China’s economic troubles are only beginning.  They have put the once supercharged GDP producing behemoth – one that has directly challenged US economic supremacy – into a precarious geopolitical position.  This places Taiwan directly in China’s crosshairs.  China will likely do anything to thwart any perception of economic or political weakness, even if it means invading its smaller neighbor to the east.  

The current Evergrande crisis is only the tip of the iceberg.  Many financial analysts suggest it could be indicative of a “Lehman Moment” for China, referring to the then 4th largest U.S. investment bank that defaulted in 2008, which sent shockwaves across the U.S. and global economy.  It was only the beginning of the recession.

Similarly, Evergrande represents China’s desire to grow GDP by building, building, and building some more.  This is true even when there is no use for what’s being built.  One only has to look towards China’s “ghost cities” for evidence of such economic waste.

Evergrande was, at one point, the most valuable real estate company in the world.  Its business model, and by extension China’s economic model, now appears less like a well-oiled economic engine, and more like an artificially inflated bubble.  When supply continues to flood the market absent proportionate consumer demand, economic trouble and political unrest will ensue. 

China’s Economic Troubles Will Lead to Increased Geopolitical Aggression

China has and will continue to stave off economic trouble by inserting the state as a more active and direct market participant.  Whether that’s propping up property developers who can’t pay their bills like Evergrande, or the some 300,000 companies in its energy-vehicle industry, President Xi’s administration will play a more assertive role in an attempt to avoid Lehman-like disaster.

The Communist Party’s assertiveness will not be limited to domestic economic policy.  As the Chinese economy appears more porous to outside investors and GDP numbers slow, they will be tempted to express dominance in other ways.  Like a cornered and injured tiger, China may be incentivized to lash out at someone weaker than them.

Enter Taiwan.  China has an obsession with “reunifying” the country under its sovereignty.  The history between these two nations is complex, but any attempted reunification is foreseeable if China’s economic troubles worsen.  China might think it’s reached the apex of its power and the time to “reunify” or invade is now.

China and Taiwan – A Historical Primer

China’s connection to Taiwan allegedly dates back to 239 AD when an emperor sent men to explore the island.  President Xi’s regime points to this fact to justify its territorial claim.

The Dutch colonized Taiwan between 1624 and 1661.  Thereafter, the Qing dynasty governed the area until 1895.

When Japan won the First Sino-Japanese War in 1895, the Qing government ceded Taiwan to Japan, who held the island until after World War II.  China regained sovereignty over Taiwan at the agreement of the allied forces, namely the U.S. and U.K. 

Civil war broke out in China over the next few years.  Chiang Kai-shek, the then-leader of China, was forced out by Mao Zedong’s Communist revolutionaries.  Chiang and the remaining members of his government found exile in Taiwan.

The local people of Taiwan pushed for democratic reforms, most of which were not fully realized until President Lee Teng-hui was elected.

Ever since Taiwan fully implemented democracy, relations with China have been rocky to say the least.  China pushed a “one country, two systems” approach, which would have given Taiwan significant autonomy if it accepted Chinese reunification – similar to Hong Kong – but Taiwan rejected the offer.  In hindsight, this was the right move for democracy given recent reforms forced on Hong Kong by mainland China.

In 2004, China even passed a law granting it the right to use “non-peaceful means” against Taiwan if it tried to “secede” from China.  This has not deterred the independence movement in Taiwan.  In 2016, current president Tsai Ing-wen was elected on a platform that leans towards eventual official independence from China.

Foreign Policy Purgatory  

Despite this decades-long separation from China, Taiwan sits in a state of foreign policy purgatory.  Only 17 countries recognize Taiwan’s democratic government.  That number does not include Taiwan’s biggest ally, the U.S. 

Moreover, the United Nations does not even recognize Taiwan.  It formally views mainland China as the official government to speak on behalf of Taiwan.  Many other countries – including the U.S. – take this view (largely for economic reasons) despite the fact China has never controlled modern day Taiwan.

This puts Taiwan in an awkward place – the country issues passports that are recognized all over the world, they have their own currency, and their own constitutional democracy.  Yet anyone trying to enter a U.N. building with a Taiwanese passport would be rejected.

The fact Taiwan’s biggest ally and trading partner, the U.S., does not even formally recognize Taiwan puts it in a dangerous position with respect to an increasingly aggressive China.  While U.S. supplies arms and defenses to Taiwan in line with the Taiwan Relations Act, it does not have an embassy in the country, nor formal diplomatic relations.  

Taiwan Is More At Risk Than Ever

With China’s economy faltering and its financial power waning, there is a good chance it will try to exert political and even military might.  President Xi has articulated grand visions for a 21st century dominated by China.  The first step in changing the current world order that remains U.S. centric is an invasion of Taiwan.

Given Taiwan’s ambiguous status in the international community, China could reasonably justify any attempt to formally incorporate the country under its sovereignty.  China has significant business ties to the island, and Taiwan is a major player in international trade, all of which could further incentivize China to bring Taiwan officially under its umbrella.

In the past few weeks, China has made bolder attempts at showcasing its supremacy over Taiwan.  Increasing incursions into Taiwan’s airspace by Chinese military aircraft have clearly been designed to provoke Taiwan and the international community, namely the U.S.  Until more formal recognition of Taiwan is made by the U.N. and U.S., these aggressive actions will only escalate.  President Joe Biden’s “agreements” with President Xi are not sufficient.    

Taiwan President Tsai captured the broader global ramifications should China be permitted to exert its will on Taiwan:

“It would signal that in today’s global contest of values, authoritarianism has the upper hand over democracy”

President Tsai  

If China is permitted to force itself on Taiwan, through military action or otherwise, the power dynamics of the region will change for decades to come.  The move would further embolden China to exert authority across the Asia Pacific.  It would be able to influence everything from trade routes to the Taiwan semiconductor industry that’s integral to almost every technology today.

The international community must recognize that as China’s economic might weakens, its geopolitical threat rises.  An economically unstable China is a dangerous China.  Not only for Taiwan, but for a liberal and democratic world order.  Taiwan would be just its first stop.