Defending The Rebel Fortress (Taiwan) Part 1 Rising Tension with China

(Liability: The report is of the sole opinion of the author. No company or individual paid to sway the report. We do not claim liability. This is not financial or investment advice. This is not defence advice)

Lion Research Co fully supports the territorial integrity and sovereignty of Ukraine to 1991 borders.

Lion Research Co fully condemns anti-Asian/Chinese sentiments. Disapproval of the CCP and actions of the Chinese government is one of the reasons for these attacks. This is totally unacceptable. There is no place for bigotry.

Defending the Rebel Fortress

Map of Mainland Taiwan and nearby islands

Source: Google Maps, 2023

Defending the Rebel Kingdom Series:

Part 1: Rising Tensions with China

Part 2: Issues with ROC Armed Forces and PLA

Part 3: Hypothetical invasion

To start, the author would like to stress the need for respect for international law. The Armed Forces of China (PLA) cannot under any rational metric successfully invade Taiwan without very heavy casualties and should never attempt. During any invasion, Taiwan would suffer severe damage and there would be a humanitarian crisis. The status quo is beneficial to all parties. Unsettling this status quo will drastically change the Pacific and harm all even China. As time goes on the chance of success decreases.

After losing the Chinese civil war, which erupted soon after WWII ended, nationalist leader and general Chiang Kai-shek fled to Formosa and a few neighbouring islands in 1949. Known as the ‘Great Retreat’. The 180 km wide strait (distance varies depending on island) of Taiwan provided the natural defence barrier for the People’s Republic of China (PRC) to not be able to conquer them. Formosa has evolved into the western oriented and developed democracy of Taiwan (Republic of China/ROC). To this day the uneasy status quo lasts which is acceptable to both sides. Taiwan remains de facto independent whilst China claims sovereignty over the island. Few countries officially recognize Taiwan but many have informal relations of varying levels. In the past People's Republic Of China (PRC) has attempted to break this. It became one of the many theatres of tension and conflict during the cold war. There have been 3 main crises on the strait. The US in the past has intervened in these crises to prevent them spilling over into full wars. Nuclear weapons were even stationed in Taiwan which is not the case anymore. Lion Research Co does not support the deployment of nuclear weapons to Taiwan. The PRC has a policy where countries can only formal relations with either China or Taiwan, not both. It is known as the One China Policy.

The 4th strait crisis which has arguably already started will unfold in a number of stages. This is the crisis as it stands: The People’s Liberation Army/PLA regularly carries out military drills (including live firing) on their shores and near Taiwanese water. Beijing sortie aircraft into the air identification zones and sends vessels near Taiwanese shores. The most recent incursions as of writing were from the 7th to the 8th of August 2023 were 11 aircraft and 5 vessels were tracked according to the government press release. Moreover, the PLA routinely carries out cyber attacks and espionage campaigns.

Unconventional is the new Conventional:

Xi’s current power over China could be argued is stronger than during the reign of Mao Zedong. He is the General Secretary of the CCP (Chinese Communist Party), President and Paramount leader. There is currently no sizable opposition. Groups are fragmented and not centralised. Reasons for disapproval vary amongst individuals. Some oppose him in general whilst others only for his anti-corruption drive. On a legislative level, access to the National People’s Congress is strictly controlled. The Standing Committee of the Politburo is full of loyalists as goes for the senior ministers. Xi has support of the military and other security elements. The PLA itself is the armed wing of the CCP. Xi himself is Chairman of the Central Military Commission. There is no one with rank who would be suspected of planning a coup. It is hard to find an exact score for his popularity but it would be wrong to say he does not have some support amongst the ordinary public. During his time so far he has improved the economy, national standing and tackled corruption. He has taken an unprecedented third term with no end of rule in sight.

However, It is without question he will want his premiership to have a high point similar to the Ottoman Sultan Mehmed II taking Constantinople. Likely it will be more Sultan Mehmed IV and his catastrophic failure with Vienna if he does attempt an invasion. We can only hope no such order is given.

The initial phases of the war have already begun. There are parallels but also stark differences between Taiwan and Ukraine. Lessons from Ukraine are already being acted upon by Taiwan.

Strategic conflict planning and asymmetrical action has already commenced. Russian Chief of Staff Gerasimov calls for a 4:1 ratio for non-military to military action in his doctrine. Warfare today is not just direct action but also a combination of non-direct operations, informational space, economics and politics. Everyone, whether they know or not, is being influenced. China is following this and they will not, under any circumstances, jump straight into combat overnight.

