For those have haven't followed my tweets, the catalyst would be some type of action over Taiwan. But it doesn't have to end there.
Signs that some type of military action against Taiwan will take place:
• In late 2013, Taiwan’s Ministry of Defense reported that China at the 18th National Congress had developed a plan to invade Taiwan by 2020
• The number of Chinese marines has roughly tripled in three years
• The number of intermediate range ballistic missile launchers has gone from 80 to 200+ in one year
• Li Keqiang said in May 2020 that an armed conflict might be necessary
• Beijing think tank expert Li Su has predicted a Taiwan contingency by 2021
• Global Times said on 9/11 that the US is instigating war against China and that China may be forced to defend itself over Taiwan
• 100-year anniversary of the Communist Party in 2021 puts pressure on leadership to make progress towards “unification”
• Xi Jinping told a marine corps in Guangzhou to focus on preparing for an attack
• Anti-China YouTuber Holger Chen shot in Taiwan in August 2020
• People’s Daily put out a propaganda video called “If war breaks out today”, showing missile strikes of the US military base in Guam
• WeChat post suggesting that 36-45 male reservists may be called up for duty
• Chinese warplanes crossing the median line in September 2020 for the first time in decades
• Chinese ships stayed at the Senkakus for a record amount of time in October 2020
• Two Chinese warplanes approached Dongsha islands on Taiwan’s national day
• $1.8 billion US-Taiwan (drone + missiles) arms deal in late October (doubling of arms sales to Taiwan under Trump vs Obama)
• People’s Daily article in October 2020 saying “Don’t say we didn’t warn you” (勿谓言之不预也)
• Experts say every rocket brigade in Fujian and Guangdong are fully equipped
• Two senior PLA generals went public advising against a Taiwan attack in mid-2019, suggesting some support it
• PLA is rumoured to have thousands of agents in the Philippines, which some say might be part of an influence influence operation to keep Duterte in check
• The Politburo Standing Committee held a meeting on 30 November to discuss new military regulations in order to prepare for war
I received a question what what time table we are looking at.
There seems to have been some plans within the Communist Party to retake Taiwan by 2020. As mentioned below certain Beijing think tanks have predicted 2021, though it's hard to say whether these are influence operations and why they would signal the government's true intent. 2021 is also the 100 year anniversary of the CCP, and some progress on the "unification front" would add legitimacy to Xi Jinping's rule.
The weather is not ideal in November-February due to the high likelihood of storms. The wind will calm down by April.
They could take advantage of US election uncertainty but in my mind, they would likely not take any action as long as Trump stays in the White House.
Just want to clarify that the likelihood of war within the next year is probably not more than ~10%, simply judging from the government's use of the words 勿谓言之不预也 and it leading to war in previous 3/32 instances. Ian Easton has previously estimated the success of an amphibious operation at around 20%, and the longer China's build-up continues the higher the likelihood of success. So a near-term attack is relatively unlikely, but over a 5-year time frame even low yearly probabilities start to matter.
Thank you for sharing your list -- lots of new information to me. Given TSMC's increasingly critical role for large U.S. tech multinationals (TSMC -> AMD -> QQQ, to oversimplify), do you think the PRC would assume that the U.S. vested interest in Taiwan is too high to risk? Given that the U.S. pressured TSMC to cut off Huawei, it seems that the US has made its intention clear. Is this a/the primary reason for the PRC's sense of urgency over Taiwan? Are there other reasons that are equally or more important? Or would losing access to TSMC be such a critical blow that it would be worth provoking the US military? Does the switch from a potential 4 more years of Trump, to Biden, change anything from China's view?
I think Xi Jinping sees Taiwan as a question of highest strategic importance. The Communist Party wants to eradicate all organizations that could possibly challenge its supremacy. One of the biggest enemies of the Party is obviously Kuomintang and the DPP. Taiwan showcases to the globe that it is possible for Chinese to prosper under a democratic system, and that itself challenges the rule of the CCP. Since the civil war between CCP and KMT never really ended, taking over Taiwan is seen as a way to finally end the revolution. So it is an ultimate prize, in some respects. Xi Jinping was chosen as a representative for the "second generation red" princeling class, and his mandate is based on reinstating party supremacy. If you go back to his speeches over the past decade, the vast majority are about increasing the power of the party.
There are a few reasons why PRC is feeling a sense of urgency over Taiwan. Xi Jinping wants to leave a mark during his time as President, though given the lack of term limits he could well stay on until 2035. Manufacturing and FDI is gradually moving away from China, which over the long-run might hurt China's trade balance and accumulation of foreign currency. A key factor in any successful operation will be the element of surprise. It would be over within 2-3 weeks, and that may not be enough for US troops to move over from Okinawa. If and when the US decides to station troops in Taiwan, that would complicate the Communist Party's quest to control the island.
