As China continues military drills near the island of Taiwan, the tense security environment brings up a question: Is China going to invade Taiwan soon?
Heritage Research Fellow Min-Hua Chiang writes that, fortunately, China’s current economic mess says it’s not likely.
A few weeks before House Speaker Nancy Pelosi’s visit to Taiwan, China reported a sharp economic slowdown to 0.4% growth in the second quarter of 2022 (year-over-year) from 4.8% in the first quarter, due mainly to its “zero-COVID” policy.
The strict restrictions on people’s movement from April to June have severely hurt household consumption, and local services have been struggling amid the repeated COVID-19 outbreaks. The total retail sales of consumer goods dropped by 11% in April, from an average of 7% growth in both January and February.
The almost zero second quarter growth is not the only thing that distresses the Chinese leadership. The economic slump has exposed some deep-rooted problems that authorities ignored for so many years when the economy was thriving. The problem that caught most of the attention recently is the numerous suspensions of unfinished buildings, or “rotten-tail buildings” in the Chinese language, resulting from construction companies’ insufficient funds or unsettled disputes over property rights.
To attempt to cure the ailing economy, the Chinese Communist Party has set aside its common prosperity program and refocused on economic growth. Obviously, China cannot think about how to divide the cake without having the cake first.
In the face of domestic economic hardship, China is in urgent need of greater foreign trade and investment, the other essential element in its “dual circulation” policy, to sustain the overall economy. Announced in 2020, the dual circulation policy is a strategy that aims to stimulate China’s economy by boosting domestic consumption and foreign trade and investment. Without the steady global demand that ensures China’s resilient exports, the economy could have fallen even further.
Foreign manufacturers, especially Taiwanese manufacturing firms, have played a key role in China’s external trade development. In 2020, for example, foreign companies with manufacturing operations in China contributed 36% of China’s total exports and 42% of its total imports, according to China’s Ministry of Commerce.
In light of all these troubling economic figures, a war in the Taiwan Strait would further push away foreign investors and crash the already fragile economy in China. In addition, Taiwan ceasing to supply its semiconductor chips to China because of a war would hurt China even more. Chinese smartphone manufacturer Huawei experienced a business slump after Taiwan semiconductor manufacturer TSMC ceased its chip supply to China in 2020. That sent a warning to China’s leadership because its economy relies on assembling key components from overseas.
In 2001, Gordon Chang notably predicted the “Coming Collapse of China” in 10 years. China did not collapse as predicted thanks to its smooth integration with the global economy. It will collapse, however, if it triggers the fires itself by starting a war with Taiwan.
