The moment of truth over Taiwan is getting closer

The US and China are engaged in a dangerous game of military poker over the future of the island

Gideon Rachman 

© James Ferguson


Would America go to war over Taiwan? 

That question has seemed fairly abstract for decades. 

Now it is increasingly urgent.

The Chinese air force sent around 150 jets into Taiwan’s air-defence identification zone in the space of just four days this month — a record number that caused the Taiwanese air force to scramble repeatedly. 

Over the same period, the US and five other nations, including Japan and the UK, conducted one of the biggest naval exercises in the western Pacific in decades.

This flexing of military muscle was accompanied by confrontational rhetoric on both sides. 

Over the weekend, President Xi Jinping pledged in a speech that the “historical task of the complete reunification of the motherland . . . will definitely be fulfilled”. 

The Chinese leader stressed that his preference is to take over Taiwan by peaceful means. 

But, since voluntary surrender by Taiwan is close to inconceivable, that leaves military force.

The CIA has also just announced its formation of a new China Mission Center, describing China as “the most important geopolitical threat we face in the 21st century”. 

Its most urgent issue will be assessing Beijing’s intentions over Taiwan. 

Chiu Kuo-cheng, the island’s defence minister, warned last week that China would be able to invade by 2025 and described the current situation as the most dangerous in 40 years.

The public mood in both China and the US, which will influence the choices that the two countries’ leaders make, seems increasingly bellicose. 

The nationalist sentiment in China and its increasing focus on America is reflected in the current blockbuster film, The Battle at Lake Changjin — the story of a Chinese defeat of America in the Korean war.

In the US, 67 per cent of people polled now have negative views of China, up from 46 per cent in 2018. Another poll, taken in August, showed that for the first time more than half of Americans (52 per cent) favour using US troops to defend Taiwan if China invades, a striking result, given the non-negligible risk this would lead to world war three.

The Biden team believe that China is determined to displace the US as the world’s pre-eminent economic and military power, and they are determined to push back. 

They understand that much of the struggle will be about trade and technology. 

But they also know that a successful Chinese invasion of Taiwan would signal the end of US dominance of the Indo-Pacific.

Would the US go to war to prevent that happening? 

The short answer is that no one really knows. 

Not the military planners in Washington and Beijing, whose job it is to draw up elaborate plans for conflict over Taiwan. 

Nor, possibly, even America’s commander-in-chief, Joe Biden. 

So much would depend on the nature of the attack — and the domestic and international political situation at the time.

As the Cuba missile crisis of 1962 and the 1914 July crisis in Europe both demonstrated, world-shaking decisions about war and peace, are often made in a surprisingly haphazard fashion under the pressure of fast-changing events.

Maintaining a state of uncertainty is, in fact, a deliberate US policy — known as “strategic ambiguity”. 

The idea is to deter China from attacking Taiwan by suggesting that the US would defend the island, without issuing an explicit security guarantee that might, in itself, trigger a military showdown. 

Strategic ambiguity has helped America maintain the status quo over Taiwan for two generations.

But there is concern in Washington that Beijing’s calculations are shifting. 

Senior US officials believe the Chinese leadership has convinced itself that the US is in terminal decline — with the chaotic withdrawal from Afghanistan taken as the latest evidence.

Last week, Jake Sullivan, Biden’s national security adviser, warned that it would be a “grave mistake” for countries to draw broader lessons about US resolve from Afghanistan. 

Sullivan’s comments reflect a US concern that an increasingly confident China could dismiss the possibility that America will go to war over Taiwan — or has decided that it would swiftly win a limited conflict. 

Leaked reports of US war-games suggesting that China would prevail in a fight over Taiwan will certainly have been noted in Beijing.

To make it harder to rally US domestic support for intervention, China might choose to use “grey zone” methods that stop short of a full-scale invasion across the 100 miles of the Taiwan Strait. 

These could include a naval blockade, or the deployment of special forces charged with crippling Taiwanese infrastructure or capturing the country’s leadership.

China, in other words, is deploying its own form of “strategic ambiguity” over Taiwan — constantly reiterating its willingness to go to war, while leaving Washington and Taipei guessing over how and when that might happen. 

The fact that China has so far rejected America’s overtures to set up a military hotline that could be used to de-escalate conflicts, suggests the Xi government is content to keep the US guessing.

Both China and the US increasingly feel as if they are engaged in a potentially deadly poker game over Taiwan, as they attempt to bluff each other into backing down.

Strategic ambiguity has kept the peace for decades. 

