Berlin, Tokyo, Beijing The uncertainty in the executive floors of international corporations is great these days. In almost every conversation between company representatives, according to several German managers in the Handelsblatt, after a few minutes one topic comes up: China. And its conflict with Taiwan.
The Chinese leadership regards Taiwan as part of China’s territory, although the country has never been part of the People’s Republic founded in 1949 and has its own democratically elected government and laws. However, the Chinese government is striving for “reunification” – and it does not rule out the use of force.
The topic will also play a larger role at the Munich Security Conference, which begins on Friday, and not only in talks with the highest Chinese foreign policy leader, Wang Yi. Parts of the US military expect a Chinese attack on the island later this decade. According to media reports, a general in the US Air Force is even expecting an attack as early as 2025.
Others are more reserved. “I don’t see any immediate war imminent, not even in 2025,” says Angela Stanzel from the Stiftung Wissenschaft und Politik (SWP) in Berlin. Even the federal government does not see a fixed date for a military invasion.
But what is realistic anyway? And what do companies need to prepare for? An overview of four possible scenarios.
1. Military attack on Taiwan
An attack would be a disaster for the German economy. Many German companies that are active in Taiwan want to continue investing there. According to a recent survey by the German Economic Office in Taipei, more than 40 percent of the companies surveyed are planning to expand their business locally. However, more than half cited growing cross-strait tensions as a potential threat to their local business.
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Taiwan is also gaining in importance for German suppliers to the chip industry – as a risk, but also as a market. “Interest is very high,” observes Sandra Engle from the Association of German Mechanical and Plant Engineering (VDMA). The association is therefore planning a market development trip to Taiwan for the end of June. “The companies hope to get a feeling for the future market potential on site and to get a taste of the atmosphere in the country,” says Engle.
But the Chinese attitude sounds warlike. “We will work for peaceful reunification with the utmost sincerity and with the utmost effort,” said a white paper published by the Chinese State Council in August. “But we will not refrain from using force and reserve the option of taking all necessary measures.” In Western security circles, this is understood as an implicit threat. Also because China’s head of state and party leader Xi Jinping has said something like this several times.
Should there actually be a military invasion of Taiwan by China, experts expect massive consequences: These include a direct military confrontation between China and the USA as well as comprehensive sanctions that would also affect the German economy.
In this case, his company would probably have to withdraw from Taiwan first, says the representative of a group with business on the island and in the People’s Republic. He prefers not to imagine what comes next. He points to the dominant role of Taiwanese companies like TSMC in the world market for advanced high-tech semiconductors. This could make access to this important technology much more difficult.
The trip of the former speaker of the US House of Representatives to Taiwan led to bellicose reactions from the Chinese.
(Photo: IMAGO/UPI Photo)
Companies and experts in Taiwan itself, on the other hand, are more relaxed. For example, Amanda Hsiao, Taiwan-based China expert at think tank International Crisis Group, who says: “Most analysts assume that the cost of a full-scale military strike in the next five years would be prohibitive.”
Eric Heginbotham, who recently helped organize a wargame on the Taiwan conflict for the renowned US think tank CSIS, agrees with this assessment. He would be very surprised, Heginbotham said, if a war broke out in the time frame the US military has cited.
2. Blockade of Taiwan
In any case, tensions are expected to increase in the federal government – especially since it is becoming apparent that after former Speaker of the US House of Representatives Nancy Pelosi, her successor in office Kevin McCarthy could also travel to Taiwan. During Pelosi’s visit in August, China had deployed significant military maneuvers. The Taiwanese then spoke of closures that were tantamount to a sea and air blockade.
In fact, the scenario of a naval blockade is one that German companies also have to deal with on the ground.
Recently, according to CSIS expert Heginbotham, there has been increasing talk of a blockade because an invasion is considered too difficult, the American notes. “I know people who think it would be easier,” he says, “but I’m not entirely convinced.” China would have to close off a huge sea area and expect US countermeasures. According to Heginbotham, a blockade could quickly turn into a war again, with the same end for China.
The German economy would be directly affected by a sea or air space blockade: This would lead to supply bottlenecks for semiconductors, which German companies obtain to a large extent from Taiwan.
Experts in Germany such as SWP analyst Stanzel warn that this scenario should not only be dealt with more closely by companies. Friendly countries must also help Taiwan so that it is armed. Credible deterrence is also important: “As long as Taiwan is geostrategically essential for the United States, they will not allow a naval blockade,” says Stanzel.
3. Salami tactics
For years, China has been groping its way into Taiwan, increasing the frequency with which Chinese military incursions into the country’s Air Defense Zone (ADIZ). While there were 380 aircraft in 2020, 1,727 Chinese aircraft flew into the zone last year. The actions, coupled with other measures such as cyber attacks, are part of an attrition tactic.
In the so-called gray zone conflicts, which end before an all-out attack, it is more difficult for the West to decide how to react than in the case of a complete naval blockade or a direct invasion, says CSIS expert Heginbotham.
Chinese economic sanctions against Taiwan are also part of this gray area method. Just like the inclusion of the island in the Chinese air defense identification zone or even more extensive maneuvers that could effectively paralyze air and sea traffic.
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“There is currently still a belief in Beijing that China can reunite Taiwan without an invasion,” says SWP expert Stanzel. “The Chinese government wants to achieve this through international isolation, political pressure and the undermining of democracy, for example through cyber attacks in Taiwan.” This should make Taiwan so weak that it has no choice but to join China.
Beijing is therefore also hoping for the next presidential election in Taiwan in 2024 and an election victory for the KMT. Compared to the incumbent DDP, which is critical of China, it is traditionally considered to be close to China.
4. The status quo remains (for the time being).
Observers like Kevin Rudd, former Australian Prime Minister and future Australian Ambassador to Washington, do not believe that an attack by China will be automatic. That would suit many Western countries as well as the federal government, they want to maintain the so-called status quo.
That said, roughly speaking, everything remains as it is now: Taiwan remains in a gray area, with countries like Germany and the US not maintaining official diplomatic ties with the island. On the other hand, it retains its own government and laws, remaining de facto independent of China.
Whether this will succeed, however, is questionable and depends on many factors that are very difficult to assess. Because a lot is discussed in the heart of the Chinese state and party leadership and therefore does not penetrate to the outside.
The answers to important questions therefore remain open: How strong is the Chinese military’s pressure on state and party leader Xi Jinping to dare an invasion? How do you rate the chances? And what price would he accept for it?
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