Biden does not seem to consider Taiwan a particularly important issue. His aides and supporters have openly argued that the US should end its involvement in China's "civil war". If Taiwan does get attacked, it is possible that he will seek the guidance of Congress before taking any action and by then it might be too late to avert a take-over. Hunter Biden has significant business interests in China, working together with state-owned institutions to acquire foreign technology on behalf of the government. While TSMC is a strategic asset, the US is not completely dependent on TSMC for its survival. Samsung's foundry capabilities are not far behind those of TSMC. In fact, the US's dependence on TSMC might make it difficult to halt semiconductor equipment to TSMC since it would break entire supply chains for companies such as Apple and PC OEMs.
Biden is preferred from the point of view of Beijing. He has signalled that he does not consider PRC has a threat. His timid personality makes it natural for him to seek compromises rather than employ the tough negotiation tactics favoured by Trump. While tariffs will not be immediately lowered, it might well happen after concessions have been given to the United States (e.g. local market access for US financial institutions or auto manufacturers).
First, I should mention that I have never invested in equities during a war so I am just as much a beginner as all of us.
But after reading a lot on this subject, these are the main conclusions:
- The sectors that tend to do best are defense contractors and local services
- Buy real assets, e.g. non-ostentatious farmland, gold & jewellery (preferably physical)
- Stick to investing in countries that have a rule of law and are unlikely to adopt socialism
- Avoid investing in any country that might become occupied (thinking primarily of Taiwan)
- Avoid any fixed income assets, especially in countries that might become occupied
To find bets with skewed risk-reward you might have to dig a bit. To me, long-term government bonds in Taiwan at almost 0% seem completely mis-priced. Inflation during war can easily be 20%+ per year, so you will be absolutely crushed owning fixed income securities. But then again I am a stock picker and not a macro speculator, so maybe I'm missing something. Chinese companies such as Hikvision, CNOOC, China Telecom, etc might even benefit from a war because it increases the addressable market. US defense contractors are trading at low multiples because of likely spending cuts during Biden. But if a war does break out, they would serve as an excellent hedge to the rest of a portfolio.
For those have haven't followed my tweets, the catalyst would be some type of action over Taiwan. But it doesn't have to end there.
Signs that some type of military action against Taiwan will take place:
• In late 2013, Taiwan’s Ministry of Defense reported that China at the 18th National Congress had developed a plan to invade Taiwan by 2020
• The number of Chinese marines has roughly tripled in three years
• The number of intermediate range ballistic missile launchers has gone from 80 to 200+ in one year
• Li Keqiang said in May 2020 that an armed conflict might be necessary
• Beijing think tank expert Li Su has predicted a Taiwan contingency by 2021
• Global Times said on 9/11 that the US is instigating war against China and that China may be forced to defend itself over Taiwan
• 100-year anniversary of the Communist Party in 2021 puts pressure on leadership to make progress towards “unification”
• Xi Jinping told a marine corps in Guangzhou to focus on preparing for an attack
• Anti-China YouTuber Holger Chen shot in Taiwan in August 2020
• People’s Daily put out a propaganda video called “If war breaks out today”, showing missile strikes of the US military base in Guam
• WeChat post suggesting that 36-45 male reservists may be called up for duty
• Chinese warplanes crossing the median line in September 2020 for the first time in decades
• Chinese ships stayed at the Senkakus for a record amount of time in October 2020
• Two Chinese warplanes approached Dongsha islands on Taiwan’s national day
• $1.8 billion US-Taiwan (drone + missiles) arms deal in late October (doubling of arms sales to Taiwan under Trump vs Obama)
• People’s Daily article in October 2020 saying “Don’t say we didn’t warn you” (勿谓言之不预也)
• Experts say every rocket brigade in Fujian and Guangdong are fully equipped
• Two senior PLA generals went public advising against a Taiwan attack in mid-2019, suggesting some support it
• PLA is rumoured to have thousands of agents in the Philippines, which some say might be part of an influence influence operation to keep Duterte in check
• The Politburo Standing Committee held a meeting on 30 November to discuss new military regulations in order to prepare for war
I received a question what what time table we are looking at.
There seems to have been some plans within the Communist Party to retake Taiwan by 2020. As mentioned below certain Beijing think tanks have predicted 2021, though it's hard to say whether these are influence operations and why they would signal the government's true intent. 2021 is also the 100 year anniversary of the CCP, and some progress on the "unification front" would add legitimacy to Xi Jinping's rule.
The weather is not ideal in November-February due to the high likelihood of storms. The wind will calm down by April.