But a dangerous moment of clarity may be approaching. 

Why Aukus is welcome in the Indo-Pacific

America’s efforts to strengthen deterrence of China are gathering momentum

Gideon Rachman 

© James Ferguson


The Australia-UK-US security pact — Aukus — has been greeted with rage in China and France. 

But more significant than the flamboyant anger in Beijing and Paris are the countries that are quietly applauding the agreement.

The many Indo-Pacific nations that are worried by China’s increasing belligerence look to America, not France, to balance Chinese power. 

Japan and India, the two largest economies in the region outside China, have welcomed Aukus. 

Later this week, the White House will host a summit meeting of the leaders of the Quad — the US, India, Japan and Australia. 

Week by week, the US is visibly strengthening its network of security relationships across the Indo-Pacific.

The positive reaction in the region will matter much more in Washington than anger in Paris — unwelcome though that is. 

Containing China’s power and ambitions is now the major strategic priority of the US, a commitment that spans the Biden and Trump administrations. 

A blow-up with France is seen as a price worth paying for the strengthening of alliances in Asia. A hardening of Britain’s previously ambivalent posture towards China is also welcome in Washington and balances the damage with France.

Antoine Bondaz, a security analyst (once dubbed a “crazed hyena” by the Chinese government) writes that for China, the pact between Washington, Canberra and London is “the realisation of a longstanding fear: the multilateralisation of American alliances in the region. 

Today, it’s Australia and the United Kingdom. 

Tomorrow, maybe Japan will join.”

Japan’s foreign minister, Toshimitsu Motegi, was certainly quick to welcome Aukus. 

The Times of India noted the overlapping membership of the Quad and Aukus and suggested that “in future, the two could merge.” 

Raja Mohan, an Indian security analyst, argues that for Delhi, the Aukus is welcome for a number of reasons — including the signal it sends about America’s willingness to transfer key military technologies, such as nuclear propulsion.

India and Japan were not the only two regional powers to respond positively to the Aukus. 

Singapore, which has always carefully balanced its relations with the US and China, welcomed the agreement. 

In Canada, where an election is taking place, the leaders of both the conservative and leftwing opposition criticised the Trudeau government for not yet being involved in the pact.

The strengthening of collective security arrangements in Asia is ultimately aimed at deterring Chinese power, much as Nato deters Russia in Europe. 

The Indo-Pacific alliance structure is unlikely to mirror Nato precisely. 

Rather than a single alliance, we are witnessing a meshing and enhancement of existing ties creating a network of powers committed to preventing the region falling under Beijing’s domination.

The potential membership of that network can be discerned by the countries that have recently undertaken naval exercises with the US and Australia. 

They include the UK, Japan, Canada, South Korea and India. 

If and when relations with Paris are repaired, the French may rejoin.

The significance of this co-operation goes well beyond naval exercises and submarine sales. 

The three countries involved in Aukus will work together on strategic technologies, such as quantum computing and artificial intelligence. India and Japan also have much to contribute in those areas.

China denounces all these moves as provocative. 

But Beijing’s actions in the region have provoked the efforts to balance its power.

For Australia, China’s imposition of trade sanctions, after Canberra called for an international inquiry into Covid-19, was a wake-up call. 

So were China’s 14 fourteen demands for changes in Australian policy. 

For India, the turning point was the military clashes in the Himalayas last summer. 

Japan, which has a territorial dispute with China in the East China Sea, is also increasingly being harried by Beijing’s military.

China’s decision to build military bases across the South China Sea has alarmed regional powers such as Vietnam and the Philippines. 

In July, Vietnam hosted Lloyd Austin, the US defence secretary. 

South Korea, another US treaty ally, has not forgotten the economic pressure from Beijing after Seoul agreed to host a US anti-missile shield.

All of these Indo-Pacific nations know that China has built up its military faster than any other country in the world over the past generation. 

And they are all concerned by Beijing’s threats to invade Taiwan.

Why has China made these diplomatic errors? 

It may be that it placed too much faith in economic power. 

The fact that China is the most important trading partner for Japan, South Korea and Australia gives the Chinese an important lever. 

But heavy-handed pressure from Beijing has often backfired.

The failure of the Chinese strategy so far does not mean that America’s Asian alliance-building will necessarily succeed. 

Pulling together a complex group of allies is not easy, as the current backlash from Paris demonstrates.

The attempt to contain Chinese power will also heighten tensions with Beijing. 

But the alternative would be to accept uncomplainingly China’s efforts to dominate the Indo-Pacific. 