Already cyber attacks are occurring in Taiwan. So far these have been aimed at swaying public opinion and targeting industry. During the visit of US Speaker Nancy Pelosi signs and messages were spread ,via hacks, to denounce her. Fake phishing emails are routinely aimed at the industry to harvest sensitive information. These are small in scale (relatively compared to what they could be). It is likely Xi will order large scale cyber attacks as the first serious aggressive action. The size of which would be unprecedented in the world. The PLA has issues however its cyber offensive capabilities are potent. Jen Easterly (US cybersecurity director) ,testified to Congress, they are an ‘epoch defining threat’. Russia, an ally of China, since 2013 has been routinely cyber attacking Ukraine. It can be expected Russia will provide assistance to China in return for Chinese aid in the invasion of Ukraine. Countries around the world are becoming more aware of the online threat. In 2018 the US upgraded the status of Cyber Command to make it the 10th Unified Command (there are now 11 after Space Command). These attacks will attempt to cripple infrastructure and civilian resolve. Banking and communication networks will be a priority. As with any large scale uncertainty there will be a bank run. The attacks will also be aimed at allies which may come to the aid of Taiwan. More critically, Taiwanese energy pipelines (will be discussed more later) are vulnerable. Taiwan is increasingly relying on LNG pipelines both onshore and offshore. These can be remotely attacked, such as the 2021 Colonial pipeline attack (US), crippling energy infrastructure. Regarding the Colonial Pipeline attack it was the billing systems which were targeted and the pipeline was shut down as a result. However, the pipelines themselves can be targeted. There should always be a mechanical back up alongside the digital systems. Critical infrastructure controls should not be connected to the internet of things or other systems which can be remotely accessed. Vital infrastructure such as water, electricity, transportation, and finance is becoming progressively interconnected.

Alongside these cyber attacks, there will be large scale misinformation. By bot-farms and propagandist figures alike. The aim of these will be to push a pro-Xi agenda. A ‘noble’ reason to regain control of Taiwan and to paint Taiwan as a weak target who will crumple. During the initial hours of full scale invasion of Ukraine there were baseless reports of ‘army crumpled upon contact’ and ‘air force wiped out’. This is to demoralise defenders and attempt to dissuade foreign support/aid.The first days of an invasion are the most critical.

To counter this Taiwan and allies need to formulate a joint command to identify and solve threats. Inviting Taiwan to NATO’s Cooperative Cyber Defence Centre of Excellence is a good step for a joint framework. Non-NATO members are in this group such as Ukraine and fellow Asian country Republic of South Korea (ROK). Taiwan’s admission to the 5 Eyes Group for signal intelligence can speed up the transfer of data on cyber threats.

Alongside Taiwan joining these groups, the deployment of western cyber specialists to Taiwan for joint exercises and training. Exploring how each other conducts activities and counter threats. Taiwan has not experienced large scale foreign military cooperation in decades. They need foreign experience desperately. Isolation in terms of defence strategy is a guaranteed way to fail.

In parallel to working with foreign militaries, Taiwan needs to work with civilian corporations such as Microsoft to patch exploits and social media companies to deal with misinformation. Ukraine has been working with Microsoft to constantly patch vulnerabilities. It would make sense for Ukraine and Taiwan to formulate a comprehensive partnership across a spectrum of fields. Regarding social media disinformation it is difficult. For X/Twitter It is questionable how much action Elon Musk, who has commercial interests in the Chinese market, would take to counter propaganda. Different scales of protection need to be envisaged. On the individual scale good password protections must be encouraged and cyber security education. All troops and civilians alike need basic cyber education. This goes for all countries.

On a foreign aid note providing aid to counter cyber attacks remotely also carries little political risk for foreign governments as there is no deployment of troops, low cost and the support does not have to be public. Foreign countries who are allies of Taiwan should also prepare their own cyber defences. Earlier this year malware was being used on Guam. Microsoft stated the group responsible has links to Beijing. Guam is a strategic US Armed Forces location. It includes naval and air installations. It would play an important role in a response to Chinese aggression in Taiwan.

After the Colonial Pipeline attack many failures were identified. The TSA only had 6 permanent staff for pipeline security. Simply a failure. Joe Biden has pledged to invest in pipeline defence, an area which has been underfunded due to complacency. There was a critical lack of risk management. National governments should do a full audit of their digital systems and perform mock attacks to test them.

Wars of economics:

