China is untangling its economy from the West. It could be preparing for long-term tensions — and an invasion of Taiwan

Russian President Vladimir Putin and Chinese leader Xi Jinping interacting during a welcoming ceremony at the Third Belt and Road Forum in Beijing on October 17, 2023. Sergei Savostyanov/Pool/AFP/Getty Images

• China is trying to make its economy less reliant on the West.
• These efforts could boost the Chinese economy but also prepare it for an invasion of Taiwan. 
• Self-reliance has helped the Russian economy stay afloat amid the invasion of Ukraine. 

China is taking steps to make its economy less reliant on the West. It likely has both economic and military motivations for doing so, experts say.

In recent years, China has invested billions to boost its production of semiconductor chips, electric vehicles, batteries, and solar panels. Over the past year, Southeast Asia overtook the US and Europe as China’s largest export market. The Chinese government has also decreased its holdings of US treasuries, taken steps to reduce its reliance on Western food imports, and has worked to improve its energy security.

From an economic perspective, these efforts could both provide a short-term boost to China’s slumping economy and help it prepare for long-term geopolitical tensions with the West, experts told BI. But these strategies also help it accomplish another objective: preparing the country for war.

“Reunifying Taiwan with the mainland is one of Xi Jinping’s clearest aspirations, and it only makes sense that, if he’s trying to game it out, he would want to do so in a way that minimizes the exposure to the Chinese economy,” Vivek Chilukuri, national security expert at the Center for a New American Security, a think tank, told Business Insider.

However, if an attempt to reunify by force was around the corner, some experts say there are a few other signals one might expect to see.

“China’s operating under the assumption now that tensions with the United States and the West are quite severe and unlikely to recede anytime soon,” Scott Kennedy, an expert on China’s economy at the Center for Strategic and International Studies, a research organization, told BI. “At the same time, doing that is still quite different from preparing for an actual war and what would come after.”

It’s not just about war: China has several other reasons to invest in its economy

Growth in China’s economy has slowed as the country grapples with a real-estate debt crisis, high youth unemployment, an aging population, and reduced demand for its exports. And while China reported GDP growth in April that beat expectations, these challenges are expected to persist. The country’s big investment in clean energy technology, in particular, is intended to boost its economy. However, it’s worth noting that some experts are skeptical of the accuracy of Chinese economic data.

At the same time, China is building up its military at a rapid rate and is expected to have the forces needed to seize Taiwan in a few years — China has long claimed the island as its own. In the event China does invade or blockade, it would likely have to deal with the sanctions and trade restrictions of the US and other countries, which gives the country all the more reason to shore up its domestic industries.

It’s possible that China could be taking some lessons from Russia, which took steps to shore up its resources prior to its invasion of Ukraine in 2022. While Russia’s economy has taken a toll since then, Russian efforts to boost its domestic food supply and diversify its trade partners have helped it stay afloat and minimize the impact of Western sanctions — and Chinese imports of Russian oil have played a key role in this. Self-sufficient production of critical commodities like oil, natural gas, and wheat has also aided Russia, in addition to a large defense sector that’s helped supply its military.

While China may have been accelerating efforts in recent years to “de-risk” its economy, this process started as long as a decade ago, Chilukuri said. He pointed to the country’s “Made in China 2025” policy, launched in 2015, which was intended to make China the global leader in the manufacturing of key technologies like chips and EVs.

De-risking efforts like these would ultimately leave China better-positioned in the event of an invasion or blockade of Taiwan, or an unforeseen development like a pandemic. But Chilukuri said he thinks much of China’s recent manufacturing push is about getting its economy back on track after the country’s zero-COVID-19 policy brought it to a halt — and caused some in China to lose trust in Xi Jinping and his government.

“The fundamental trade that China’s made with its people is you give up your aspirations for human freedom in exchange for sustained historically unprecedented economic growth,” he said. “And Covid, I think, shook the confidence of a lot of people in China that that deal was going to be fulfilled.”

That’s why, even if an invasion or blockade doesn’t happen anytime soon, growing tensions and loosening trade ties with the West could give China plenty of motivation to invest in its economy.

Despite its precautions, a seizure of Taiwan could still have a ‘disastrous’ impact on China’s economy

China already has some experience in asserting its dominance over a territory and navigating blowback from the West.

In 2020, China passed a national security law for Hong Kong that eroded the city’s freedoms, autonomy, and democracy and led to the arrest of pro-democracy activists. In response, the US issued sanctions against 11 Chinese and Hong Kong officials, and some US companies left the city.

Some experts believe China’s intervention in Hong Kong served as a “test case” for how it would approach a takeover of Taiwan. If China follows the Hong Kong model, it might threaten Taiwan into capitulation without having to invade.

The other ways China might try to take control include a naval blockade that circles Taiwan and cuts it off from the rest of the world. An invasion is a third possibility — experts disagree on the likelihood and timing of this option.

In recent years, China has staged provocative military exercises around the island. What’s more, Xi Jinping has told the Chinese military to prepare for war and said that reunification with Taiwan is inevitable. Some experts think a war could be on the horizon.

But not everyone thinks a Chinese military move is necessarily imminent. If China was actively preparing for a near-term invasion of Taiwan, Kennedy said there are a few things he might expect to see first.

First, China would begin preparing its citizens for war.

“You would see a steady drumbeat of propaganda preparing people for conflict and for potentially substantial economic sacrifices,” he said.

Second, Kennedy said he’d expect to see China invest more heavily in materials like carbon fiber, which has a variety of military applications.

Third, he’d also expect to see many Chinese diplomats, business people, and students start returning to China, as well as significant movements in Chinese financial assets in an effort to avoid future sanctions.

As long as the US and Taiwan don’t cross any of China’s “red lines,” the chance of a war involving Taiwan is “quite low,” Kennedy said. He said those red lines include a Taiwan referendum on its statehood and the placement of significant US and Western military assets in Taiwan.

If China does invade, the global economic impact would be huge, and despite its efforts to secure its economy, China would likely be far from unscathed.

“Any action against Taiwan would be disastrous for China’s economy,” Chilukuri said. “But China’s shown that it’s willing to bear a considerable cost for ideology.”

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