Strengthening his position in the Congress after winning the elections for the third time, Xi Jinping raised the Taiwan issue in the Congress. His harsh words and constitutional amendments have stoked up fears of a large-scale military operation against Taiwan. A probable China-Taiwan confrontation would have far-reaching repercussions. Taiwan’s dominance in the chip market and the crucial role of the Taiwan Strait as a major shipping route can be cited as the most obvious concerns. Against this backdrop, this paper seeks to find answers to the question of “What awaits the Taiwan Strait and thus global supply chain after the CCP Congress?”
4th Taiwan Strait Crisis[i]: China’s Reaction to Pelosi’s Visit
Concerns about Taiwan have risen rapidly with Nancy Pelosi’s visit to Taipei, the highest visit by an American official since Newt Gingrich in 1997. After landing on August 2, the People’s Liberation Army (PLA) launched a series of joint military exercises around Taiwan. The PLA declared six exercise areas around Taiwan that were selected to show how China could cut off Taiwan’s ports, attack its key military installations, and cut off access for foreign forces that might come to Taiwan’s aid. Moreover, three of China’s designated sea zones for exercises encroached on territorial waters claimed by Taiwan. The exercise allowed the PLA to monitor the entire shipping route; it sought to demonstrate its ability to block Taiwan’s shipping and air traffic through the use of live missiles and to normalize its presence in Taiwan’s territorial waters. However, five of the 11 ballistic missiles fired by China appear to have landed in Japan’s exclusive economic zone (EEZ). Concurrently with the exercise, China carried out cyber attacks, disinformation and economic coercion to erode public morale in Taiwan. Although debates continue, this period is publicly referred to as the “The 4th Taiwan Strait Crisis.” This military exercise partially simulated China’s invasion strategy, alongside indirectly demonstrating probable impacts of such eventuality on the global supply chain.
China’s military exercise affected key routes between Southeast and Northeast Asia, resulting in a detour that took longer, caused burning additional fuel. According to Wang Kwo-tsai, Taiwan’s minister of transport and communications, 18 international air routes were originally affected. He said the actual impact had been minimized by securing alternate routes, and no domestic flights were affected by the Chinese military exercises. Besides blocking standard oil transportation, the exercise caused massive congestion in shipping. The number of ships operating in the Taiwan Strait dropped from about 250 per day to just 15-20 ships only after the Chinese military blocked six zones in the Strait. Although Taiwan’s ports were operating as usual, some cargo ships and oil tankers bypassed the island to avoid a confrontation with the Chinese military, adding about half a day to travel time.
In most cases, the consequences of the exercises are not comparable to the current problems. The rapidly increasing cycle of the supply chain, in parallel with population growth, transportation, production, product demand, and similar factors, has multiplied shipping traffic in the region. Even minor delays for ships are a cause for concern when world trade is still recovering from the effects of the lockdown. Regional conflicts, such as the “4th Taiwan Strait Crisis”, force ships to take alternate routes, increasing transit time, disrupting schedules, and causing further delays and costs. The 4th Taiwan Strait Crisis only highlighted importance of its geostrategic location in the global supply chain.
Taiwan’s Importance in Global Supply Chain
Taiwan occupies a critical position in the global supply chain – manufacturing key semiconductors and electronic equipment (accounts for 64% of the total chip foundry market, and Taiwan Semiconductor Manufacturing Company, or TSMC, accounted for 53% of total foundry revenue in 2021). Taiwan controls 10 percent of the world’s shipping container capacity. The Taiwan Strait, which separates Taiwan from the continental Asia, is one of the busiest trade routesin the world for ships carrying goods between China, Japan, South Korea, and the rest of the world. Statistics show thathalf of the global container fleet passed through the Taiwan Strait this year, making it an important waterway for global supply chains.
“Taiwan Issue” in the CCP Congress
China’s slowing economy and the disruptions caused by the Covid-19 lockdown were two of the main concerns reiterated in the 20th CCP National Congress. The economic giant’s tolerance for economic pain is limited. On top of the existing problems, launching a military operation against Taiwan will have a devastating impact on the Chinese economy.
Chinese stance in face of Russian invasion of Ukraine has already provoked harsh criticism from across the globe. NATO named China a challenge for the first time in its history with its new strategic concept that will shed light to its defensive posture in the next 10 years. In the eventuality of an open confrontation, especially the disruptions in the supply chain and civilian travel, international public opinion to take an extremely negative turn against China.