Without actually doing any overt actions to harm the Taiwanese economy, Chinese military aggression due to fear is having a negative economic impact. Fear is a lethal danger to any economy. The Taiwanese economy has a GDP of slightly over 790 billion US dollars and is ranked highly on innovation, competitiveness and ease of doing business (ranked 15th in 2020). It is one of the ‘Four Tigers’. However, the report predicts investors, especially after Ukraine, will become increasingly concerned of putting their money in an increasingly politically volatile economy. Conversely, Taiwanese defence companies may positively benefit in investment. ROC’s government will have to divert more resources for PR and a charm offensive to offset PRC coastal military drills and airspace incursions. The future of the Taiwanese economy is not great. There is a major decrease in growth prediction in 2023. The Economic Intelligence Unit forecasts a decrease in real GDP growth from 2.4% in 2022 to 0.6% in 2023. However, inflation has been relatively low in ROC which is positive. This downward trend is mainly due to a reduction in demand for trade. It is likely this negative direction will continue due to onshoring. Joe Biden announced his CHIPS Act to encourage domestic production of microchips. Japanese companies are looking to do the same. Like how Samsung is vital to the economy of South Korea (20.3% of GDP in 2021, Statista), chip production is 15% of the Taiwannese GDP with the most famous corporation being TSMC. 60% of all semiconductor chips and 90% of the advanced ones are made on the small island. These are critical to global electronics and in turn world economies. Without semiconductor chips the world we know would not exist. Governments and policy makers around the world understand heightened dependance on Taiwan and will be looking to combat it. With global economic problems, after the full scale Russian Invasion of Ukraine, leaders also know promoting new jobs at home will appeal to voters. In 2022 oil and gas were the issues but with Taiwan it will be semiconductors. Taiwan will need to be forward-thinking and prepare for an economy with declining heavy industries. When the west had their decline in heavy industry it caused many socio-economic problems. Cities such as Newcastle, once heavy industry hubs, had spirals of decline. Moreover, Taiwan lacks natural resources which other countries can rely on. ROC will need strong long term economic plans. Due to politics and government changes it is quite difficult for most countries to set long term economic strategies which have bipartisan support.

After Cyber attacks if the foreign response is not great enough to dissuade further action; China will likely cease trade with Taiwan as the next step. Taiwan and China do have direct flights and sea trade. Taiwan’s economy is heavily dependent on mainland China. They are ROC’s biggest export and import partner. Taiwan, as an island, lacks raw materials needed for industry (machinery, minerals, metal, chemicals) and imports them from the mainland. Removing China as a source of trade and materials will cause severe harm. Additionally, Xi will likely use the western world’s reliance on Chinese trade and investment as a tactic to prevent Taiwan aid. Threatening to cut off anyone. It is likely many countries will abandon Taiwan to continue economic relations with China. Olaf Scholz, the German Chancellor, when asked about sanctions in the event of an Invasion the question was intentionally dodged. There is no collective western consensus on the issue. Even the US Armed Forces is reliant on Chinese exports for raw materials (antimony and lanthanum). The New Taiwan Dollar will take a heavy hit if an attack occurs. It is likely as tension increases, Taiwanese citizens will invest in more stable options such as USD and precious metals such as gold. Once an attack commences. Exchange rates need to be increased and fixed. Attempts to cut out black market deals and encourage foreign countries to support the New Taiwan Dollar. Since the first days of the full scale of invasion in Ukraine, the Polish National Bank and Ukraine have been doing currency swaps to maintain value. The US Treasury will have to do something similar. Furthermore, the government budget of Taiwan will immediately change upon increased tension and all out war. Defence and security will need to be the absolute priority. Unnecessary spending should be cut now and funds redirected. As of writing, there is a controversy in a couple of Ukrainian cities over the unnecessary usage of funds on public pavements, fountains, and culture when in their eyes the money should be spent on defence. Taiwan needs to think smart with its money. Military procurements need to be rational and within budget. This will be discussed more later.

Taiwan is having closer economic ties with China. This is good. This will mean that if war commences those deals and investments will be lost. Xi must understand that if he does successfully invade Taiwan the economy will be wrecked. Since a successful invasion will only be possible after utter destruction. As a result, improving the status quo with economic ties may help maintain said status quo. Foreign governments should further encourage and foster Cross Strait relations.

Return of The Economic Cold War and problems at home:

Another spectrum of this economic landscape is Chinese foreign investments under the ‘Belts and roads initiative’ (BRI). This interweaves politics and economics. It started in 2013 and currently there are 155 countries in all continents of the world (bar Antarctica). The list continues to grow albeit earlier this year Italy is starting to back off. The statement was released by the defence minister. This can be inferred as the Italian government believes there is a militaristic element to it. The official reasons for the BRI are a unified large market, culture exchange, innovation etc. it would be unwise to say there are not fundamental Chinese political and military benefits to this. Options for members include investment in infrastructure, loans, foreign aid. Over 50% of the world's population and nearly 40% of the world’s economy is included. There is no western equivalent to this in terms of size and scale. Traditionally western allies such as the philippines are turning towards China for economic investment. To counter this, Australia has the Blue Dot Network and G7 has the Build Back Better World. It will be hard for the west to counter the already established BRI, many deals and programs have already been signed.