They could take advantage of US election uncertainty but in my mind, they would likely not take any action as long as Trump stays in the White House.
Just want to clarify that the likelihood of war within the next year is probably not more than ~10%, simply judging from the government's use of the words 勿谓言之不预也 and it leading to war in previous 3/32 instances. Ian Easton has previously estimated the success of an amphibious operation at around 20%, and the longer China's build-up continues the higher the likelihood of success. So a near-term attack is relatively unlikely, but over a 5-year time frame even low yearly probabilities start to matter.
Thank you for sharing your list -- lots of new information to me. Given TSMC's increasingly critical role for large U.S. tech multinationals (TSMC -> AMD -> QQQ, to oversimplify), do you think the PRC would assume that the U.S. vested interest in Taiwan is too high to risk? Given that the U.S. pressured TSMC to cut off Huawei, it seems that the US has made its intention clear. Is this a/the primary reason for the PRC's sense of urgency over Taiwan? Are there other reasons that are equally or more important? Or would losing access to TSMC be such a critical blow that it would be worth provoking the US military? Does the switch from a potential 4 more years of Trump, to Biden, change anything from China's view?
I think Xi Jinping sees Taiwan as a question of highest strategic importance. The Communist Party wants to eradicate all organizations that could possibly challenge its supremacy. One of the biggest enemies of the Party is obviously Kuomintang and the DPP. Taiwan showcases to the globe that it is possible for Chinese to prosper under a democratic system, and that itself challenges the rule of the CCP. Since the civil war between CCP and KMT never really ended, taking over Taiwan is seen as a way to finally end the revolution. So it is an ultimate prize, in some respects. Xi Jinping was chosen as a representative for the "second generation red" princeling class, and his mandate is based on reinstating party supremacy. If you go back to his speeches over the past decade, the vast majority are about increasing the power of the party.
There are a few reasons why PRC is feeling a sense of urgency over Taiwan. Xi Jinping wants to leave a mark during his time as President, though given the lack of term limits he could well stay on until 2035. Manufacturing and FDI is gradually moving away from China, which over the long-run might hurt China's trade balance and accumulation of foreign currency. A key factor in any successful operation will be the element of surprise. It would be over within 2-3 weeks, and that may not be enough for US troops to move over from Okinawa. If and when the US decides to station troops in Taiwan, that would complicate the Communist Party's quest to control the island.
Biden does not seem to consider Taiwan a particularly important issue. His aides and supporters have openly argued that the US should end its involvement in China's "civil war". If Taiwan does get attacked, it is possible that he will seek the guidance of Congress before taking any action and by then it might be too late to avert a take-over. Hunter Biden has significant business interests in China, working together with state-owned institutions to acquire foreign technology on behalf of the government. While TSMC is a strategic asset, the US is not completely dependent on TSMC for its survival. Samsung's foundry capabilities are not far behind those of TSMC. In fact, the US's dependence on TSMC might make it difficult to halt semiconductor equipment to TSMC since it would break entire supply chains for companies such as Apple and PC OEMs.
https://www.taipeitimes.com/News/editorials/archives/2020/10/17/2003745295
Biden is preferred from the point of view of Beijing. He has signalled that he does not consider PRC has a threat. His timid personality makes it natural for him to seek compromises rather than employ the tough negotiation tactics favoured by Trump. While tariffs will not be immediately lowered, it might well happen after concessions have been given to the United States (e.g. local market access for US financial institutions or auto manufacturers).
How Do we trade this?
How Wanzie, sorry for the slow reply.
First, I should mention that I have never invested in equities during a war so I am just as much a beginner as all of us.
But after reading a lot on this subject, these are the main conclusions:
- The sectors that tend to do best are defense contractors and local services
- Buy real assets, e.g. non-ostentatious farmland, gold & jewellery (preferably physical)
- Stick to investing in countries that have a rule of law and are unlikely to adopt socialism
- Avoid investing in any country that might become occupied (thinking primarily of Taiwan)
- Avoid any fixed income assets, especially in countries that might become occupied
To find bets with skewed risk-reward you might have to dig a bit. To me, long-term government bonds in Taiwan at almost 0% seem completely mis-priced. Inflation during war can easily be 20%+ per year, so you will be absolutely crushed owning fixed income securities. But then again I am a stock picker and not a macro speculator, so maybe I'm missing something. Chinese companies such as Hikvision, CNOOC, China Telecom, etc might even benefit from a war because it increases the addressable market. US defense contractors are trading at low multiples because of likely spending cuts during Biden. But if a war does break out, they would serve as an excellent hedge to the rest of a portfolio.
Cryptocurrencies are potentially worthless. Not my cup of tea!