A few days ago a major investor called me.
- He told me he thought that Taiwan was the world’s biggest flashpoint and that he knew that tensions in the Taiwan Strait have been rising.
- He also said he had read that the possibility of a Chinese invasion had not only increased but could occur sooner than previously estimated.
- By the time China massed forces on the coast in preparation, he said, markets would have collapsed. And it would be too late for him to sell. (Or for a company to adapt to financial, business, or supply chain disruptions in the region, for that matter.)
- He needed an ‘early warning system.’ What, he asked, should he be watching for?
My response was (I went into some detail but here’s the outline):
- First, obviously, look at escalations by the U.S. in, say, its relations with Taiwan, and by China in, say, its moves to intimidate Taiwan.
- Second, and a little more subtle, watch for changes in U.S. policy, such as, say, the U.S. abandoning its policy of ‘strategy ambiguity’ – that is, not confirming whether it would or would not defend Taiwan – and announcing outright that if China invaded, it would face the U.S. as an adversary in the Taiwan Straits.
- Third, and most subtle, begin to parse China's diplomatic statements and actions about the U.S. and other countries’ actions regarding Taiwan.
This third element of the ‘early warning system’ is made difficult, I said, by China these days seeming to have disproportionate reactions to any perceived intrusion by another country into what it considers its internal affairs.
- But even more problematic is that the reporting on any given action by another country may look so benign to the non-Chinese reader that he or she dismisses it as something China, even when it reacts forcefully, couldn’t be serious about.
- That is a mistake. Too often what looks ‘benign’ to the rest of the world is as serious as a train wreck to Xi Jinping.
Case in point: The Joint Leaders’ Statement issued after the summit between President Biden and Prime Minister Suga.
- The statement seems to read in great part like a restatement of things we already know.
- Kiyoteru Tsutsui of Stanford asserts: ‘The biggest take-away ought to be the confirmation that the U.S.-Japan alliance is gearing up for a new era of competition with China.’
In fact the Statement contains a bombshell.
- But one that you would appreciate only if you were conversant in the subtleties of diplomat-ese.
- (One thing I learned as a U.S. Delegate to the UN, spending days negotiating a single word in a multilateral agreement, is that I am neither subtle nor diplomatic - but I did learn to understand others who are.)
- ‘We underscore the importance of peace and stability across the Taiwan Strait and encourage the peaceful resolution of cross-Strait issues.’
Why is this aspiration, - something even China could agree on - a bombshell? Because of two factors that those fluent in diplomatic signaling – and that includes the Chinese - would catch the implications of immediately.
- As Dr. Tsutsui notes: ‘The wording of the joint statement -- negotiated until the last minute -- saw Japan agree to include a reference to Taiwan for the first time in 52 years [my emphasis], but with Japan's preferred wording, encouraging "the peaceful resolution of the cross-Strait issues." ’
- According to Michael Green, a Japan expert at the Center for Strategic and International Studies in Washington, Suga’s comments on Taiwan were the most assertive [my emphasis] from a Japanese leader since the US and Japan both switched diplomatic recognition of China from Taipei to Beijing in the 1970s.’
But it could have been less subtle and more direct – and that was in fact what was expected. As Mirna Galic of the Atlantic Council puts it:
- ‘We should be paying attention both to what happened and what didn’t happen at the meeting.’ (Now there is a Pro Tip if there ever was one.)
- A 'much-expected statement on Taiwan did not materialize, but was instead subsumed in a broader statement of opposition to any attempts by China ‘to change the status quo by force or coercion in the East and South China seas and intimidation [by China] of others in the [Indo-Pacific] region.’
And along the same lines, Kazuhiro Maeshima, a professor at Sophia University, noted that the document used bland language devoid of "adjectives and adverbs."
- "The statement shunned more specific language like 'defend Taiwan' to avoid unnecessarily provoking China."
Yet China was provoked.
PRC Ministry of Foreign Affairs spokesperson, Wang Wenbin, in response to a reporter’s question about the Statement said:
- ‘Taiwan is an inalienable part of China's territory.’
- ‘We ask the US and Japan to take seriously China's concerns, abide by the one-China principle, immediately stop interfering in China's internal affairs and harming China's interests.
- China will take all necessary measures to firmly defend national sovereignty, security and development interests.’
Nikkei Asia, which as a Japanese publication has had the most and the best coverage of the Summit and its fallout, reported:
- ‘Four days after Japan and the U.S. issued a joint leaders' statement that mentioned Taiwan for the first time in 52 years, Chinese President Xi Jinping broke his silence at the Boao Forum for Asia on Tuesday, railing against what he saw as foreign meddling.’
- ‘ "Bossing others around or meddling in others' internal affairs would not get one any support," Xi said at his keynote speech for the event.’
‘China's response to the Taiwan statement has been relatively restrained, all things considered. Still, Xi's remark was not the first sign of Chinese dissatisfaction.’
- ‘ "We advise Japan to stay away from the Taiwan question," the Communist Party-backed Global Times had said in a recent editorial.’
- ‘ "The deeper it is embroiled in, the bigger the price it will pay." ’
Now the reporting has shifted to speculation about what price Japan will be made to pay.
- Stay tuned.
In this instance, we can assess that our ‘early warning system’ picked up a signal, but that signal did not presage a Chinese invasion of Taiwan.
- But this does demonstrate just how sensitive China is about even the most benign support of the island.
- And this puts us on alert to how much more severe China’s reaction would be if the U.S., say, changed its policy of ‘strategic ambiguity and persuaded Japan to state clearly that it too would defend Taiwan. Kaboom.
- (As a side benefit of 'early warning,' we now know to prepare for China’s punishment of Japan and for any modifications that we may need to make to our investment or business strategies.)
If all this sounds like inside baseball, it is.
- But only this degree of awareness will equip you to more reliably predict, not just a Chinese invasion of Taiwan, but other actions that could affect business and investment decisions, large and small.
To begin fine-tuning your ‘early warning system,’ have a look at posts below about the Biden-Suga summit and China’s reaction.
To get you started here is one of my favorites.
- The Wall Street Journal reports that even before the Summit 'China suggested it will hit back at Japanese businesses if Tokyo hews too closely to the U.S. line.'
- ' “Don’t stretch your hand too far!” tweeted the official Xinhua News Agency on April 6, showing a picture of a hand with the rising-sun flag being blocked from touching Chinese issues.' (See the tweet below)
- Subtle, huh?