There have been reports by foreign media and politicians of neo-colonialism at play. Some African presidents have spoken against it. Former Tanzanian President John Magufuli stated the conditions for loans were insane and the projects 'exploitative and awkward’. A prime example people point to is the southern Sri Lanka port of Hambantota. Which is part of the ‘21st Century Maritime Silk Road’. Due to financial constraints Sri Lanka could not afford the repayments and the port has since been leased to the Chinese for 99 years. This caused an uproar from Sri Lankan analysts, opposition politicians and foreign countries (India and USA). It was seen as predatory economics and NSA (National Security Advisor) for Trump John Bolton stated BRI was ‘advancing Chinese global domination’. At first it seems like a typical money trap is at play however this is a wrong picture. The port was suggested by Sri Lanka with Canada doing initial feasibility studies. India and the USA did not want to help and China secured the contract. Sri Lanka due to the civil war that ended in 2009, and other factors had a relatively fragile economy paired with excessive borrowing it simply could not pay the debt. The idea that BRI is simply a trap is unfounded. Many countries, especially the poor, have benefited and economists have stated the conditions are normally fair. It was reported Chinese banks are happy to restructure if conditions change and during covid Xi offered debt relief. This doesn't mean China doesn't benefit. China can expand the presence of its navy with these bases and develop its blue water capabilities. Moreover, if countries have strong economic ties and debt with China they will be less likely to support sanctions against the PRC if they invade Taiwan. The notion that sanctions will stop an armed conflict is flawed. They will damage the Chinese economy to a degree but Xi will not order an invasion overnight. The planning of military operations takes time. Sanctions will be a part of strategic planning and countermeasures envisioned.

China will not want to make the same mistakes as Russia. Expect a quick victory then have to come up with solutions ad hoc to problems that occur. After the initial invasion of Ukraine in 2014 there were some sanctions however forceful sanctions only truly started full scale invasion. Sanctions were levied against individuals, government organs and companies. Said sanctions have had a tangible impact on Russia and their fighting capabilities. Foreign reserves and assets have been either seized or frozen, dual use products and military products banned. Inflation is above average, ruble is getting weaker as time goes on. There have been counters such as restricting foreign currency movements, raising interest rates (up to 12% now) and not paying soldiers and defence workers to compensate for the massive budget deficits. Moreover, Russia uses shell companies to buy sanctioned parts. China has been supplying a number of semiconductors, machinery parts, bearings (including for MBT/Main Battle Tanks) to Russia in the face of sanctions.

Energy exports (oil and natural gas) are the main bulk of the Russian federal budget. Due to the invasion energy prices massively increased hence Russia initially were riding okay. With prices falling it has made the situation worse. Windfall taxes have been applied to companies and oligarchs such as the oil giant Gazprom. Starting recently Russia has taken the drastic action of ‘temporarily’ seizing the western companies starting with Danone and Carlsberg. Putin with his iron grip over Russia will do whatever he can to not run out of money. He will tax and seize whoever, whatever for money. These tactics have worked to a degree as the Russian economy is still standing even if it's in a precarious state. The human resource area Russia cannot fix easily. There are worker shortages. Fueled by ‘partial’ mobilisation, citizens and foreign migrants (who mainly come from Central Asia) are leaving. China can expect the same to happen. However, since China will not need to do conscription the number of Chinese who will leave will be much less. Moreover, to start with there are less foreign migrants in China than Russia (raw number and ratio) the impact will be felt a lot less.

Alongside the issue of demographics which will be discussed later. The Chinese economy is suffering from problems of its own.

Chinese debt is already high to start off with. Debt is currently 279.7% of GDP and is currently rising. Ideally GDP increases faster than debt but this rarely happens. China’s figure is not that much different from the US, Euro zone and is less than Japan. However private debt to GDP is massive. If the individual and corporation debt reaches a boiling point and it becomes unstable then government priorities will change. Cracks were shown by the Evergrande liquidity crisis which fuels the current property sector crisis. New regulation has been introduced (Three red lines) to attempt to combat this. Already many areas of China are impoverished, if there is a major financial crisis, the last thing the ordinary citizens will want is Xi to order a full scale invasion of Taiwan. Taipei does not impact the ordinary Chinese individuals but a large scale invasion will. Covid recovery is still happening. It will be hard due to the very strict nature of the lockdowns. According to government data exports and imports in July 2023 fell 14.5% and 12.4% respectively compared to July 2022. Beijing will be forced to allocate resources to counter this. There is a drop in export demand, which exceeds predictions, economists state this is due to rising living costs and hence less demand for Chinese goods. Moreover, after lockdowns in other countries there was mass spending. This was not the case in China. The strict lockdowns did keep numbers low however at a price for businesses and individuals. Many businesses fell under.

To further compound the problem the US will ban investment in certain high tech sectors such as advanced semiconductor chips, AI, Quantum computing. The UK and EU are also looking at similar investment and technology transfer restrictions. Investments with China are dropping and will likely continue to. However, the Chinese economy is still being massively invested in and is growing albeit slowly. However, there is no clear idea for when economic momentum will return.

