Transcript: Taiwan defies China in election

This is an audio transcript of the FT News Briefing podcast episode: ‘Taiwan defies China in election’

Marc Filippino
Good morning from the Financial Times. Today is Monday, January 15th, and this is your FT News Briefing.

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The 2024 US presidential race gets under way for real today. And Taiwan chose a new president that China is firmly against.

Kathrin Hille
Beijing has made no secret that they do not like this politician, that in fact they detest him even more than the party in general.

Marc Filippino
Plus, America’s biggest banks didn’t do too shabby last quarter. But is it gonna last? I’m Marc Filippino and here’s the news you need to start your day.

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China called Taiwan’s election a choice between war and peace. But on Saturday, Taiwanese voters ignored that warning. Lai Ching-te will take over as Taiwan’s president later this year. His win is a setback for Beijing. China claims the island as part of its territory and has called Lai a dangerous separatist. The FT’s Kathrin Hille joins me from Taipei to talk about the fallout from the election. Hey, Kathrin.

Kathrin Hille
Hi, Marc.

Marc Filippino
So Taiwan’s president-elect, he doesn’t technically take office until May. But in the meantime, what should we know about him? Who is Lai Ching-te?

Kathrin Hille
Well, he started out as a doctor, but he has become a quite successful politician since. He is currently vice-president. Before that, he also served as premier and he’s been a local mayor down south, where the DPP, the ruling Democratic Progressive party, has their home base, so to say. And he belongs to the wing of the ruling party that is more strongly in favour of some kind of more formal independence for Taiwan. He has sympathised with these feelings in the past.

Marc Filippino
OK, so to that point, and I kind of hinted at this already, what does Beijing think of Lai?

Kathrin Hille
Beijing has made no secret that they do not like this politician, that in fact they detest him even more than the party in general. So their preferred candidate, so to say, during this election was the candidate of the Kuomintang, the Chinese Nationalist party in Taiwan, which is much more to Beijing’s liking, because this party embraces the notion that Taiwan is somehow part of the Chinese nation. And so Lai strongly disagrees with that. And that is why China wants nothing to do with him.

Marc Filippino
Given the attitude of China towards Lai, how is he looking to manage that relationship then? Has he given any insights?

Kathrin Hille
He gave a basic direction on Saturday night, right after it became clear that he had won the race. Lai adopted a very moderate tone. So he said that he was ready and hoping to restart dialogue with China. He said that both sides share the responsibility of keeping peace and security and stability in the Taiwan Strait, and he appealed to Beijing to try and work towards that.

Marc Filippino
And what about Lai’s party, the DPP? How does Saturday’s election influence how they tackle the China issue going forward?

Kathrin Hille
I think they will be forced to be very careful. And also, the election result itself will probably strongly constrain the party and Lai as president as well because although he gained the most votes in the presidential race, it was a three-way race. And if you add up the vote shares of the two opposition candidates, they actually got a lot more votes than he did. So he’s a minority president. He will be leading a minority government.

Marc Filippino
Kathrin, I think the big question on everyone’s mind is: what does this election mean for China’s threats or implied threats to take Taiwan by force?

Kathrin Hille
Before the election, there have been a lot of comments to the effect that if the DPP wins again, this would drastically raise the risk of conflict or even a Chinese attack. I do not think that this risk has significantly risen, and the main reason is actually the signals we’ve received already from Beijing. Within hours of the results coming in on Saturday night, the Chinese government actually already reacted with a statement from its Taiwan Affairs Office saying that the DPP victory cannot represent the mainstream of Taiwan public opinion. So they’re describing the fact that Lai has been elected a minority president. So that also means that China, from their own point of view, may still have a chance of convincing Taiwanese otherwise, and convincing Taiwanese of the merits of unification. That is totally out of step with the reality of public opinion in Taiwan. But if such a conviction still exists in the Chinese government, there is a lot of hope that they will not resort to force.

Marc Filippino
Kathrin Hille is the FT’s Greater China correspondent. She covers Taiwan. Thanks, Kathrin.

Kathrin Hille
Thank you.

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Marc Filippino
The 2024 US presidential election kicks off today in earnest.

News clip 1
And while the race is heating up, the weather is not.

Ron DeSantis
They can throw a blizzard at us and we are gonna fight.

