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Amid growing concern that China will try to take Taiwan by force, Western businesses should consider taking precautionary steps to protect their personnel and assets now.

The Biden administration and U.S. business leaders are growing increasingly concerned about the prospect of China taking Taiwan by force within the next couple of years. Unlike in Ukraine, where Western businesses lost billions of dollars because they did not pay heed to signs that Russia was preparing to invade, businesses that have a presence in Taiwan, Hong Kong, and mainland China should start taking steps now to protect their assets, personnel, and supply chains in the event of an all-out conflict.

“It’s not a question of if, but when,” Global Guardian CEO and President Dale Buckner said of the possibility of Chinese aggression against Taiwan.

GG Global Digest Taiwan Map v1 2Growing Tensions in the Taiwan Strait

The ruling Chinese Communist Party (CCP) will hold its twice-in-a-decade congress on October 16. At that congress, Xi Jinping is widely expected to secure a historic third term as party general secretary and president of China. The CCP has long claimed that Taiwan, which it identifies as a “core” national interest, is part of China. It has vowed to “reunify” the mainland with the island—by force if necessary. In 2021, Xi said “resolving the Taiwan question and realizing China’s complete reunification is a historic mission and an unshakable commitment of the Communist Party of China” and that “no one should underestimate the resolve, the will, and the ability of the Chinese people to defend their national sovereignty and territorial integrity.”

Amid growing public dissatisfaction with Beijing’s “Zero-COVID” policy—the lockdowns that are an integral part of the policy have led to widespread shortages of food and other daily necessities, and have hurt the economy—Xi may be tempted to stir a sense of nationalism by following through on his rhetoric on Taiwan. Tensions could certainly build ahead of Taiwan’s presidential elections in 2024.

Global Guardian advisory board member John M. B. O’Connor said that with the likely extension of Xi’s term as president “the tactical pressures that come from Taiwan are an accelerant.”

“In any event, you should be ready by outside date 2027, and most likely 2024,” O’Connor advises businesses with a presence in China. “Corporate clients should have a planning process and be ready for a transition,” he said, adding: “Anyone with a business enterprise in China should wake up to the fact that they are operating in a different world. Taiwan is just part of what they should be thinking about. The whole way they think about doing business with greater China needs to be rethought.”

Western concerns about a possible conflict over Taiwan have been fueled by other factors as well. In June, for example, a Chinese foreign ministry spokesman dismissed a position held by the United States that the Taiwan Strait is “international waters” and asserted that “China has sovereignty, sovereign rights and jurisdiction over the Taiwan Strait.”

Taiwan is the most contentious issue in U.S.-China relations and the Taiwan Strait is widely acknowledged to be the most likely location of a military confrontation between the two. While the defense pact that formally bound the United States to Taiwan was abrogated in 1979, successive U.S. administrations have committed themselves to backing Taiwan in the event of Chinese aggression.

The United States regularly sells weapons to Taiwan in an effort to shore up the island’s defenses and deter a Chinese attack—what is known as a “porcupine” defense strategy.

Potential for Disruption

A recent RAND Corporation report that examined how China may seek to “quarantine” Taiwan concluded that this effort would include preventing Taiwan from “sending exports or receiving imports”—or, a “blockade.” The report’s authors note: “While there may be room to negotiate the movement of particular kinds of commodities, if the PRC declines to allow free shipment, no amount of indirect pressure is likely to result in the PRC abandoning its efforts.”

A Chinese invasion of Taiwan would be more disruptive and damaging than Russia’s ongoing war in Ukraine. “The dependencies of Western business on Taiwan are infinitely greater than the dependencies of Western business on Ukraine,” explained O’Connor, who is also the chairman of J.H. Whitney Investment Management LLC and a senior advisor to the U.S. Department of Defense.

“The dependencies of Western business on Taiwan are infinitely greater than the dependencies of Western business on Ukraine.”