Compared to the rest of the world which is dealing with inflation. China is dealing with the exact opposite. Deflation. Current figures show a deflation of 0.3%. You may believe this is good, however it is not. Ideally you want low inflation which is in line with wage increases. Deflation is a sign of a weakening economy. This will further put off global investment. Beijing will be forced to act. They need to encourage people to spend more. Historically houses have been a popular area to spend money with 3rd and even 4th homes not being unheard off. But this recent property crisis and more reports of poor quality construction (known as Tofu-dreg projects). There has been a drop in demand with mad selling. This will impact current military planning. The People’s Bank of China took the unexpected step of lowering interest rates. Rates on one year loans and medium-term lending facility (MLF) to 2.5% from 2.65% (15 basis points). Reverse repurchase agreements also dropped 10 basis points to 1.8% to 1.9%. This is an attempt to boost spending.

In addition to the aforementioned challenges. There is growing youth employment. Current figures are a staggering 21.3% (according to official data). Compare this with the UK’s 11.4%. There is a record number of university graduates over 11 million. To put this in perspective it is around 1/6 of the entire population of the UK. There is an issue with too many skilled and university educated people fighting for too little jobs. With time this number will only increase unless action is taken. Said action will use up the government budget. The job market is simply saturated. China to start with has one of the youngest official retirement ages in the world with 60 for men and 55 for women. This cannot be lowered even more to free up jobs since it will age the country even faster.

‘Made in China’ is well known everywhere around the world. However, it is starting to change. Once a country with cheap labour, labour in China is now relatively expensive in relation to other countries in Asia. More companies, such as Nike, are looking towards India, Vietnam and Indonesia. Apple has started manufacturing some devices in India, Dell will start production in Mexico and Vietnam these are just two of many examples. Currently 30% of the work force and 45% of the Chinese GDP is a secondary industry. Over the coming years these will drop as investment in secondary industry falls. With looming restrictions on high tech it will be difficult to replace cheap mass production with a high tech secondary industry. China will have to home grow its quaternary sector. If this manufacturing sector continues to decrease it will lead to more unemployment. Again it will require more government spending. More government spending may have the impact ,in this case positive, of increasing inflation rates to a more healthy figure. However, Xi will not want to increase government spending too much. In the wake of the 2008 financial crash there was overly excessive government support which is a factor for the state of the economy today. Economic disparity is already high in China and economic issues will only exacerbate the issue.

If the economic situation gets worse the last thing Beijing will want is an invasion. Argentina tried to do it with the Falklands. 1982, heavy opposition to the junta and poor economy. Invaded Falklands. Celebrations in the street and people turned an blind eye to the government then Britain liberated the Falklands. The Argentine populace got very angry and the junta fell soon after military defeat. Invading Taiwan will lead to China having a worse economy. If China wants a stronger economy and one which has access to advanced western technology. They need to reduce tensions with Taiwan.

After the full scale invasion of Ukraine by Russia. As part of economic measures the Moscow stock exchange was frozen to prevent investors from quickly pulling out. It is highly likely Beijing will do the same. Obviously when war happens, there is uncertainty and when there is uncertainty there is panic and concern. Investors will pull out. Panic was one of the core reasons for the 1929 Wall Street crash. As a result, the future of the Shanghai stock exchange will be looking increasingly dim. The same goes for the Taipei stock exchange. The Shanghai Stock Exchange in recent times has been performing poorly.

At the end of the day, China is and will remain as the second biggest economy in the world. It holds massive foreign reserves ($3.2 trillion), has countless foreign investments with the BRI and holds large amounts of debt bonds, especially US bonds.

In the short term they will be able to economically hold out. In the long term it is hard to predict. It depends what kind of scenario it is. A 2014 Russian invasion of Ukraine scenario where the west goes basically as normal with a few weak sanctions and continues to sell military equipment. Or a 2022 full scale invasion scenario where it is full of sanctions and strong action. The kind of response cannot be predicted. Due to the BRI and global reliance on China it is increasingly less likely to be a 2022 scenario.

Back to BRI. India has been a long standing critic of BRI. Mainly since Pakistan is a flagship country in the BRI with China - Pakistan Economic Corridor. India sees this as a national security risk. Pakistan-China ties are strong in other fields such as defence as well. Pakistan has brought modern Chinese tanks (VT-4), rocket artillery (A-100), artillery (SH-15) amongst other systems. India used to rely heavily on Russia but due to their illegal invasion there has been a significant pivot to the west. India with time will become an economic and military powerhouse. This cannot be doubted. It is likely the west will try to pivot other BRI critics to their side. However, it will be easier for China to attract countries to BRI than for the west to dissuade. The majority of the countries which are not in BRI are in NATO, EU, G7. BRI for the most part offers a good service that is hard to turn down.

In 2019 63.7% of Chinese energy was imported according to the US Energy Information Administration. It is predicted the level will increase. Energy is absolutely critical to all elements of a country; it is a matter of national security. Domestic production cannot keep up with increased domestic consumption due to rapid economic development. Coal is massive to the Chinese energy mix. However, Xi stated the dependency will decrease as part of climate control measures. There is a pledge for net zero by 2060. With BRI China’s presence in the international energy market increases. China is the world's largest investor in renewable energy by a massive margin. They will have a greater role in energy governance and control. It is likely they will become an OPEC observer. China and OPEC hold regular meetings and have a cordial dialogue. Energy for China will become cheaper which will further help in economic growth and hence more demand for said fuels.