The US and its allies have decided to draw a line. 

Will the BRICS Ever Grow Up?

In the two decades since Brazil, Russia, India, and China were recognized for their unique growth potential, they, along with South Africa, have so far proven incapable of uniting as a meaningful global force. This comes at the expense not only of the bloc, but of better global governance as well.

Jim O'Neill


LONDON – Having created the BRIC acronym to capture the collective potential of Brazil, Russia, India, and China to influence the world economy, I now must ask a rather awkward question: When is that influence going to show up? 

Given today’s global challenges and the enormous issues facing the BRICS (which subsequently became a real-world entity and was expanded in 2010 to include South Africa), the bloc’s ongoing failure to develop substantive policies through its annual summitry has become increasingly glaring.

This November will be the 20th anniversary of the BRIC acronym, which I first used in a 2001 Goldman Sachs paper entitled “Building Better Global Economic BRICs.” 

At the time, I offered four scenarios for how each country could develop over the next decade, and made the case for why global governance needed to become more representative and include these four rising powers.

That paper was followed by a series of others, starting in 2003, which showed how China’s economy could become as large as the US economy (in nominal dollar terms) by 2040; how India could surpass Japan to become the third-largest economy soon thereafter; and how the BRIC economies together could grow larger than the G6 (the G7 minus Canada).

But the bloc’s economic trajectory since 2001 has been a mixed bag. 

While the first decade was a roaring success for all four countries, with each surpassing all four scenarios that I originally outlined, the second decade was less kind to Brazil and Russia, whose respective shares of global GDP have now fallen back to where they were 20 years ago.

If it weren’t for China – and India, to some degree – there wouldn’t be much of a BRIC story to tell. 

Yet, notwithstanding the difficulties the BRICs have faced, China’s growth alone is on track to lift the technical aggregate of all four economies to match the size of the G6.

In terms of global governance, the only notable shift over the past two decades has been the rise of the G20 since it took center stage in the response to the 2008 global financial crisis. 

Representing the world’s 20 largest economies, the organization seemed immensely powerful at the time, and it managed to implement policies of potentially lasting importance. 

But since then, it has generally been a disappointment, saying much but achieving very little.

For their part, the BRICs held their first annual meeting as a political club in 2009, in Russia (the first to include South Africa took place in China in 2011). 

And this year, Indian Prime Minister Narendra Modi hosted the BRICS leaders (virtually) for their 13th summit. 

Every leader made bold statements about what they had supposedly achieved together, and all discussed avenues for future cooperation. 

Yet they have accomplished very little; lofty statements are usually accompanied by only scant policy moves.

Nothing in the bloc’s latest joint declaration suggests that anything has changed. 

Perhaps not surprisingly, most of the attention this year has been on security and terrorism. 

After all, recent developments in Afghanistan will have serious, direct implications for Russia, India, and China. 

But this singular focus is disappointing nonetheless, because it highlights the group’s limited joint ambitions.

Modi would seem to agree, saying, “We need to ensure that the BRICS are more productive in the next 15 years.” 

Beyond creating the BRICS Bank, now known as the New Development Bank, it is difficult to see what the group has done other than meet annually.

Following the bloc’s rather dismal second decade, there are many things that BRICS leaders could do collectively to help revive the kind of economic gains made in the first decade, all of which would be good for the rest of the world, too. 

In doing so, they could create a much stronger impression of their usefulness alongside the G20, strengthening the case for more substantive reforms to global governance.

For starters, the BRICS need to strengthen trade between themselves. 

China and India could both gain enormously from a more open and ambitious trading relationship, which would redound to the benefit of the rest of the region, the other BRICS, and the world. 

In fact, more India-China trade alone would visibly boost global trade.

Moreover, while the BRICS have little in common other than large populations, they also share a significant exposure to infectious diseases. 

The Review on Antimicrobial Resistance that I led in 2014-16 showed that all of the BRICS were worryingly vulnerable to drug-resistant tuberculosis. 

And as COVID-19 has shown, most have health systems that are poorly equipped to deal with pandemics. 

Unless they treat global infectious diseases more seriously, they will never be able to reach their economic potential.

Since the fall of 2020, I have had the privilege of serving on the World Health Organization’s independent Pan-European Commission on Health and Sustainable Development, which is chaired by former Italian Prime Minister Mario Monti. 

One crucial proposal from our initial Call to Action this past spring, now outlined in detail in our final report, is to establish a Global Health and Finance Board under the auspices of the G20. 

