Jason Hsu (Rayliant)
Published on March 4, 2022
Many pundits are speculating that Russia’s aggression will embolden China to invade Taiwan. As is often the case, this speculation comes mostly from a casual reading of the popular press.
As an investment firm specializing in greater China—Rayliant has offices in Taipei, Shanghai and Hangzhou—I care very much about the China-Taiwan relationship. I was also born in Taiwan, where my parents still live, and where I am a professor in international finance at the Taiwan National University of Political Science, where I was B-School colleagues with former Taiwan President Ma and current President Tsai.
In short, I monitor the Taiwan situation very closely. And my view is that while Russia’s invasion of Ukraine is a terrible tragedy, it is likely to improve—not exacerbate—the China-Taiwan problem.
Reason 1: The Cost of Conflict
Beijing, as advised by its more militant faction, has been testing U.S. resolve ever since Biden took office. The biggest risks during this period have been (1) accidental engagement during “fly-over” provocations; and (2) over-confidence of an easy victory if conflict escalates. But Russia’s invasion of Ukraine has given Chinese analysts numerous data points to re-consider the costs and risks of full-on conflict with the West. It has also given China’s doves, who prefer diplomacy and peaceful reunification, talking points to balance the Taiwan debate.
Over the past week, it seems increasingly likely that Russia’s invasion of Ukraine will end in strategic failure—even if Putin ultimately claims a face-saving victory. Beijing is watching keenly and taking notes; and the West is watching Beijing watch Ukraine.
If Beijing were to invade Taiwan, perhaps it could accept significant military losses. It might also be willing to ignore its own citizens, who would be outraged by casualties in Taiwan among a people with whom they share a common language, culture, heritage and economic interest. While not desirable, Beijing may be willing to tolerate such losses in service of reunification.
But the cost and scope of the crippling sanctions against Russia and its oligarchs have forced Beijing to reconsider the economic and political cost of invading Taiwan. In fact, because of China’s greater economic entanglement with the West, comparable sanctions levied against China could hurt far more than they will against Russia. As the world’s biggest seller and creditor, China must now accept that the West is not beneath seizing assets and renouncing debt in response to significant conflict. Through its invasion of Ukraine, Russia has proven just how costly it would be for China to follow suit in Taiwan.
Reason 2: The Value of Peace
Even as the cost of war becomes evident, the value of a peaceful China-Taiwan relationship is growing. In the coming months, China will have a chance to ascend as the sensible and mature leader of the global communist brotherhood. The West will work with China and honor Beijing for managing and reining in Russia’s belligerence. Indeed, Western leaders are openly appealing to Xi to help negotiate with Putin to end the conflict in Ukraine.
The West fully understands the bigger game being played in the shadows. If China stays on the fence, even if its neutrality is insincere, it helps stave off a potential slide into a new Cold War. Western leaders will interpret China’s abstention from this month’s UN resolution to condemn Russia as “an encouraging sign” of rational neutrality rather than as support for Putin.
We see this in practice, as the EU has approached China in a manner that is polar opposite to the popular press. The media has quickly painted China as an affiliate of Russia in forming a new front against the West. Meanwhile, the EU has focused publicly only on China’s neutrality, its critical role in bringing about peace, and its unique ability to facilitate dialogue with Putin.
The West knows the harm of pushing the world’s second largest military and economy to join “Putin’s Axis of Evil”. It is in everyone’s interest for China to be Switzerland, at a time when even Switzerland has stopped wanting to be Switzerland. Being the swing vote, the player who can change the balance of power with a simple tilt—that is a newfound global influence that Xi has craved since taking office. It will also be a lucrative global role for China that the leadership in Beijing will not want to jeopardize.
It is a foregone conclusion that Russia will widely adopt CIPS (China SWIFT), and will likely adopt RMB as its primary reserve and settlement currency. China will likely be the biggest buyer of Russian crude, natural gas and palladium. In fact, Russia’s Gazprom just announced a new pipeline deal, which will deliver 1.8 trillion cubic feet of natural gas a year to China via Mongolia. There is an enormous economic advantage to being the only viable buyer for the world’s most important resources from Russia. There should be little doubt that China will also seek to establish itself as a top exporter of derivative materials based on petroleum and palladium—essentially playing intermediary to facilitate critical resource trading with Russia that global economies are not ready to forgo.
