Tensions are running high with rising fears over a Chinese invasion of Taiwan in the not too distant future. In this paper we look closer at the risk of a war.
While risks are rising we still see a rather small probability of a Chinese invasion of Taiwan in the next couple of years (20%) as the costs for China are too high. However, with US and Taiwan having moved closer to China’s ‘red line’ the risk of miscalculations or human errors that leads to an unintended war has increased.
In addition, the risk of war in the medium to longer term is high in our view, as China is determined on reunification, their military capabilities will improve and they are likely to build more economic resilience against sanctions. At the same time, the West increasingly supports Taiwan as part of a ‘democracy vs. autocracy’ battle and sentiment among Taiwanese people towards China is gradually worsening, which leaves a peaceful reunification increasingly unlikely.
In a coming paper, we will look at what the risk of war means for China and the global economy – and for companies investment strategy in China.