China could, for example, trigger a national security crisis for the United States if it cuts off exports of semiconductors from Taiwan on which the U.S. military is dependent. A single firm, the Taiwan Semiconductor Manufacturing Company (TSMC), supplies more than 90 percent of the global supply of semiconductors. “The inability of the world market, particularly in the West, to access TSMC, Foxconn, and other semiconductor production of both commodity and specialized chips would be much more devastating than the energy impacts of Russia’s invasion of Ukraine because there are more alternative suppliers of energy than there are alternative suppliers of semiconductors,” said O’Connor.

Second-Order Effects

A Chinese invasion of Taiwan would also produce second-order effects, including sanctions and supply chain disruptions. A report prepared by China’s Ministry of Public Security and Ministry of State Security said that if the United States and its allies were to impose sanctions on China over Taiwan, “our country will return to a planned economy closed off to the world.” According to one estimate, if trade with China is cut off, a total of $2.6 trillion could be lost from the global economy.

Western businesses would be severely impacted. O’Connor said a key concern will be the availability of active pharmaceutical ingredients. “The West imports over 90 percent of all of its antibiotics from China and India, and India could not pick up the slack” in the event of a disruption of Chinese supply, he said.

"'The West imports over 90 percent of all of its antibiotics from China and India, and India could not pick up the slack' in the event of a disruption of Chinese supply." 

In the lead up to a conflict, Beijing may also decide to freeze foreign financial assets within China, impose stronger cross-border capital controls, suspend key imports, and restrict outbound travel for Chinese elites and high-priority workers, according to some analysts. U.S. officials believe China would quickly cut off access to all or part of the Taiwan Strait through which U.S. naval ships routinely pass and even shut down the airspace over Taiwan in the event of a conflict. O’Connor said businesses worry about their ability to repatriate personnel in such circumstances.

Buckner said there would be very few options to repatriate people once a conflict gets underway. In comparison to Ukraine, he said, some key differences stand out when it comes to Taiwan. First, unlike Ukraine, Taiwan is an island. “There is no safe haven to go to” across the border, said Buckner. “You have to assume that the Chinese navy will form a blockade and anything coming out by boat would be picked up.”

Unless corporate employees are evacuated well in advance of an incident, “the probability of repatriating them is so unbelievably low that you simply can’t count on it,” Buckner said. “Once a conflict starts and the Chinese decide they are going to take Taiwan by force, they are going to lock the whole country down and those expats are not getting out.”

Second, unlike NATO in Europe, there is no military alliance in Asia that the United States could work through to deter Chinese aggression or funnel support to Taiwan. A Chinese assault on Taiwan would put China in direct confrontation with the United States, raising the risk of escalation. “Not having a body to filter between us and the adversary makes this different,” said Buckner.

“If the United States decides we are defending Taiwan at all costs, the Chinese have the geographic and military advantage. It will be much more difficult for us to respond quickly.”

“The West is trying to find this ‘solution’ to defend Ukraine without hitting the trip wire of World War III,” Buckner said. In Taiwan, “if the United States decides we are defending Taiwan at all costs, the Chinese have the geographic and military advantage. It will be much more difficult for us to respond quickly,” he said, noting that China will seize control of ports that the United States will want to utilize to sustain its forces in a conflict. “The United States’ response options are just not easy or good. How do you defend Taiwan and not create mass conflict?”

Trigger Points

Russia clearly signaled its intentions in Ukraine weeks before its invasion in February. Russian President Vladimir Putin spoke openly about attacking his neighbor and Russian troops amassed along the border with Ukraine. Yet few thought Russia would follow through on its threats.

Buckner listed some developments to watch to get a sense of China’s intentions vis-à-vis Taiwan. These include large movements of troops, activation of missile sites, prepositioning of missiles, and movement of naval assets. “The biggest trip wire will be naval assets,” said Buckner, adding that he believes China will want to cordon off Taiwan.

Just as Russia telegraphed its intentions before invading Ukraine, “if you see Xi start to go down that path—and he starts to indicate politically that Taiwan is a red line that they are not going to let up on—if you see that combination of political messaging, the movement of assets…if you ignore those trip wires you will get stuck,” as most did in Ukraine, Buckner said. O’Connor added that Western businesses will get stuck not just in Taiwan but also in mainland China and Hong Kong.