This newfound geopolitical role will be a bonanza for China. Xi will use this influence to establish his legacy as one of China’s most transformative leaders. Mao established the Party; Deng opened up China and brought prosperity; and now Xi has transformed China into a true global superpower. This is a narrative China’s leadership desires.
The political and economic value of China’s “swing vote” role—and the value that role presents to Xi in the coming years—far outweighs the value of a costly invasion of Taiwan. After all, Taiwan will always be a stone’s throw away. The island isn’t going anywhere. Meanwhile, China’s naval capabilities are converging towards the West’s. The value of patience is substantial.
Reason 3: The Role of Dissent
It is important to recognize that, while Xi is the undisputed leader of the CCP, Xi is not the Party. Beijing is not China. There are powerful factions in China, some visibly soft-spoken and others influential in the shadows. To assume the country is a “one-man show” belies naivety regarding the complexity and delicacy of China’s politics and political process.
Note that the previous two presidents (Jiang and Hu) are both still alive and their sphere of influences remain; they are respected party elders, who have elevated many of the most powerful members in the party and the military. And the princelings have powerful influence within the party. Some control regional politics and resources, and others control military units inside China’s massive but decentralized armed forces.
Perhaps the most important debate raging among China’s political elites is how to leverage the country’s emerging economic and geopolitical influence to shape China’s proper path forward. The West’s show of solidarity and force in Ukraine provide valuable exhibits for the doves within the CCP to champion a collaborative diplomatic approach. (Of course, the West flexing its power does little to deter the hawks in China, as they are generally committed to ignoring rational analysis in favor of a fight.)
The most important thing for readers to understand is that plenty of people in China–including powerful leaders at the top echelon of the CCP–are willing to advocate peace, prosperity and diplomacy. Don’t underestimate that influence.
Reason 4: The Impact on Taiwan Politics
Predicting politics is a dangerous game, but Beijing will likely spend the next few years observing what impact Russia’s invasion of Ukraine has on local Taiwan politics. Prognosticating on Taiwan elections is one of Beijing’s favorite and most important activities; Taiwan voters’ sentiments toward the Mainland ultimately drive the internal CCP debate about gradual peaceful re-unification or armed invasion.
The West’s response to Russia’s invasion of Ukraine not only provides data points for Beijing’s military top brass, but also to the people of Taiwan. Many Taiwan voters may be concluding that “U.S. support” won’t translate to military support for Taiwan in an invasion. Cutting China off from SWIFT is quite a bit different from having the U.S. Pacific fleet get in between PRC’s advancing forces and Taiwan.
This uncomfortable realization may help the struggling KMT (the opposition party) in the upcoming Taipei City mayoral election, which often sets the tone for the presidential election afterward. KMT’s advocacy for a better relationship with China and respecting the “one-China” policy has been its chief weakness. But in light of recent events, that may become its strength. Certainly, the incumbent DDP party’s assumed U.S. military protection has come under serious challenge by local media pundits as Taiwanese crave analysis on the tragedy unfolding in Ukraine and its direct implications for Taiwan.
The potential shift in public sentiment and the fortune of the KMT party in the next election will dictate Beijing’s calculus as much as any Western economic sanction and military might displayed in Ukraine.
Conclusion
Whatever one may think of China’s values or political system, its leaders have thus far seemed to make rational decisions. I expect China to continue doing so.
Russia’s invasion of Ukraine has laid bare the military, economic and political cost of a unilateral invasion, which will undermine China’s hawks and strengthen its doves. Equally, the lack of Western commitment and actions to deter Russia’s military advance will weigh heavily on Taiwanese politics as the path of diplomacy with Mainland China or antagonizing Beijing are again debated.
The war in Ukraine has likely reduced the delusion that lives in the mind of both the Beijing hawks and the supporters for Taiwan independence. This gives hope to a less antagonistic relationship, when those eager for a fight reassess the true cost of a fight. More importantly, the current situation presents to Xi a unique opportunity to ascend as one of the most important global leaders—he will be counted on to rein in Russia by the West and he will be Russia’s best and only hope to avoid complete economic collapse if international sanctions remain. Both will reward China and honor Xi for playing the middle well.
Thus, I predict China will de-escalate with Taiwan in the coming years. This is not because China is altruistic. Rather, it simply has too much to lose by invading—and too much to gain through patience.
