Wall Street thinks China will never invade Taiwan - but don’t bet on it

Discussion in 'Economics' started by themickey, Oct 25, 2021.

  1. themickey


    Wall Street thinks China will never invade Taiwan - but don’t bet on it
    By Jeremy Warner October 26, 2021

    How seriously should financial markets be taking the risk of the devastating geopolitical rupture and very likely worldwide slump that would arise if China’s Xi Jinping was to go through with threats to take back control of Taiwan, by invasive force if necessary?

    Not very, to judge by the actions of some of the US’s leading investment banks and asset managers. From Goldman Sachs to JP Morgan Chase, and from BlackRock to Vanguard, they’ve all been aggressively upping their presence in China, apparently oblivious to allegations of human rights abuse and the evident contempt with which Beijing holds the one country two systems treaties that are supposed to govern Hong Kong and Macau.

    Xi Jinping has threatened to take by control of Taiwan.Credit:AP

    Already enthusiastic appetite for China’s $US45 trillion ($60 trillion) financial services market has been further bolstered by a loosening of the rules on foreign ownership, allowing the likes of Goldman Sachs to take full control of what hitherto has been an enforced partnership with local interests.

    UK-based banks, insurers and asset managers seem equally hot to trot. Neither HSBC nor Standard Chartered show any sign of giving into political pressure to curb their presence. Schroders, Prudential and abrdn (formerly Standard Life Aberdeen) are all meanwhile said to be intent on further expansion. If “decoupling” is meant to be the new buzzword when it comes to economic relations with China, it’s plainly having zero impact on Wall Street and the City.

    These are not stupid people. The consequences of a Chinese invasion of Taiwan, or even the occupation of one of its uninhabited islands, would be off the scale, and they know it. All these investments would go up in a puff of smoke were it to happen.

    Taiwan accounts for about two thirds of global microchip foundry capacity, making it of paramount strategic interest to the world economy. Small wonder governments are scrambling to build alternatives; only recently have they come to realise their peril.

    A full-on trade embargo would be the very least of the Western response to a Chinese invasion, pressaging a new Cold War. Stock markets would crash, global supply chains would unravel, and the world economy would tank.

    It would be tantamount to the sort of mayhem that ruled at the outset of the First World War, when cross-border loans defaulted en masse, causing banking systems to collapse, foreign investment portfolios to be wiped out, and trading relationships to be terminated.

    By invading Taiwan, China would have as much to lose as the West, and possibly more. It would be an act of geopolitical and economic folly, Wall Street’s finest have concluded, and therefore can’t happen. Hmmm.

    In his book, The Great Illusion - published shortly before the First World War - the British journalist Norman Angell, argued that trade and economic interdependence between countries was the best insurance there could be “of the good behaviour of one state to another”.

    When push comes to shove, I doubt Western nations have the appetite for a full military defence of Taiwan.

    For all involved, the economic costs of war would be so disastrous that nobody in their right mind would start one. That’s how it looked to him in 1909 when the world economy was in some respects as globalised and interconnected as it is today. War was unthinkable. Five years later all hell broke loose.

    When it comes to Taiwan, there are two questions; first, would Xi actually invade, or is his bellicose rhetoric just nationalistic bluster? And second, what would be the Western response if he did? The answer to the second obviously has some bearing on the first, so let’s start with that.

    Taiwan is a major global supplier of computer microchips.Credit:Bloomberg

    When push comes to shove, I doubt Western nations have the appetite for a full military defence of Taiwan. Rightly or wrongly, Beijing has concluded the West is in terminal decline. Looking at the chaos of the financial crisis, misadventure in Iraq, the humiliating retreat from Afghanistan, the mob’s assault on Capitol Hill and disarray in Europe, it’s hard to disagree. The democracies would huff and puff, but they wouldn’t engage.

    As for imposing all embracing economic sanctions, the West would suffer just as much as China. Even Japan and Australia would flinch.

    The primary reason for loosening the rules on ownership for Western financiers is that China desperately needs their expertise, both to access Western capital and to service its still unsophisticated domestic savings markets. A number of high-profile scandals among local providers has strengthened the case for external help.