The risk of using the sea has decreased. Historically most of the oil and gas (LNG) were shipped. By restricting the straits that lead to the South China Sea you could cease Chinese energy imports. Starting before and continuing with BRI a large number of pipelines have been built. These cannot be shut down easily by foreign players. New lines in the Central Asia-China Gas Pipeline, new Russian pipelines and more agreements with Turkmenistan are just some of the BRI energy deals. If China invades Taiwan it is likely the US will try to do a fuel embargo as part of sanctions. A reverse of the current plan to restrict Russian fuel exports. With BRI any prospective embargo will be very hard. Some BRI members will help bust an embargo.

Blockade:

A serious step up from a trade war would be a blockade. A formal act of war. PLAN (People’s Liberation Army Navy/Chinese Navy) does have the means to conduct a blockade at present of Taiwan via surface and submarine assets alongside land based anti-ship missile batteries. Effects of such actions would be widespread. This would cripple trade as well as the energy situation in Taiwan. A blockade can be the prelude to a full scale invasion; testing the water as such.

Taiwanese energy sources through the years

Source: Taiwan Ministry of Economic Affairs, Energy Generation

Taiwan at the moment is very heavily dependent on energy imports chiefly, coal and gas. There is some local production of oil and gas but it greatly outstrips the demand.

Since the oil and gas reserves are minimal it will not be viable to attempt to find more and increase production. Taiwan is instead looking to increase renewables with a target of 20% by 2025. Taiwan has the same claims over the South China Sea as the PRC and the claimed EEZ holds huge amounts of natural resources. However, the claims will never materialise. ROC claims the same as the PRC only for political reasons. Taiwan has been trying (and struggling) to deepen their relations with its Pacific and Oceania neighbours. Ideally, Taiwan should aim to be 100% renewable regarding electric power such as Iceland but this is far from feasible currently.

‘Just stop oil’ will never work. Fossil fuels are vital and must be phrased out in a controlled manner especially due to the island’s dependence on heavy industry. Taiwan mainly receives coal from Indonesia and Australia. These are stable suppliers and there are no expected issues. Regarding natural gas the main suppliers are Qatar, Malaysia and Indonesia. Again stable suppliers. It was a tactical move by Taiwan to wind down Russian fuel supplies before full scale war. Taiwan is looking to build more LNG plants and terminals with an aim to cut down on coal and be 50% gas by 2025. This will help with carbon emissions but will not help with their energy security as dependency issues still remain.

There are some small-scale solar, geothermal and wind farms alongside a few nuclear reactors, however these occupy only a small minority of the Taiwan energy mix. There should be a drive for self-dependence in the field of renewables. Wind energy has seen recent success. Encouraging local energy startups and enterprises for example to try to harness ocean current energy. The development and up front costs will be high but they will pay off. As more Asian countries turn to renewables. Exports of renewable energy machinery will be a lucrative market.

There has been at times anti-nuclear sentiment in Taiwan but this has changed. In 2018 one of the questions in the referendum was regarding nuclear energy. 59% of people voted for nuclear energy to continue. This is necessary. Once reserves run dry there will be major issues and likely mass panic. There is a mandatory fuel reserve, 60 days of consumption, however these fuel supplies will be at risk in case of war. To further compound problems. Taiwan is not a part of the International Atomic Energy Agency (IAEA), Organisation for Economic Cooperation and Development (OECD) nor the International Energy Agency (IEA). Firstly for safety Taiwan should at least be a part of IAEA. The two other groups can help Taiwan plan stockpiles, develop renewables and work with other countries on common goals. However, due to the political situation regarding the diplomatic status of Taiwan it may be challenging for admission into said groups.

All Taiwanese military vehicles and equipment run on fossil fuels so there will be severe civilian rationing in case of a blockade. Priority is defence and maintaining vital infrastructure such as hospitals. Prices will skyrocket astronomically. Dealing with the blockade would be a very tense game of chicken. Merchant ships could attempt to run the blockade with Taiwanese naval assistance. However, the Taiwanese navy would not want to make itself vulnerable by spreading its surface vessels thinly on escort missions. Would China attempt to stop civilian ships? You would have to find a crew happy to do this and more importantly would ship insurance cover. No ship owners will allow a move without ship insurance. Taiwan would need to set up a government owned insurance company for this purpose. As of writing this, merchant ships have run the Russian blockade. Russia has stopped and searched some vessels with helicopters however none have been damaged or destroyed in transit. Food, medication and other vital supplies will be allowed through to prevent a major global reaction. The USA, as the world’s premier military superpower, may send a powerful strike group and deploy rapid reaction troops to Taiwan (from Japan and Korea). It would show Xi any invasion would be met by force and would be futile. Putin would not have launched the full scale invasion if the west showed a show of force and support to Ukraine. If force is shown, Beijing would understand the status quo is the best they will get and is acceptable to all. Moreover, a successful defence of Ukraine will decrease the likelihood of Xi preceding past a blockade to a full invasion. This is why Taiwan has been happy allowing Ukraine to have precedence over itself in the defence procurement queue. Hypothetical actions by the US towards a blockade also depend on the presidency which cannot be predicted. It is extremely unlikely any country will act seriously if the US does not.