Why I’m Not Afraid for Taiwan
Jason Hsu (Rayliant)
Published on March 4, 2022
Many pundits are speculating that Russia’s aggression will embolden China to invade Taiwan. As is often the case, this speculation comes mostly from a casual reading of the popular press.
As an investment firm specializing in greater China—Rayliant has offices in Taipei, Shanghai and Hangzhou—I care very much about the China-Taiwan relationship. I was also born in Taiwan, where my parents still live, and where I am a professor in international finance at the Taiwan National University of Political Science, where I was B-School colleagues with former Taiwan President Ma and current President Tsai.
In short, I monitor the Taiwan situation very closely. And my view is that while Russia’s invasion of Ukraine is a terrible tragedy, it is likely to improve—not exacerbate—the China-Taiwan problem.
Reason 1: The Cost of Conflict
Beijing, as advised by its more militant faction, has been testing U.S. resolve ever since Biden took office. The biggest risks during this period have been (1) accidental engagement during “fly-over” provocations; and (2) over-confidence of an easy victory if conflict escalates. But Russia’s invasion of Ukraine has given Chinese analysts numerous data points to re-consider the costs and risks of full-on conflict with the West. It has also given China’s doves, who prefer diplomacy and peaceful reunification, talking points to balance the Taiwan debate.
Over the past week, it seems increasingly likely that Russia’s invasion of Ukraine will end in strategic failure—even if Putin ultimately claims a face-saving victory. Beijing is watching keenly and taking notes; and the West is watching Beijing watch Ukraine.
If Beijing were to invade Taiwan, perhaps it could accept significant military losses. It might also be willing to ignore its own citizens, who would be outraged by casualties in Taiwan among a people with whom they share a common language, culture, heritage and economic interest. While not desirable, Beijing may be willing to tolerate such losses in service of reunification.
But the cost and scope of the crippling sanctions against Russia and its oligarchs have forced Beijing to reconsider the economic and political cost of invading Taiwan. In fact, because of China’s greater economic entanglement with the West, comparable sanctions levied against China could hurt far more than they will against Russia. As the world’s biggest seller and creditor, China must now accept that the West is not beneath seizing assets and renouncing debt in response to significant conflict. Through its invasion of Ukraine, Russia has proven just how costly it would be for China to follow suit in Taiwan.
Reason 2: The Value of Peace
Even as the cost of war becomes evident, the value of a peaceful China-Taiwan relationship is growing. In the coming months, China will have a chance to ascend as the sensible and mature leader of the global communist brotherhood. The West will work with China and honor Beijing for managing and reining in Russia’s belligerence. Indeed, Western leaders are openly appealing to Xi to help negotiate with Putin to end the conflict in Ukraine.
The West fully understands the bigger game being played in the shadows. If China stays on the fence, even if its neutrality is insincere, it helps stave off a potential slide into a new Cold War. Western leaders will interpret China’s abstention from this month’s UN resolution to condemn Russia as “an encouraging sign” of rational neutrality rather than as support for Putin.
We see this in practice, as the EU has approached China in a manner that is polar opposite to the popular press. The media has quickly painted China as an affiliate of Russia in forming a new front against the West. Meanwhile, the EU has focused publicly only on China’s neutrality, its critical role in bringing about peace, and its unique ability to facilitate dialogue with Putin.
The West knows the harm of pushing the world’s second largest military and economy to join “Putin’s Axis of Evil”. It is in everyone’s interest for China to be Switzerland, at a time when even Switzerland has stopped wanting to be Switzerland. Being the swing vote, the player who can change the balance of power with a simple tilt—that is a newfound global influence that Xi has craved since taking office. It will also be a lucrative global role for China that the leadership in Beijing will not want to jeopardize.
It is a foregone conclusion that Russia will widely adopt CIPS (China SWIFT), and will likely adopt RMB as its primary reserve and settlement currency. China will likely be the biggest buyer of Russian crude, natural gas and palladium. In fact, Russia’s Gazprom just announced a new pipeline deal, which will deliver 1.8 trillion cubic feet of natural gas a year to China via Mongolia. There is an enormous economic advantage to being the only viable buyer for the world’s most important resources from Russia. There should be little doubt that China will also seek to establish itself as a top exporter of derivative materials based on petroleum and palladium—essentially playing intermediary to facilitate critical resource trading with Russia that global economies are not ready to forgo.
