China: Breaking the Status Quo on Taiwan

Published on August 3, 2022
SGH Insight
...Separately, from a hardline National Security official:
On the surface, Pelosi’s visit to Taiwan is a victory for the US, especially Pelosi. In essence, Pelosi’s visit has [however] broken the Cross-Strait status quo and created conditions for us to turn on a new status quo for the Taiwan situation. From now on, the PLA will more freely conduct military activities around the island. Without Pelosi’s visit, the status quo of the Taiwan Strait would not have been changed so quickly by the PLA...

...In the words of a leadership level official in Beijing:
Pelosi’s visit officially marks a shift in China-US relations from cooperation to all-round confrontation, and also marks the complete breaking of the status quo on both sides of the Taiwan Strait. Future US-China relations will continue to deteriorate.
The order not to directly block Pelosi’s plane from landing in Taiwan was made by President Xi himself [note – we believed this type of direct confrontation with the US was not likely to happen anyway]. President Xi said that Pelosi’s visit to Taiwan can clearly show the world that the US is directly provoking China’s core interests. It is the US and Taiwan separatist forces, not Mainland China, that first changed the status quo of the Taiwan Strait. When Pelosi arrived on the island it was the beginning of our definition of the new Taiwan Strait status quo...



Market Validation
Bloomberg 8/5/22

US Secretary of State Antony Blinken accused
China of seeking to change the status quo in the Taiwan Strait
with missile tests and military drills following House Speaker
Nancy Pelosi’s visit to the island.
Blinken made the remarks at a regional summit in Cambodia
on Friday that was also attended by Chinese Foreign Minister
Wang Yi and Russian counterpart Sergei Lavrov.

The Washington Post 8/4/22

China launches military exercises around Taiwan after Pelosi visit

The Global Times, a state-run nationalist tabloid, quoted an anonymous Chinese military expert describing the drills as a “new beginning” for PLA activities around Taiwan, which would not be limited to their previous areas and would instead “regularly take place on Taiwan’s doorstep.”

Markets are breathing a sigh of relief, even while hardliners across China are expressing anger and frustration, that US Speaker of the House Nancy Pelosi’s visit to Taiwan has not been met with some of the more extreme threats and responses from Beijing that had been bandied around in the speculative frenzy that built up before her visit to Taipei yesterday.

In parallel, the administration of US President Joseph Biden is continuing with its “damage control” efforts to downplay, and distance itself, from Speaker Pelosi’s bold yet controversial trip to Taiwan – a concerted communications effort from the White House that is itself not without some controversy.

These efforts include assurances directed at Beijing by Secretary of State Antony Blinken that Pelosi’s decision to visit Taiwan was “entirely her own,” and by spokesman John Kirby that absolutely nothing has changed after Pelosi’s trip to Taiwan.

They also include assurances that were pre-emptively made last Thursday ahead of Pelosi’s trip by President Biden to China’s President Xi Jinping that the US One-China policy has not changed and will not change, and that the US does not support Taiwan independence, but is opposed to “unilateral changes to the status quo” by either side (see SGH 7/29/22, “China: The Xi-Biden Call and Taiwan”).

Beijing is not buying that, or perhaps more precisely and to the point, will use Pelosi’s visit to make the case that the US has now unilaterally broken the status quo on Taiwan.

While we are not sure where exactly that will lead in terms of action beyond the live fire exercises encircling Taiwan that have been announced by Beijing, we suspect that assertion carries significant additional consequences and will lay the groundwork for additional measures along the “military, economic, trade, and diplomatic” fronts that officials in Beijing have flagged.

In the words of a leadership level official in Beijing:

Pelosi’s visit officially marks a shift in China-US relations from cooperation to all-round confrontation, and also marks the complete breaking of the status quo on both sides of the Taiwan Strait. Future US-China relations will continue to deteriorate.

The order not to directly block Pelosi’s plane from landing in Taiwan was made by President Xi himself [note – we believed this type of direct confrontation with the US was not likely to happen anyway].  President Xi said that Pelosi’s visit to Taiwan can clearly show the world that the US is directly provoking China’s core interests. It is the US and Taiwan separatist forces, not Mainland China, that first changed the status quo of the Taiwan Strait. When Pelosi arrived on the island it was the beginning of our definition of the new Taiwan Strait status quo.

In response to Pelosi’s visit, the central government has drawn up comprehensive retaliatory measures including military, economic, trade, and diplomatic. The immediate military response is to conduct a series of live-fire military exercises on an unprecedented scale surrounding the island of Taiwan, which means that the so-called median line of the Taiwan Strait no longer exists, and the activities of the Chinese People’s Liberation Army (PLA) in the east of the Taiwan island will become the new normal.

Economic and trade sanctions are under consideration. Two measures will definitely be implemented. One, China will continue to reduce its holdings of US treasuries and other USD assets. The scale of the reduction must be larger than before. Two, China will strictly limit the export of rare resources such as rare earths to the US. To ensure that it is more difficult for the US to obtain scarce resources from China, the restriction would likely be extended to the UK, Japan, and Australia.

Pelosi’s visit to Taiwan and the newly passed CHIPS bill in the US indicate that the economic and trade relations between China and the US will suffer serious damage. The two countries [already] have actual technological decoupling. If the US [as threatened] unilaterally delists more than 200 existing Chinese companies listed in the US, we will certainly impose sanctions on US financial institutions in China.

Separately, from a hardline National Security official:

On the surface, Pelosi’s visit to Taiwan is a victory for the US, especially Pelosi. In essence, Pelosi’s visit has [however] broken the Cross-Strait status quo and created conditions for us to turn on a new status quo for the Taiwan situation. From now on, the PLA will more freely conduct military activities around the island. Without Pelosi’s visit, the status quo of the Taiwan Strait would not have been changed so quickly by the PLA. Pelosi’s visit will speed up our reunification process. Apart from military drills, the options could include striking Taiwan military targets, pushing new legislation for national reunification, sending military aircraft and vessels to enter the island’s airspace and water areas controlled by the Taiwan authorities, and ending the tacit cease-fire with the Taiwan military. President Xi said once again on Monday that we must absolutely take the initiative in resolving the Taiwan question.

Regarding the announced military exercise, from a Central Military Commission official:

Starting from 12:00 am August 4 to 12:00 am August 7, the PLA will conduct live-fire military exercises on an unprecedented scale, including missile launches, in six maritime areas and their airspace from the Southeast, South, and Northwest of the island. The shortest distance in the exercise area is 12 nautical miles from Taiwan Island. The exercise is equivalent to encircling the entire island of Taiwan. The exercise will show the entire world that the so-called Taiwan Air Defense Identification Zone (ADIZ) and the so-called median line of the Taiwan Strait no longer exists. The Central Military Commission (CMC) has ordered that as long as the Taiwanese military or any foreign military dare to provoke in the exercise area, the PLA will turn the exercise into a self-defense counterattack.

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