The reasoning is simple: unless we place global health challenges at the heart of regular economic and financial dialogue, we will remain ill prepared for them. 

And as the pandemic has shown, global health challenges are also economic and political challenges.

This proposal already has the support of several key governments, notably those of the United Kingdom, the United States, France, Italy, and the European Union. 

Yet for reasons I fail to understand, the BRICS, especially China, seem to be opposed to it. 

Such resistance makes no sense and will have dire consequences for the rest of the world. 

It gives me and other longtime champions even more reason to doubt the group’s collective potential.


Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.

This Evergrande Thing Is Serious

BY JOHN RUBINO 


China’s Evergrande has been in the news lately, but not always in an understandable way. 

The real estate developer is just too big and its financial arrangements too obscure to be easily grasped by people with a lot of other things on their plates. 

Plus, China has had plenty of corporate implosions in the recent past and the CCP/BoC has always stepped in and saved the day. 

So why worry this time?

Because this time is apparently different, writes Credit Bubble Bulletin’s Doug Noland. 

Here’s a quick excerpt from a much longer piece he published this morning:

Evergrande owes over $300 billion – to banks and non-bank financial institutions, domestic and international bond holders, suppliers and apartment buyers. 

It has bank borrowings of $90 billion, including to Agricultural Bank of China, China Minsheng Banking Corp and China CITIC Bank Corp. (reports have 128 banks with exposure). 

Thousands of suppliers are on the hook for $100 billion.

It appears an Evergrande debt restructuring is inevitable. 

From a few decades of close observation, these types of situations generally prove worse than even the more bearish analysts fear. 

Assume ugly and messy. 

The presumption all along – by bankers, investors and apartment purchasers – was that Beijing would never allow a collapse of such a huge player. 

This fundamental market perception is in serious jeopardy.

Evergrande is the most indebted of a highly levered Chinese developer sector (top three in revenues). 

It “owns more than 1,300 projects in more than 280 cities.” 

Evergrande employs 200,000 – and “indirectly helps sustain more than 3.8 million jobs each year.”

From CNN (Michelle Toh): “Outside housing, the group has invested in electric vehicles, sports and theme parks. 

It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China. 

In 2010, the company bought a soccer team, which is now known as Guangzhou Evergrande. 

That team has since built what is believed to be the world’s biggest soccer school, at a cost of $185 million to Evergrande. 

Guangzhou Evergrande continues to reach for new records: It’s currently working on creating the world’s biggest soccer stadium, assuming that construction is completed next year as expected. 

The $1.7 billion site is shaped as a giant lotus flower, and will eventually be able to seat 100,000 spectators.”

Evergrande epitomizes China’s historic Credit Bubble. 

It has borrowed and spent lavishly, in what history will surely view as a company that operated at the epicenter of an extraordinary Bubble of asset inflation, speculation and reckless debt-financed mal-investment.

Estimates have Evergrande bondholders receiving 25 cents on the dollar in a restructuring. 

It borrowed $20 billion in the booming off-shore dollar bond marketplace. 

As a focal point of the global Bubble in leveraged speculation, China’s offshore debt market has ballooned during this protracted cycle. 

From the FT (Hudson Lockett and Thomas Hale): “Chinese issuers face their largest-ever wave of dollar bond maturities this year at $118bn, according to Refinitiv. 

But even that is dwarfed by the Rmb7.8tn ($1.2tn) of onshore debt maturing in 2021. 

The latter figure could have big repercussions for offshore bondholders, especially if the restructuring of onshore debt is prioritised.”

“Money” has flooded into China this year, in yet another example of the incredible “Terminal Phase” dynamic, where speculative finance inundates a system even in the face of acute Bubble fragility. 

Unwieldy speculative flows only exacerbate systemic vulnerabilities. 

Trouble for Evergrande, the developers and Chinese high-yield debt marks a momentous inflection point for Chinese and global leveraged speculation.

The takeaway? 

Everyone with money invested in or lent to a big entity with convoluted finances is going to pull back, either selling part of their stake or demanding payment on their loans. 

At a minimum, they’ll refrain from further investment.

This kind of phase change in market sentiment driven by a large corporate implosion is now known as a “Lehman Moment” after the failure of Wall Street investment bank Lehman Brothers that is blamed for kicking off the Great Recession.

Evergrande is vastly bigger than Lehman and today’s world is vastly more leveraged and therefore fragile than that of 2007. 

In another popular turn of phrase, the bubble may have found its pin.