures are at odds with public perceptions. According to DGBAS household income surveys, Taiwan's income gap in 2012, whether based on household or individual income, improved slightly from the previous year. So why the clash between perception and reality?

Though government figures are not made up, they do face certain constraints that may prevent them from telling a complete story. It is hard for household income surveys, for example, to gather accurate numbers on high income earners. Also, dividing income earners into only five categories to describe income gaps may not be precise enough, because this dilutes the actual chasm between those at the very top and very bottom of the economic ladder.

Government surveys must improve, or they will have a hard time restoring people's trust in the objectivity of official figures.

Set to Face Southern Europe's Malaise?

Of course, the government has not simply ignored the rich-poor divide plaguing Taiwan. In the central government's 2012 budget, "social welfare expenditures" accounted for a bigger part of total spending (22.3 percent) than education (19.1 percent), national defense (16.1 percent) and economic development (14 percent). But only 8 percent of respondents in this year's survey said they were "confident" the government could narrow the wealth gap. (Table 6)

Where exactly does the problem lie, and why have the government's social welfare efforts not been felt by the public?

Peter Jen-der Lue, an associate professor in National Central University's Department of Social Welfare, observes that the lion's share of Taiwan's social welfare budget goes to retirement benefits for public employees – mainly civil servants, teachers and military personnel – rather than being invested in job training for the country's youth and helping others return to the workforce, as is the case in Sweden. That explains why Taiwan is mired in a vicious cycle of stagnant economic growth and burgeoning social welfare expenditures, Lue says.

Social welfare can either support an economy or undermine it. Social spending brought down Greece's economy but has invigorated economic activity in Sweden; the difference lies in how social welfare is defined and interpreted.

What has Lue particularly concerned is that if Taiwan continues on its current path, it could develop the "southern European disease" that has afflicted Greece, Spain and others.

One of the main harbingers of southern European disease, Lue says, is when social welfare expenditures are skewed toward cash payments rather than such services as child care or long-term care and go predominantly to the elderly rather than the productive part of the population. As a result, Taiwan may appear to be spending a lot on social benefits, but the targets and effectiveness of that spending are far different than in Sweden, for example.

Finances Hurt by Inability to Tax the Rich

National Chengchi University's Chen warns that at the heart of democratic values is caring for the disadvantaged. In other words, if there's no money, there's no democracy, he says, "because whether it's caring for people with disabilities or supporting the national health insurance system, everything requires money."

Taiwan's dilemma in maintaining democratic values is that a growing number of people have needed help as the rich-poor divide widens, yet the super-wealthy have emerged as tax "outlaws," threatening the sustainability of the government's finances.

When Taiwan's Kuomintang (KMT) retook power from the Democratic Progressive Party (DPP) in 2008, tax revenues were sufficient to keep the government solvent for eight to nine months, but by 2012, they were only sufficient to keep government operations going for 7.4 months. The deterioration in tax revenues forced the government to rely more than ever on debt, reaching 15 percent of total government spending in 2012. If Taiwan had not issued debt to plug its financial shortfall, the government would have been forced to shut down for nearly two months.

New Variables in Relations with China

Compared with domestic politics, Taiwan's relations with China have advanced at a far faster pace and taken much broader strides.

In the president's first term, Taiwan and China signed the Economic Cooperation Framework Agreement (ECFA). In June 2013they followed that up with an agreement on trade in services, now awaiting legislative approval.

Yet, the percentage of respondents worried that Taiwan's economy is too dependent on China rose slightly from 61 percent the last time the State of the Nation survey was conducted in 2010 to 64.3 percent this year (Table 7).

That could be because the ECFA did not deliver a noticeable shot in the arm to Taiwan's economy. Belying the political rhetoric supporting the proposal at the time, the lackluster outcome has only deepened public concerns about Taiwan's excessive economic reliance on China.

This higher anxiety has only galvanized the public's desire for greater government transparency in its dealings with Beijing. Asked about the trade in services agreement, which has yet to be approved by Taiwan's Legislative Yuan, 72.2 percent of respondents said there was too little disclosure of information related to the pact, making it hard to understand its contents. (Table 8)

More than 40 percent saw the agreement as unfavorable to Taiwan, outpacing the 30 percent who supported it. (Table 9)

"You can't find any government official who serves as a policy spokesman. So no matter how policies are marketed, it will be difficult to sell them," says an exasperated Chen. Once the people lack confidence in a government, he adds, trust will naturally suffer.

But there are signs that cross-strait negotiations are currently evolving from an initial phase focused on economic relations to a later phase centered on politics.

