As expected, the Taiwanese people elected the independence-leaning William Lai Ching-te of the incumbent Democratic Progressive Party (DPP) as the country’s incoming President. Neither was it a surprise that Western media coverage predominantly centered around the perceived ramifications for Beijing, characterizing the outcome as a potential “blow”1 that could “risk further tensions”2 while ominously hinting at the specter of “global war.”3
For C-Suite executives, there are three key questions: did the electoral verdict steer Taiwan towards heightened conflict with China? If so, what is the likelihood of tensions evolving into a military confrontation, and what form would a military conflict take?
The answers to each these questions run contrary to the conventional wisdom:
The election results, rather than instigating immediate political friction, represent an acceptable outcome for Beijing.
While a military conflict remains a plausible scenario, the likelihood of it materializing within the next few years is low.
The foremost risk for precipitating military conflict lies in Western calls for strategic clarity and replacing the existing policy of strategic ambiguity.
There is a significant probability that Chinese military actions would extend well beyond a naval blockade.
While Lai wasn’t the favored candidate for Beijing, the electoral outcome can still be viewed as a partial victory for China. Notably, Lai had already been forced to moderate his stance on Taiwanese independence during the election campaign. More importantly, the DPP lost its legislative majority; a significant setback, given that constitutional reforms require a super majority. In fact, policy implementation now depends on the DPP's adeptness in striking deals, particularly with one of the smallest players in the powerful Legislative Yuan, the Taiwan People's Party (TPP). Finally, the election outcomes suggest most Taiwanese citizens favor the status quo and are more interested in mundane matters, such as stagnant wages and housing.
Similarly, the likelihood of military conflict in the next decade is considerably lower than commonly believed. Notably, Xi Jinping has said little about Taiwan that hadn’t already been said by his immediate predecessors Hu Jintao and Jiang Zemin. Crucially, Xi has refrained from characterizing Taiwan as an urgent legacy issue requiring immediate resolution during his tenure. Furthermore, Xi's assertions about reunification as essential for national rejuvenation align aren’t new and China’s long-standing core policy guideline of peaceful reunification under the framework of "one country, two systems" remains unchanged under Xi's leadership.
In reality, Beijing tends to be quite pragmatic in its decision-making. The underlying calculus here is straightforward: embarking on kinetic action against Taiwan presents formidable challenges and risks on multiple fronts—military, economic, political, and on a personal level for Xi Jinping himself.
This is, of course, precisely why previous Chinese leaders, such as the ultra-pragmatic Deng Xiaoping, opted for a policy of strategic ambiguity in the late 1970s, leaving the issue for future generations to solve. Instead, Beijing’s focus in 2024 will be to maintain stability and address domestic challenges, especially continued sluggish economic growth.
Are there any escalation scenarios at all? Yes. First, there is the prospect of a mistake leading to inadvertent escalation, reminiscent of the events that unfolded during World War I. However, this scenario appears remote due to the intricate planning, execution, and time required for an invasion. A more plausible scenario centers on the abandonment of the policy of strategic ambiguity by U.S. policymakers, especially after the upcoming Presidential election in November 2024. The abandonment of strategic ambiguity would alter today’s delicate equilibrium, potentially leading to unintended consequences.
In contemplating the unlikely scenario of a military conflict, the key question is whether Beijing would opt for a naval blockade or commit to a full-scale invasion. While conventional wisdom leans towards a naval blockade, game theory analysis suggests an invasion might be the better choice for Beijing.
Why? Because a lengthy naval blockade comes with nearly identical economic, diplomatic, and political costs as an invasion, but a much lower chance of producing a decisive outcome. Conversely, a full-scale invasion, though complex and risky, offers the prospect of securing a swift victory before the U.S. can mount a response. In fact, military wargames conducted in both the U.S. and China apparently suggest that China would likely emerge victorious, thereby reshaping the regional power dynamics and security in the Indo-Pacific. In essence, game theory advocates for Beijing adopting an all-in strategy, emphasizing the potential strategic advantages of a decisive move in the face of military conflict.
In conclusion, Taiwan’s election is likely to prove far less consequential than the conventional wisdom suggests while military conflict remains improbable in the foreseeable future. Nevertheless, the likelihood of such conflict is not entirely null; companies with heavy exposure to Taiwan and/or China – whether direct or indirect – would be wise to explore alternative scenarios, pressure-test existing strategies, and draw up contingency plans, if they haven’t done so already.
1 “Battle Lines: Blow to Beijing as Taiwan chooses candidate Xi fears the most,” The Telegraph (1/16/24)
2 “Taiwan election: William Lai’s presidential victory risks further tensions with Beijing,“ SCMP (1/14/24)
3 “Taiwan's Clear Snub of China Spotlights Global War Risk,” Newsweek (1/14/24)