Risks from unconventional blockade attempts will need to be explored. Similar to Russia using the Wagner group to carry out operations without putting the government face on it. China will highly likely develop their own PMCs (Private Military Company) to carry out clandestine operations. These could include seizing vessels going to and from Taiwan, damaging port infrastructure etc. It will cause effects similar to a blockade but will not be a formal act of war. So far PRC has PSCs (Private Security Companies) which are much narrower in scope compared to PMCs. Russia has an insane number of PMCs; Wagner PMC, Patriot PMC (linked to Defence Minister Shogui), PMC Uragan (Hurricane), Gazprom PMC, RSB Group, Cossack PMC. The list is endless. These groups serve in Ukraine (especially the Bakhmut region), Syria, Libya, Mali and other areas of operations. They perform a number of roles from training foreign armies, direct action or specialist sabotage groups. Chinese PSCs also serve aboard in areas PRC has interests such as Somalia and Afghanistan to provide security. Moreover, in the South China Sea there are reports of a growing sea militia known as the ‘little blue men’ which help China exert their claims. This is reminiscent of Russia’s ‘little green men’ (Russian troops) in Crimea. The global response to these individuals will shape the future of Chinese PMC/PSCs operations.

As the Belts and Road initiative grows so will foreign deployments of PSC. Here valuable experience will be learnt. It will be likely false flags will be used for any start of the conflict. Such as the Mukden incident for the Japanese invasion of Manchuria. Or more recently before launching a full scale invasion Russia performed a number of fake attacks and explosions before falsely blaming Ukraine.

China does have the capabilities for this development and Chinese law does allow for the foreign deployment of PSCs. Unlike in Russia where PMCs are de jure Illegal.

However, due to the Wagner Rebellion/Coup on the 23rd June. Where a group of a few thousand troops led by Prizoghin and Uktin marched to within mere hours of Moscow and shot down 6 aircraft and damaged 1. The assault was rapid and the HQ of the Southern Military District in Rostov was captured. The political and military elite of China will be astutely aware of this concern. Any developed Chinese PMC will not have access to heavy vehicles (tanks, artillery etc) nor air defence, unlike what Wagner had. Such weapons are not needed for predicted PMC actions against Taiwan. Xi will want tight control over these PMCs. Likely objectives will be set by the Politburo and there will be secret political commissars within these groups to report directly to Xi. Similar to inserting Stasi agents into German border guard units to report on political activity.

To combat this growing threat port infrastructure should be protected via patrol boats, drones, sensors etc. Special SWAT teams need to be trained for seizing operations and dealing with small party operatives. Taiwan does already have this capability to a degree but improvements are needed. Intelligence on such groups needs to be doubled and eyes ready for any new group to arrive. Escort plans for merchants to counter such ‘pirate’ attempts written up. Cooperation with international intelligence communities is a must.

Internet

Another area of concern is the internet. What most people do not know is that deep sea fiber optic cables underpin the world’s connectivity. These can be cut. Taiwan has accused Chinese fishermen of cutting cables that lead to the outer Taiwanese islands. This occurred in April of this year. There is no information that suggests it was a deliberate action. However, such action cannot be ruled out for the future.

The UK deems Russia and their submarines as a ‘real threat’ to the UK’s and the world’s underwater cables. Information transferred through these cables is vital. The UK’s Royal Fleet Auxiliary is in the process of obtaining two ‘Multi-Role Ocean Surveillance Ships’. These will also protect pipelines. They are commercial ships brought then modified for their role. Taiwan will need to step up its own surveillance and patrols of cables. Improved back-up systems need to be used. Taiwanese back-ups used this year were painfully slow. Strong satellite internet needs to be provided. Ukrainian troops use Starlink systems effectively.

Food, water & Climate Change

On a Humanitarian note, Taiwan is water scarce according to the UN and heavily dependent on imported food. The Taiwanese island of Kinman, a few miles from mainland China, relies on the Jinjiang-Kinmen water pipeline from the mainland. If issues occur with the pipeline they will cause major problems for the residents. Mainland Taiwan’s water supply is mainly achieved via reservoirs and well pumping. Self-sustainability is of most importance. Due to climate change, there is an increase in droughts and water scarcity. Taiwan needs to reduce waste and encourage the recycling of water, especially in industry. Climate change is causing other problems in Taiwan such as rising sea levels, more extreme weather and changes in ecosystems. Energy, food and water security are all interlinked in a nexus. Future water, food and water supplies need to be resilient.