This newfound geopolitical role will be a bonanza for China. Xi will use this influence to establish his legacy as one of China’s most transformative leaders. Mao established the Party; Deng opened up China and brought prosperity; and now Xi has transformed China into a true global superpower. This is a narrative China’s leadership desires.
The political and economic value of China’s “swing vote” role—and the value that role presents to Xi in the coming years—far outweighs the value of a costly invasion of Taiwan. After all, Taiwan will always be a stone’s throw away. The island isn’t going anywhere. Meanwhile, China’s naval capabilities are converging towards the West’s. The value of patience is substantial.
Reason 3: The Role of Dissent
It is important to recognize that, while Xi is the undisputed leader of the CCP, Xi is not the Party. Beijing is not China. There are powerful factions in China, some visibly soft-spoken and others influential in the shadows. To assume the country is a “one-man show” belies naivety regarding the complexity and delicacy of China’s politics and political process.
Note that the previous two presidents (Jiang and Hu) are both still alive and their sphere of influences remain; they are respected party elders, who have elevated many of the most powerful members in the party and the military. And the princelings have powerful influence within the party. Some control regional politics and resources, and others control military units inside China’s massive but decentralized armed forces.
Perhaps the most important debate raging among China’s political elites is how to leverage the country’s emerging economic and geopolitical influence to shape China’s proper path forward. The West’s show of solidarity and force in Ukraine provide valuable exhibits for the doves within the CCP to champion a collaborative diplomatic approach. (Of course, the West flexing its power does little to deter the hawks in China, as they are generally committed to ignoring rational analysis in favor of a fight.)
The most important thing for readers to understand is that plenty of people in China–including powerful leaders at the top echelon of the CCP–are willing to advocate peace, prosperity and diplomacy. Don’t underestimate that influence.
Reason 4: The Impact on Taiwan Politics
Predicting politics is a dangerous game, but Beijing will likely spend the next few years observing what impact Russia’s invasion of Ukraine has on local Taiwan politics. Prognosticating on Taiwan elections is one of Beijing’s favorite and most important activities; Taiwan voters’ sentiments toward the Mainland ultimately drive the internal CCP debate about gradual peaceful re-unification or armed invasion.
The West’s response to Russia’s invasion of Ukraine not only provides data points for Beijing’s military top brass, but also to the people of Taiwan. Many Taiwan voters may be concluding that “U.S. support” won’t translate to military support for Taiwan in an invasion. Cutting China off from SWIFT is quite a bit different from having the U.S. Pacific fleet get in between PRC’s advancing forces and Taiwan.
This uncomfortable realization may help the struggling KMT (the opposition party) in the upcoming Taipei City mayoral election, which often sets the tone for the presidential election afterward. KMT’s advocacy for a better relationship with China and respecting the “one-China” policy has been its chief weakness. But in light of recent events, that may become its strength. Certainly, the incumbent DDP party’s assumed U.S. military protection has come under serious challenge by local media pundits as Taiwanese crave analysis on the tragedy unfolding in Ukraine and its direct implications for Taiwan.
The potential shift in public sentiment and the fortune of the KMT party in the next election will dictate Beijing’s calculus as much as any Western economic sanction and military might displayed in Ukraine.
Conclusion
Whatever one may think of China’s values or political system, its leaders have thus far seemed to make rational decisions. I expect China to continue doing so.
Russia’s invasion of Ukraine has laid bare the military, economic and political cost of a unilateral invasion, which will undermine China’s hawks and strengthen its doves. Equally, the lack of Western commitment and actions to deter Russia’s military advance will weigh heavily on Taiwanese politics as the path of diplomacy with Mainland China or antagonizing Beijing are again debated.
The war in Ukraine has likely reduced the delusion that lives in the mind of both the Beijing hawks and the supporters for Taiwan independence. This gives hope to a less antagonistic relationship, when those eager for a fight reassess the true cost of a fight. More importantly, the current situation presents to Xi a unique opportunity to ascend as one of the most important global leaders—he will be counted on to rein in Russia by the West and he will be Russia’s best and only hope to avoid complete economic collapse if international sanctions remain. Both will reward China and honor Xi for playing the middle well.
Thus, I predict China will de-escalate with Taiwan in the coming years. This is not because China is altruistic. Rather, it simply has too much to lose by invading—and too much to gain through patience.