"For the KMT this election was a hollow victory." Such was the verdict of Wang Dan, a prominent Chinese dissident who currently teaches at Taiwan's National Tsing Hua University, when speaking to the BBC after the Nov. 27 elections.

In this election there was no loser. The KMT won more mayoral seats than the DPP, whereas the DPP won a higher percentage of the total public vote. But the election also failed to produce a winner. Both parties need to tread very carefully to handle the changing political landscape in the wake of the election.

Now that Taiwan's two political camps are of comparable strength, "the ruling and opposition parties need to sit down and talk. Otherwise, with the current confrontation between the political parties, it will be very difficult to iron out many problems," contends Tung Chen-yuan, professor at the Graduate Institute of Development Studies, National Chengchi University.

He cites as examples economic issues and cross-strait relations, which will affect the future development of Taiwan's five special municipalities – Taipei, Xinbei, Taichung, Tainan and Kaohsiung.

Economic Challenges for the KMT

While the economic figures presently look good, the government will face a severe challenge next year.

In the wake of the financial crisis, Taiwan is expected to post economic growth of 9.98 percent this year, which would be a 21-year high. But Tung warns that Taiwan won't be able to maintain that growth momentum. Next year the island's economic development will reach its limits, Tung predicts.

Pointing to United Nations' statistics, Tung notes that Taiwan ranks only 54th worldwide when it comes to its attractiveness as a destination for foreign direct investment, lagging behind other Asian nations such as Indonesia and Thailand, not to mention Hong Kong and Singapore. "The future challenges are going to be enormous," Tung believes.

In the foreseeable future Taiwan needs to switch its economic focus from manufacturing to services, from an economy of scale to an economy based on branding, experience and innovation, Tung avers. Given that the service industry accounts for 73 percent of Taiwan's GDP and employs 64 percent of the working population, GDP and employment won't increase and the wealth gap won't narrow unless the government puts in some serious effort.

This is also the key reason why the DPP was able to gain a higher share of total votes cast than the KMT. Tung attributes the DPP's success to four features of its campaign strategy: first, supporting the interests of central and southern Taiwan; second, championing the lower echelons of society; third, looking after the interests of small- and medium-sized enterprises; and fourth, targeting the middle class.

"If the DPP continues to achieve breakthroughs in that regard, winning in (the presidential election of) 2012 will be a huge challenge for the KMT," Tung predicts.

Cross-Strait Challenges for the DPP

But the DPP also needs to face the challenge of increasing rapprochement with China. In southern Taiwan, where two thirds of the vote went to the DPP, post-merger Kaohsiung and Tainan need to quickly overhaul their industrial structure if they want to develop and gain greater international visibility. In order to achieve that, the two municipalities will also have to face the necessity of intensified interaction with China.

Aside from channeling private-sector prowess and innovation, and attracting foreign capital and technology, the south must capitalize on its advantage as a sea and air transportation hub. As for proposals to promote Kaohsiung as a "Sea and Air Trade City," Liao Da-chi, a professor at the Department of Political Economy at National Sun Yat-sen University, warns: "Even if the central government doles out the money, the local government also needs to have a strategy. It can't neglect building good mutual relations with China."

Even if Kaohsiung mayor Chen Chu manages to thrust aside her own ideological constraints, Liao believes she will probably find it difficult to strengthen exchanges with China, given the generally negative attitude toward China among most people in southern Taiwan.

Tainan City, meanwhile, managed to gain elevation as a special municipality based on its status as Taiwan's historical and cultural capital. But the new municipality, a merger of what was formerly Tainan City and surrounding Tainan County cannot afford to focus its economic development solely on its urban core. Erstwhile Tainan County, which is largely agricultural, must make further progress in developing high-end agribusiness. Tainan must also work for more international exchanges and must not neglect the Chinese market.

As leaders of the newly merged and upgraded municipalities, Kaohsiung mayor Chen Chu and Tainan mayor William Lai will have to pragmatically go about the business of wooing investors. But reconciling practical economic concerns with the DPP's pro-independence views will surely put them to the test.

A New Future for Taiwan's Regional Development

After the election, Taiwan's north remains blue (the party color of the KMT), while the south remains green (the DPP's color). The different political camps have their own, differing interpretations of this outcome. But as Chiang Da-shu, professor at the Department of Public Policy and Administration of National Chi Nan University, asserts, "From the perspective of regional development and urban planning, this is definitely a good direction." For the sake of regional development, the five municipalities will surely need more platforms for cooperation, be it in the field of transportation or related public facilities, Chiang believes. Given that the northern neighbors Taipei City and Xinbei City are ruled by one political party and the southern neighbors Tainan and Kaohsiung are ruled by the other, political confrontation can be eased and regional cooperation facilitated as a result.

But while the five municipalities share many problems, they also face different challenges. What all five have in common is a restructuring of local government finances, given that the central government will have to cede certain powers and funding. Taipei, Xinbei, Taichung, Tainan and Kaohsiung will all need to efficiently use and manage their newly gained resources in order to develop their own distinct profiles and be internationally competitive.

While being upgraded in status, the cities of Taichung, Tainan and Kaohsiung have also merged with their surrounding counties. These three special municipalities will face major challenges in establishing new spatial frameworks for regional development. They will all have new administrative teams, new boundaries, and even new city council compositions. And their mayors will have to establish political agendas to be implemented by their respective teams. "The pressure to integrate will be considerable," predicts Chiang.

Translated from the Chinese by Susanne Ganz