Can You Pass the Taiwan Test?

Here’s What You Need To Know

Nearly 3 million people tracked House Speaker Nancy Pelosi’s recent flight to Taiwan, making it the most-tracked flight of all time on Flightradar24. They all wanted to see whether she would land despite loud objections from the People’s Republic of China. That so many were compelled to watch the flight underlines how threats from China can quickly capture the world’s attention.

The saber rattling from Beijing was just the latest example of China’s growing aggression toward its neighbors, any of which could boil over into a confrontation and gain worldwide indignation similar to Russia’s recent invasion of Ukraine. Given how much more intertwined China is with the U.S. and global economies, such a confrontation would bring far more complex geopolitics into corporate boardrooms. As we noted this spring, “geopolitics is back as a central consideration to companies’ and industries’ political and reputational risks,” and Beijing’s response to the House Speaker’s visit is a reminder those considerations are not limited to a single region. Here’s what you need to know to prepare for a potential geopolitical eruption in Asia.

Beijing’s Getting Bolder, and a Boiling Point Could Scald Companies

China’s posturing toward other nations in the region has become increasingly confrontational in the past several years. Beyond its threats and shows of force towards Taiwan, China has been building and militarizing artificial islands in the South China Sea, patrolling and monitoring the waters around the Japanese-controlled Senkaku Islands, deploying troops and constructing a bridge along its disputed Himalayan border with India, enacting a draconian National Security Law and arresting multiple pro-democracy activists in Hong Kong, and implementing tariffs on and banning imports of certain goods from Australia over its push for an independent inquiry into the origins of the coronavirus. Not to mention its vile treatment of Uyghurs in Xinjiang.

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China clearly is eager to flex its muscles, making it more likely the region reaches a boiling point that grabs headlines and puts companies doing business there in an uncomfortable and complicated position. These firms must prepare for a similar groundswell of pressure for companies to divest to the demands following Russia’s invasion of Ukraine. Considering the U.S. economy is far more co-dependent with China than Russia, the economic impact of divestment would be much greater, as could the political and reputational damage.

Critical Industries Have a Lot at Stake in China

In the face of an increasingly militant China, companies operating in the region are growing alarmed about the impact that a possible Chinese invasion of Taiwan – and rising geopolitics in the region generally – may have on their interests, as well as the supply chains that keep the global economy running. Economic entanglements across industries could also draw scrutiny and pressure.

From Electronics and Cars to Renewables and Drugs, Critical Materials Would Be Under Threat. Taiwan is the number one manufacturer and exporter of semiconductor chips in the world, accounting for over 60% of total global foundry last year. The Taiwan Semiconductor Manufacturing Co. – the world’s largest foundry and supplier of chips to major high technology firms such as Apple, Qualcomm, and Nvidia – has warned their factory would be inoperable under an invasion by China. Such an incident would worsen the ongoing chip shortage. Beyond semiconductors, as we’ve noted before, China controls much of the global production, supply, and processing capacity for critical minerals and metals. They also provide the world a lot of the active pharmaceutical ingredients needed for drug production.

Intertwined Financial Interests Make Divestment Pressures Difficult to Appease. Chinese firms have become substantial trading partners for U.S. oil and gas firms, made possible by market liberalizations and recently signed contracts for record amounts of LNG. Market liberalizations have also allowed U.S. banks greater exposure to the Chinese market. Five major U.S. financial firms alone have nearly $80 billion invested there. In addition, more than 20% of the value of all goods imported – totaling over $560 billion – to the U.S. hail from China. All of this financial engagement could come under pressure if Beijing breaches global norms at the wrong time, in the wrong way.

Here at Home, China Is Losing the Popularity Contest, and Companies Could Lose With Them

A record number of Americans today perceive China as the United States’ greatest geopolitical foe and favor getting tougher. Not surprisingly, more political leaders are listening. Members of both parties in Congress are advancing measures to strategically decouple from China, such as the recently passed CHIPS Act and last year’s Uyghur Forced Labor Prevention Act. On the campaign trail, Republicans and Democrats alike have leveled harsh rhetoric against China. Elected officials are also pushing for institutions like state pension funds and universities to divest from Chinese entanglements and raising concerns about China buying up American farmland. The stage is set for these attitudes and scrutiny to explode if Chinese bad acting reaches a new height.

Certainly, scrutiny on companies and other organizations trying to keep good relations with Beijing is nothing new, but if China’s aggression steps over a tripwire in the cultural zeitgeist, the political and reputational damage on firms could be far more devastating and long lasting than it has been in the past. Public affairs professionals will need to help their firms understand which policymakers and stakeholders could turn on them over ties to China. The right competitive intelligence can deliver that understanding and provide the insights you need to anticipate geopolitical disruption and the scrutiny it could bring.