Regarding food, the situation is more concerning but solvable. As an island nation 30% of their food is domestic and 70% imported. There is a strategic reserve. However during war It cannot be counted upon to last the whole conflict. The current president wants the domestic food percentage to be raised to 40%. This is a good first step but more is needed. A more simple way to solve this issue would be to cut down on food waste. Something that needs to be done globally. Food that is wasted should be recycled and reused for purposes such as fertiliser. Food and water rationing will need to be enacted if war commences. There will be hoarding and panic buying without doubt. Corruption over supplies is also likely. This must be controlled and order maintained. This is unlike Ukraine, which did not have a major issue with food shortages since they are a food exporter.

The honest truth is climate change will impact all countries. Unfortunately, China is being hit especially hard. IPCC Sixth Assessment Report stated that China will pay the greatest financial costs for climate change if temperatures continue to soar. This year alone record high temperatures of 52.2*C and battling heavy floods. Heavy floods will increase the risks of disease and pests to crop yields. This will impact food security. Other primary sectors such as fisheries will be negatively impacted. It is predicted that malaria rates will increase alongside other health risks.

Beijing will be forced to act with more renewables, more decarbonisation, action plans to deal with the economy and disaster relief. This will change priorities. War will only make the situation worse.

Climate change will exacerbate the issue regarding poor construction in some projects. this will add fuel to the burning property crisis.

China has the world’s largest foreign fishing fleet. The Overseas Development Institute (ODI) puts the figure at 17,000. Beijing claims it is only circa 2,600. these ships bring in money for the Chinese economy and fishing communities. However, different countries are starting to clamp down on this practice. As a result, this lucrative trade will decline. .

Demographic disaster looms over both Chinas

Both China and Taiwan are experiencing more deaths than births. Similar to other East Asian countries such as Japan and South Korea, both ROC and PRC are dealing with looming demographic disasters. In 2021 China had a fertility rate of 1.2 and Taiwan not any better with 1.24. Ideally you would have a fertility rate of 2.1 (replacement rate) to maintain a level population. These rates are not predicted to increase. The reasons are similar: women have less children, children later or none at all. Women have good quality education and have careers (education pill). There are also financial pressures regarding rising costs. Regarding mainland China specifically, the declining births are also due to the One Child Policy. This was an extremely strict draconian limit on births (forced abortions, forced sterilisation etc) to combat overpopulation and prevent another dreadful famine. Very sadly the famine of 1959-1961 cost up to 45 million lives (sources vary). The One Child policy had many dreadful issues such as infanticide of females and it has lowered births too much. One child policy was scrapped in 2016 and replaced with a two child policy however it was a failure. Xi is drastically trying to revert issues with his new 3 Child Policy. But having few children is so common since it's been that way for multiple generations. It is a struggle to implement such drastic change. Incentives include extra time off work and cash. The Taiwanese government is also attempting to combat the issue. Free childcare, subsidised IVF treatment, and a child monthly allowance. However, like China it is not working. Societally both countries are more conservative and the idea of having children outside of marriage is frowned upon. In Taiwan it is around 4%. For comparison in 2021 for the USA it was 40%. Simply put, there is no rapid solution.

Encouraging skills based migration and continuing with birth incentives is all you can do. Again, both societies have been traditionally against migration but it needs to change. Japan, to combat the same issues, has been increasing migration which to them is a drastic step. Whilst, encouraging migration and building diasporas will promote growth and foreign investment. Taiwan is a lot more open, especially in recent years to migration, especially skilled migration, than mainland China.

The problems resulting from this demographic challenge are the same for both countries. Less births means in the future a smaller workforce, the current workforce will retire and become dependents. Old dependency ratio is the number of old dependents (normally 65+) / economically active. With time this ratio will increase and both countries will age. Innovation and productivity will decrease, they will become less attractive to foreign investors and the whole country will decline. Regarding defence with less young people there will be less recruits for the armed forces. This can be seen with the current Taiwan conscription having some of the lowest numbers on records. The Taiwan government for 2022 estimated it would not be greater than 118k. Discussed later in the series will be why this is not a fatal concern. Taiwan should not rely fully on conscripts for defence history has shown this does not work and is not a future proof method.

Current Population Pyramid of China (PRC)

Current population pyramid of Taiwan (ROC)

Source for both : Populationpyramid.net

To visually illustrate my points, you can note both shapes are similar and in the future the larger (economically active) will retire and be replaced by the shrinking younger generation.

Doublespeak:

Following on from Russia’s ‘SMO’ (‘Special Military Operation’) China will likely name any operation similarly. ‘Domestic Security Operation’ (‘DSO’) etc. It is highly likely China will not have any direct military support with this operation due to them classing it as a ‘domestic’ issue. However, Xi will not launch any operation if he doesn't have support from key foreign allies.