How Should Businesses Prepare?

The official announcement of the CCP’s congress in October declared: “The congress will hold high the great banner of socialism with Chinese characteristics, uphold Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents and the Scientific Outlook on Development, and thoroughly implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.” O’Connor described this as “very foundational communist rhetoric.” Such rhetoric is setting off alarm bells in boardrooms over the Chinese leadership’s growing impulse to fall back on statist solutions, which will have a negative impact on China’s economy.

Meanwhile, Western businesses that have a presence in Taiwan, Hong Kong, and mainland China are finding the space to operate is shrinking as a consequence of regulatory and political pressure from their home governments (over China’s human rights record, for example) as well as from Beijing. To prepare for the eventuality that these competing pressures come to a head, businesses should start identifying key and essential personnel and assets and move the rest out to ensure proper duty of care.

“But once you hit that trigger of about two weeks out, every hour there is a new change and everyone starts scrambling.”

“If you exit early, you can get out with relative ease,” said Buckner. Noting that there is typically a window of about two to four weeks around a conflict to protect personnel and assets, he said: “But once you hit that trigger of about two weeks out, every hour there is a new change and everyone starts scrambling.”

O’Connor said corporations should also be examining their business continuity plans, supply chains, critical dependencies—what are they dependent on coming out of Taiwan and mainland China, buffer stocks, replacement options, and who they are selling to in China that they would have to contemplate losing.

Global Guardian helps its clients navigate rapidly evolving geopolitical landscapes by providing real-time intelligence support and conducting tabletop exercises. “The calculus that you go through is people, infrastructure, and assets,” said Buckner. He listed some critical questions businesses should consider as they prepare for a conflict:

Identify key and essential personnel. If they are not key and essential, why are they there? Should families be there given the uncertainty?
What infrastructure is on the ground and where in the supply chain does that connect? What can be changed now to guard against a disruption?
If Taiwan is lost, where does the business pivot to? Can businesses start relocating assets now so that they can replicate what they have in Taiwan?
Where are the business’ financial and material assets located? If China shuts down the banking system in Taiwan will those assets get frozen? Can those financial assets be moved off the island so that they are safeguarded?

In Russia, BP abandoned its stake in Russian oil giant Rosneft taking a $25 billion hit in the wake of the invasion of Ukraine. “It’s likely BP could have salvaged some of its losses if they would have moved assets overseas before the invasion started, instead they hesitated and that cost them,” said Buckner. “Russia is a good example of how poorly this went for the West. So many Western companies just walked away and lost billions upon billions of dollars,” he added.

Instead, Buckner said, if Western companies that are present in Taiwan and China evaluate their financial assets and supply chains, and change policies on personnel now, they will be much better positioned when a conflict occurs.

Impact of Russia’s Experience in Ukraine

CIA Director Bill Burns said recently that China was “unsettled” by Russia’s experience in Ukraine. “Our sense is that it probably affects less the question of whether the Chinese leadership might choose some years down the road to use force to control Taiwan, but how and when they would do it,” Burns said.

Stating that he would not underestimate Xi’s determination to assert China’s control over Taiwan, Burns said: “I suspect the lesson that the Chinese leadership and military are drawing [from Russia’s experience in Ukraine] is that you’ve got to amass overwhelming force if you’re going to contemplate that in the future.”

Buckner doesn’t believe China currently has the military might to take Taiwan. “I don’t think Chinese military capabilities are quite there yet, but are they far enough along that they could pull the trigger in the next two to three years? I absolutely believe it,” he said. Even if a conflict over Taiwan were to erupt many years from now, businesses would be “truly prepared” by acting now, Buckner said.

“Even if it is only a 25 percent probability, the impact, should it occur, is so dramatic that people really are forced to plan.”

O’Connor predicted issues will come to a head in the Taiwan Strait around 2024/25. “Even if it is only a 25 percent probability, the impact, should it occur, will be so dramatic that people really are forced to plan,” he said.


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