At the 2013 APEC leaders' summit in Bali, Indonesia, the heads of Taiwan's Mainland Affairs Council, Wang Yu-chi, and China's Taiwan Affairs Office, Zhang Zhijun, had a "chance" encounter and addressed each other by their official titles, almost unheard-of in Taiwan-Chinarelations.

That was followed by President Ma's trial balloon that he might meet Chinese president Xi Jinping at the 2014 leaders' summit to take place in Beijing, ratcheting up talk of closer political contact between the two sides. Such a meeting would be a major milestone not only because sitting presidents of Taiwan (formally known as the Republic of China) and the People's Republic of China have never met, but also because no Taiwanese president has ever attended an APEC leaders' summit in person because of Beijing's objections.

About 60 percent of respondents said they would welcome a Ma-Xi meeting under the condition that he attend in his capacity as "Republic of China president." (Table 10)

But one expert with scant enthusiasmfor the idea is Chang Jung-feng, who served as deputy secretary-general of the National Security Council and now heads the Chung-Hua Institution for Economic Research's First Research Division, which specializes on China's economy.

"Taiwan has already been belittled for too long, so it pays special importance to names and titles. But people have overlooked the question of what exactly there is to talk about after such a meeting is held," Chang says, comparing it to the marriage of a prince and princess. It may seem like a perfect match, but success will still be determined by basic issues related to daily life.

Chang, who also participated in negotiations with China on Taiwan's accession to the World Trade Organization, said China's bottom line, whether "one China" or the "1992 consensus," has always been strictly adhered to, but its negotiating tactics have been highly flexible. All Ma did in raising the idea of meeting Xi was to set the precondition of meeting on an equal footing, but that may result in Taiwan being forced to play the game by China's rules and end up the passive partner, Chang argues.

In fact, Taiwanese public opinion not only serves to bolster the idea of a Ma-Xi meeting, but may also function as a force of restraint. That's because the public's view of cross-strait relations has undergone a change.

Compared to the State of the Nation survey of 2009, the most recent survey found that the percentage of respondents hoping for "an independent Taiwan but still maintaining peaceful relations with China" or "Taiwan becoming independent as quickly as possible" nearly doubled to 43.1 percent. The once mainstream consensus of "maintaining the status quo," on the other hand, fell from 57.8 percent to 43.5 percent (Table 11 & 12).

In other words, many people who previously advocated "maintaining the status quo" shifted toward support of independence. The percentage of those supporting "unification" and "unification with conditions" also rose slightly from 6.5 percent to 9.4 percent.

"Increasing exchanges have enabled people to see more clearly the differences that exist between the two sides," Chang said, not surprised by the big migration toward independence.

Year-end Elections – Battling for Central Taiwan

From the looks of it, Ma's government will have a challenge in dealing with both domestic issues and China in 2014, complicated by the mid-term referendum it will face in year-end local elections – called "seven-in-one" elections because they will involve seven different local government positions, from mayor to ward chief.

Because of the steady stream of negative news in 2013, more survey respondents felt the party mostly likely to win a majority of the local seats at stake would be the opposition DPP (32 percent),rather than the ruling KMT (25.6 percent). (Currently,the DPPholds just six of the 22 mayoral and county commissioner seats up for election.) (Table 13).

A more detailed look at the polling data reveals that most respondents aged 20 to 39 expected the DPP to prevail in the year-end polls, perhaps reflecting the limited job opportunities and stagnant wage growth faced by young Taiwanese and the trend of "citizen movements" becoming younger. (Table 14)

In regional terms, it was not surprising that respondents in northern Taiwan would lean toward favoring the KMT while those in southern Taiwan leaned heavily toward the DPP. But the survey found that the KMT's edge in central Taiwan may be waning, with 10.7 percent more respondents living in that part of the country backing the DPP than the KMT to win a majority of local government seats. (Table 15)

"Nantou and Zhanghua counties have both run into problems, and Jason Hu has been in power for too long in Taichung," says Tunghai University's Huang Hsin-ta. "Also, KMT candidates in three other pan-blue cities and counties where the KMT incumbents are at the end of their terms have yet to be decided, and it's unclear who stands the best chance, making it hard for supporters to rally around a candidate."

The further the Ma government falls, the higher it could rebound. It still potentially has the strength to bounce back from the depths, because the DPP was only favored by a 6.4 percent margin, and a critical administration move late in the game could still turn the election in its favor.

But the Ma government is in a race against time, because the patience of Taiwan's public is wearing thin over the administration's performance, as it tries to deliver results that can meet its own expectations and the expectations of the country's citizens.

Translated from the Chinese by Luke Sabatier