Geopolitical Monitoring Report | August 5, 2022

Asia | China/United States

China fires missiles in largest drills ever around Taiwan: Nikkei Asia

Background:

The military drills around Taiwan began at 12 PM local time on August 4 and are scheduled to conclude on August 7. Beijing launched the exercises in response to the surprise visit of U.S. House Speaker Nancy Pelosi on August 2. The exercises are the most extensive military activity around the democratic self-governing island since the 1995-1996 Third Taiwan Straits Crisis. Shortly after the crisis was resolved, then-House Speaker Newt Gingrich became the highest ranking U.S. official to ever visit Taiwan in 1997. The visit by Pelosi – only the second House Speaker to visit Taiwan – was not officially sanctioned by the Biden Administration, who warned against the trip, but Beijing appears to be considering the visit to be an official “state visit.” The ongoing military exercises are clearly a rehearsal for invading the island and some of the missile testing areas are actually located within Taiwan’s exclusive economic zone (EEZ). In addition, Japan has claimed that missiles fired by China in the exercises have strayed into its EEZ near Okinawa. If Beijing follows the playbook from the Third Taiwan Straits Crisis, it is likely that these will not be the only military exercises held in the straits over the next few months, with amphibious landing exercises likely.

Impact:

Beijing is not likely to launch a military invasion of Taiwan within the near future and the heavy-handed response to Pelosi’s visit is likely, in part, driven by internal domestic politics stemming from President Xi Jinping’s ongoing efforts to secure an unprecedented third term at the Communist Party Congress in November. The number of mobilized forces that are participating in the exercises are not sufficient to launch an invasion of Taiwan. The most bold direct military action against Taiwan by Beijing that is conceivable would be the seizure of some small island territories held by Taiwan – like the Kinman Islands – that are near the mainland. However, even this kind of escalation is unlikely due to the fact that they would spur economic sanctions from the West and the islands are of little strategic value. Despite the fact that China appears to be intent on just engaging in a show of force, the presence of military activity in one of the world’s busiest shipping lanes and some of the world’s busiest airspace creates the risk of accidents, especially given the fact that Chinese missiles have already accidentally landed in Japan’s EEZ. The military exercises have already caused multiple flight disruptions and course changes.

China has also responded by placing sanctions directly on Pelosi and by ending cooperation with the U.S. on climate change and cutting off military and drug enforcement coordination with the U.S. The ending of talks between Chinese and U.S. military commanders is one facet of Beijing’s response that will increase the risk of accidents and unintentional escalation. In addition to the threat of mishaps, the sanctions on Pelosi may elicit some type of response in-kind from the U.S. This could result in a tit-for-tat sanctions battle that could complicate doing business with Chinese companies, due to the fact that they are often wholly or partially controlled by the People’s Liberation Army. In particular, the breakdown of drug enforcement coordination also may result in Chinese chemical companies facing sanctions, due to their participation in producing precursor chemicals used to manufacture narcotics such as fentanyl. Finally, disinformation campaigns and other coordinated inauthentic behavior is almost certainly already being disseminated across both Chinese and Western social media sites as Beijing attempts to control the narrative surrounding Pelosi’s visit and the subsequent military exercises. This elevated activity is likely to continue throughout the duration of the crisis.

Mitigation:

Organizations should continue monitoring the situation around Taiwan and ensure they have mitigation plans in place in the event of unforeseen escalations, especially if they have operations in either country. In addition, they should prepare for possible shipping delays due to the fact that companies are having to adjust routes around the exercise zones. Companies that have supply chains that link back to Beijing should take extreme caution to ensure they are not engaging in businesses with sanctioned entities, especially as new sanctions are added and those already in place are likely to see increased enforcement. In addition, organizations should investigate any new potential suppliers or companies from China that they are doing business with to see if they have connections to potentially sanctioned entities.

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