New Taiwan President Lai Ching-te urged China to stop its intimidation of the democratic island, comments aimed at calming a dispute at the heart of a geopolitical rivalry involving the world’s two biggest powers. 

“I call on China to stop intimidating Taiwan verbally and militarily, and, together with Taiwan, to shoulder our responsibility to the world to do our utmost to maintain peace and stability in the Taiwan Strait and the region,” Lai said Monday in his inaugural address on an overcast day in Taipei. It was up to Beijing “to ensure that the world is free from the fear of war,” he said.

The 64-year-old former kidney doctor and ex-vice president said Beijing should hold talks with his government on an equal basis, while acknowledging that China was unlikely to give up its attempt to annex the island. He reiterated his previous pledges to maintain the status quo with China.

Lai also repeated Tsai’s position that the Republic of China — Taiwan’s formal name — and the People’s Republic of China are not subordinate to each other. That line got the biggest cheer of his speech from the crowd of dignitaries.

The benchmark Taiex gauge of stocks fell as much as 0.7 per cent following Lai’s speech. The Taiwan dollar weakened 0.1 per cent to trade at 32.25 versus the greenback.

Taipei’s relations with Beijing have become more pressing as China has stepped up military activity near Taiwan, raising the spectre of a conflict. President Joe Biden has repeatedly said the US would defend the self-governing island of 23 million people from any attack by China. Bloomberg Economics estimates a war over Taiwan would cost around $10 trillion, equal to about 10 per cent of global GDP, dwarfing the blow from Ukraine, COVID-19 and the global financial crisis. 

How Lai manages relations with China as his government takes shape will be closely watched in Beijing and Washington. Beijing cut off direct communication with Taipei after the former president, Tsai Ing-wen, refused to accept the notion Taiwan is part of China when she came to power in 2016. 

Lai has regularly indicated he will continue many of Tsai’s polices — including embracing the US — a stance that means Taipei-Beijing relations will likely remain frosty in the coming years. China has referred to Lai in the past as an “instigator of war,” and pledged to bring Taiwan under its control someday, by force if necessary. 

In his speech, Lai also outlined the key elements of his economic policy in his address, saying his administration would seek to develop Taiwan’s semiconductor, artificial intelligence, military, surveillance technology and communications industries. He also promised to raise wages and also maintain a welcoming investment environment.

On Monday, China levelled largely symbolic sanctions on Boeing Defence, Space & Security and two other companies over arms sales to Taiwan. Beijing is likely to respond to Lai’s speech soon.

The US’s top liaison to Taiwan, Laura Rosenberger, attended Lai’s swearing in ceremony earlier in the day, and in a statement US Secretary of State Antony Blinken congratulated Lai on becoming president. 

“We look forward to working with President Lai and across Taiwan’s political spectrum to advance our shared interests and values, deepen our longstanding unofficial relationship, and maintain peace and stability across the Taiwan Strait,” Blinken said.

Tensions across the Taiwan Strait have escalated since mid-2022, when then-US House Speaker Nancy Pelosi visited Taipei and met with top leaders. Beijing responded to that trip with military drills that involved a mock blockade and missiles flying over Taiwan. 

After Lai’s election victory early this year, Taiwan’s security officials warned Beijing could step up its pressure on him once he takes charge, while also offering economic incentives to those who help further its goal of unification. 

Taiwan’s Defense Ministry said in a statement Monday that it continued to monitor the Taiwan Strait and that its operations were normal. Last week, China said it would sanction five Taiwanese political commentators and roll out a law to punish “separatists.”

Lai’s time in office could also be complicated by the opposition Kuomintang controlling the legislature, even as the economy keeps cruising along, thanks to an AI boom that has boosted exports for semiconductors and servers. 

KMT lawmakers are moving to expand their power in the legislature by pushing a bill that would require Lai to deliver a state of the nation address to them every year and make a separate appearance to answer questions. Any officials found lying to lawmakers could face prison. 

Highlighting how contentious Taiwan’s domestic politics may get during Lai’s term, lawmakers from the two main parties got into a physical tussle in the legislature on Friday.

More stories like this are available on bloomberg.com

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