Country Risk

Cross-strait military build-up heightens war-risk and increases likelihood of discrimination against Taiwan and US companies in China

19 February 2018
Taiwan's President Tsai Ing-wen taking her oath of office in May 2016. Source: GettyImages/AshleyPon/532987522

Key Points

  • Taiwan’s relations with China have deteriorated significantly since President Tsai Ing-wen assumed office, as indicated by an increase in hostile rhetoric and Chinese military activities near Taiwan’s airspace, including increased frequency and scale of Chinese military exercises near Taiwan, to which Taiwan has objected.
  • From a Chinese perspective, securing the “first island chain” extending from the Malay Peninsula to the Beijing Sea is a strategic imperative. The increased military activity in the East China Sea and defence capabilities of the US and its allies (notably Japan and South Korea) in response has increased China’s perception that it is under threat, and strengthened its commitment to achieving military dominance of the region.
  • Chinese maritime exercises around Taiwan will likely become routine, while Chinese patrols and selective discriminatory measures against Taiwanese firms present elevated risk of cargo and marine transport disruption. Chinese air force incursions into Taiwan’s Air Defence Identification Zone (ADIZ), would increase war risk, however escalation to full-scale war is unlikely.


Since October 2017, Taiwan’s President Tsai Ing-wen was reported to be working on a plan to increase the military budget significantly, signalling the need for Taiwan to develop advanced weapon systems and acquire more military equipment from the US.

In a report released in December 2017, the Ministry of National Defence (MND) explicitly designated China as the island’s biggest security threat, making specific reference to the increase in frequency of Chinese military activities. China’s air force carried out 14 military aircraft exercises close to Taiwan’s ADIZ from July to December 2017, compared to only two from January to June. On January 2018, Chinese aircraft carrier, the Liaoning, briefly entered the Taiwan ADIZ while sailing towards the South China Sea.

On 4 January, Taiwan had sharply criticised a decision by the Civil Aviation Administration Authority of China (CAAC) allowing the use of the M503 civil flight route, ostensibly to ease airspace congestion over southeast China.

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