Despite these indications, the CCP Congress stoked up fears. In his opening speech, General Secretary Xi Jinping said, “We will continue to strive for peaceful reunification with the greatest sincerity and the utmost effort, but will never promise to renounce the use of force.” The new amendments to the CCP Constitution adopted at the congress, emphasize the CCP’s commitment to “resolutely combat and contain Taiwan independence” and strengthen the Chinese military to promote the “unification of the motherland.” The Congress has shown its determination that China could resort to military action if necessary.
Risks and Alternatives for the Global Supply Chain
The Taiwan Defence Act-2021, passed by the United States Congress, uses the term of “fait accompli” to define China’s strategy to invade and take control of Taiwan so quickly that United States forces cannot respond effectively. As the same act states, the threat of invasion as “manifest during this decade, in fact in the next six years.” Defence minister of Taiwan Chiu Kuo-cheng said China would be completely prepared to launch an invasion by 2025. Secretary of State Antony Blinken said on Oct. 17 that China’s annexation plans are moving a “much faster timeline” than previously expected.
With the tensions rising in the Taiwan Strait, foreign companies are reassessing the risks and costs of doing business in Taiwan and maintaining supply chains that cross the Strait. Gartner, a Stamford-based technology research and advisory firm, found that 75% of supply chain executives are considering or implementing changes to their sourcing and manufacturing strategy in China and Taiwan, and 55% have already implemented their plans. However, it can be noted that many other companies do not sufficiently consider the current danger. Regarding the supply chain route in the strait, temporary measures are being taken due to the current/temporary crisis. Alternative transit points, Japan and the Philippines stand out on air traffic for northbound and southbound, while the Luzon Strait is considered as an alternative shipping route, although it adds a few days of ocean travel, cost, and travel risk during typhoon season.
Conclusion
In recent months, tension in the Indo-Pacific has been particularly high. The apparent signals about invasion of Taiwan were not removed at the CCP Congress, stoking more fears instead. Large scale military exercise, launched after Pelosi’s Taiwan visit on August 2, that publicly referred as “4th Taiwan Strait Crisis” partially simulated China’s invasion strategy, thereby demonstrated some possible damage to the global supply chain.
The Military Exercise caused flights and ships to take alternate routes, increasing transit time, disrupting schedules, and causing further delays and costs. Considering Taiwan’s crucial role in manufacturing key semiconductors (accounts for 64% of the total chip foundry market) and the Taiwan Strait’s critical position in the global supply chain (half of the global container fleet passes through), the potential threat may be more apparent.
Authorities emphasize that China’s invasion is much closer than expected. While many companies are reassessing the risks and costs of doing business in Taiwan and maintaining supply chains that cross the Strait, many others do not sufficiently consider the current danger. Regarding the supply chain route in the strait, temporary measures are being taken due to the current/temporary crisis.
References:
Conflicts to Come, 15 scenarios for 2030, Chaillot Paper, December 2020
Taiwan Defence Act of 2021
Taiwan Policy Act of 2022
Fatih Civrillioglu is a Research Assistant Intern at Beyond the Horizon ISSG.
The author would like to thank Dr. Tuba Yalinkilic for her support and contributions to the first draft of this paper.
[i] Previous Strait Crises: The “first Taiwan Strait Crisis” takes place in 1954 when a conflict breaks out between China and Taiwan over the offshore islands of Quemoy and Matsu. In response to Chinese artillery attacks on the Nationalist-held region, a mutual defense pact is signed between the United States and Taiwan. China begins bombarding Quemoy and Matsu islands on August 23, 1958. In response, President Eisenhower sends American soldiers, including a large fleet, into the Taiwan Strait. Even the use of nuclear weapons against China is conceivable for the United States. After high-level talks with the United States, China ceases its bombing, defusing the crisis. This period is referred to as the “second Taiwan Strait crisis.” The “third Taiwan Strait Crisis” erupts in 1995 over Taiwanese President Lee Teng-hui’s visit to his alma mater, Cornell University. The Clinton administration initially opposes the visit, but after a congressional resolution supporting it, Clinton welcomes Lee Teng-hui. China responds with months of military exercises, firing missiles in the waters off Taiwan, and rehearsing amphibious assaults on the island.