Xi makes it Clear – Prepare for War with Taiwan – Maybe a Convenient way for the U.S. to bankrupt China

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On the 40th Anniversary of Reform and Opening in China, President Xi, made it clear that a war with Taiwan is inevitable. In his speech Xi made it said that there is only one China. President Xi described it as “inevitable requirement”. SCMP notes that Xi has little patience with Taiwan;

Xi has said the “problem” cannot be put off for another generation and has called on the military to be prepared to fight “bloody battles” for every “single inch” of its territory.

From Xi’s perspective, either Taiwan peacefully accepts its fate, or it will be achieved through military means.  As both Taiwan and U.S. are up for election in 2020, more harsh anti-China rhetoric are expected from both U.S. and Taiwan. This could lead to further ramped up rhetoric. The escalation might lead to Taiwan pull U.S. into a war with China. SCMP writes;

Yun Sun, a senior fellow at the Washington-based Stimson Centre, said she believed Tsai would take more confrontational steps in the next two years, largely because of domestic political needs.

“If she believes that China is not willing to avoid picking a fight with the US over Taiwan, she might become more bold.

  Eric Parpart, senior reporter at Bangkok Post presents it bluntly;

All these developments suggest China is confident that no one can stop it from doing whatever it wants. It may be right. If Nato and the UN are helpless to stop Russian President Vladimir Putin from taking… 

The Chinese military are already provoking U.S. military with various Chinese military commanders suggesting the Chinese should attach various U.S. navy ships. Dai Xu’s, a Chinese air force colonel, said China should attack any US ships visiting the neighborhood and “be ready to take over Taiwan”. 

The U.S. military is taking all of this in stride. The U.S. navy conducted a freedom of navigation operation in the South China Sea. US Navy Lieutenant junior grade Rachel McMarr said in a statement:

 “McCampbell sailed within 12 nautical miles of the Paracel Islands to challenge excessive maritime claims and preserve access to the waterways as governed by international law.”

From a U.S. perspective, a potential war might be a blessing in disguise. We wrote earlier how China’s economy is in trouble and the country’s debt is getting out of hand. 

China has officially over $1.9 trillion in debt.  Daiwa Capital Markets believed the true figure is closer to $3-3.5trillion. Over 60% of this debt is short-term based and needs to be rolled-over this year. Total external debt has increased 14% in the past year and 35% since the beginning of 2017.

If there is no trade deal between U.S. and China both countries will suffer. However, the negative effects will be more severe for China as the economy comes to a halt, leverage is high and the country has large exposure to dollar denominated debt. A war would be detrimental for both nations.  But U.S. still controls the world’s financial system. The Chinese debt situation makes China extremely vulnerable. A military conflict would result in collapse of the Chinese economy and U.S. would still reign supreme.  In the short-term any ramped-up rhetoric/actions would have devastating effects on the market, but long-term, U.S. still holds the upper hand.