Marc Filippino
The state of Iowa is holding its caucuses. Residents will have to brave terrible weather to choose which Republican candidate they want to run this fall.

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Candidates have had to brave bitterly cold and record low temperatures that have already forced them to cancel some events and get creative with others.

Marc Filippino
Former president Donald Trump is the person to beat.

Donald Trump
So we’re leading by a lot in all the polls, and you have to get out because we have to send a message, most importantly for November.

Marc Filippino
Trump is followed in the polls by former UN ambassador Nikki Haley.

Nikki Haley
Listen, you have a choice to make. This is go time. All eyes are on Iowa.

Marc Filippino
And the current governor of Florida, Ron DeSantis.

Ron DeSantis
We are gonna fight because we are going to turn this country around.

Marc Filippino
The remaining 49 states will go through a similar process over the next several months. The candidate that does the best in these states will face off against President Joe Biden in November.

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Major US banks have made a lot of money recently because of high interest rates. But it looks like that could start petering out soon. The four biggest banks reported fourth-quarter earnings on Friday and estimated that this year they’re gonna make less money from lending than last year. Here to talk about this is the FT’s US banking editor Josh Franklin. Hi, Josh.

Joshua Franklin
Hey.

Marc Filippino
All right. Can you sum up how the big banks did overall last year based on what we heard last week?

Joshua Franklin
So it really . . . The numbers that we saw on Friday really just did underscore just how lucrative the Federal Reserve lifting interest rates has been for the biggest US banks. It’s allowed big banks to charge more for the loans that they make to customers, and they haven’t come under a lot of pressure from savers to pay them higher savings rates. So really their profit margins have been improved. Some have benefited more than others. For JPMorgan Chase, which is the biggest bank, they actually had record profits for the year. They really did open a wide gap with its competitors that also reported earnings on Friday, with Citi, Wells Fargo and Bank of America.

Marc Filippino
And why did these big banks think that earnings from lending are gonna fall this year?

Joshua Franklin
So all the banks have said that they never expected these level of earnings were gonna be sustainable. And basically in 2024, I think what you’re going to see is eventually savers, over time, they do start putting more and more pressure on banks to increase savings rates. Ultimately, they can make the decision to pull their money and go elsewhere so they’ll face more and more pressure from that. And then also what the banks were expecting this year, and what more and more of Wall Street is expecting this year, is some level of interest rate cut by the Federal Reserve. So they think a combination of those things, competitive pressure and also interest rate cuts by the Fed, will weigh on profits.

Marc Filippino
Right. So as you mentioned, interest rates are expected to start falling this year, which eats into the money that banks can make through lending. But what about other parts of their business?

Joshua Franklin
So falling interest rates could also have tailwinds for other parts of their business, especially if you have big investment banking or trading businesses like some of these banks do. Lower interest rates potentially could mean that dealmaking activity and investment banking comes back, given the financing costs would come down and potentially could help stimulate the stock market in a number of other asset classes, meaning trading improves in their markets businesses. So even if the lending side of things isn’t as lucrative, falling interest rates would also have some tailwinds for the big banks.

Marc Filippino
Just taking a step back. Last week, we warned on the show that bad loans could drag down bank earnings. Was that not the case? I mean, what do these earnings results say about where the US economy is at right now?

Joshua Franklin
So it’s interesting, all the banks, you know, these are the four biggest banks in the US in terms of the number of deposits that they have. And they all said that the US consumer, which over the last few years has had excess deposits — or at least historically high deposits since the Covid-19 pandemic, when there were lots of government stimulus programs — they all said that consumers have gradually been spending down these savings, and we’ve seen those savings levels return to historically normal levels, which is obviously a little bit of a concern at a time when there’s a bit of anxiety about the state of the US economy. But all the banks were quite optimistic about the overall financial health of the consumer, even if they weren’t sitting on such healthy savings as they were 12 months ago. I think the thing that’s giving them a lot of comfort is the fact that unemployment is still low, and as long as unemployment stays low, I think the big banks feel like that means that people won’t default on a lot of their loans.

Marc Filippino
That’s the FT’s Josh Franklin. He’s our US banking editor. Thanks, Josh.

Joshua Franklin
Thanks very much.

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Marc Filippino
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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