    But there is also an ulterior motive; the more the regime ropes Western interests into its economy, the more they have to lose if the politicians kick back in defence of Taiwan. Just before the pandemic, Xi hosted a meeting of Wall Street bankers at Bloomberg’s New Economy Forum in Beijing.

    By easing the rules on foreign ownership, Xi has effectively bought up one of the most powerful lobbies in Washington. Beijing’s calculation is that the West simply cannot afford a serious confrontation with China.

    But there is bound to be a niggling doubt in the leader’s mind. In this respect, the stand-off is a bit like the one created by nuclear weapons. For the deterrent to work, you have to believe the other party is equally prepared to use them. The mutually assured destruction that would follow ensures that they don’t. As long as the West can keep Beijing guessing, it may be able to stay Xi’s hand.

    Could he, would he invade? As things stand, it would be a stretch. To be certain of victory, an amphibious force on a par with the Normandy landings would be required. Any such build up would be impossible to hide. Despite the current military posturing, there is no evidence of it to date.

    It’s the 100th anniversary of the formation of the Communist Party of China next year. Xi would dearly love to celebrate it with Taiwan tucked beneath his belt. What is more, time may be running out.

    China may already be at the zenith of its power relative to the West, with its fast ageing demographic, deep structural imbalances, and now much reduced access to cutting edge Western technology. The opportunity to realise historic ambitions may be limited.

    Wall Street may be right to bet on China; but it is a high-risk game as tensions over control of the South Pacific ratchet upwards. A full on confrontation would be madness. Unfortunately, accidents happen.

    The UK Telegraph
    Leob likes this.
  2. themickey


  3. Nobert


    They're dropping the news, like inflation, Evergreen & now Taiwan (not you Mickey, but the proboyz), to find out what will catch the most attention from the general audience in order to spin it off into a next catalyzer.

    Maybe not enough for a next bear market, but, potentially, a good enough story for, correction. (?)
    murray t turtle likes this.
  4. ipatent


    There's a hundred miles of water to cross for them to invade, which is going to make it impossible for a long time.
    murray t turtle likes this.
  5. Overnight


    You really think so? Ever hear of something called an "airplane"?

    comagnum and Raheel Shaikh like this.
  6. ipatent


    Taiwan's armed forces are strong enough to require ship landings.
  7. JSOP


    No China will invade Taiwan. That's an eventuality. China cares more about sentiments and emotions more than anything else when push comes to shove. It doesn't give a s*** that it doesn't have the technology or has much to lose or whatever. China is doing it more for ideological reasons and of course gaining some technology and resources wouldn't hurt. At the centre of its core, it believes Taiwan is theirs and that's that. They don't consider taking Taiwan as an invasion but rather an act of bringing Taiwan, a lost child home, to its mother's embrace, using China's terminology. LOL And it's not doing it for the chip technology really. I have full confidence that China will be able to develop its own chip technology one day considering that half of the engineers at Intel are Chinese. LOL

    The only thing that the West can do is to take all of the chip manufacturing back, its people, its machinery and equipment, blueprints or plans whatever and leave nothing behind if it's really concerned about China getting their hands on chip technology. Whether it wants to engage China head-on for a war would depend on lots of factors. Last time USA confronted China in a full-blown war was back in the 1950's during the Korean War and the result was a draw at best and at what cost? Has anything changed since then? Is Taiwan going to become the second South Korea? Is that the result that the West wants? Or is the West going to use this opportunity to get rid of some of its weapons? After all, weapons aren't built to be kept in a storage warehouse; it's meant to be used so you can make new ones. Is the West prepared? China has been preparing itself since 1949 when they lost the war for this opportunity to take Taiwan. What about the West? This is what I find disappointing about the West. All we do is talk now, debates and the filibusters and speeches, how about we DO something, something concrete, for once?
    Last edited: Oct 26, 2021
    trend2009 likes this.
  8. the west is going down the hill because ideology is dominating the western social agenda. Schools educate students to be so called talkative leaders instead of hard working scientists and engineers. In the last 20 years, Americans have made the wrong choice every time when they chose the next president.
    Nobert likes this.

  9. When communism takes over.
    murray t turtle likes this.
  10. Raheel Shaikh

    Raheel Shaikh Sponsor

    China is considered an emerging global superpower in economy, military, technology, diplomacy and soft power influence.
    #10     Oct 26, 2021