Digging Deeper: China vs. Taiwan Conflict Links & Resources (August 2022)
China vs. Taiwan risks, chips, TSMC, United Microelectronics Corporation, stocks that will suffer in a Taiwan conflict and more links and resources.
As the uproar over Pelosi’s trip to Taiwan has died down, it worth posting a collection of links to relevant articles along with some key points from them.
NOTE: The table on our China ETF list page has been updated along with our Taiwan ADRs, closed-end fund, and ETF list pages. The ADR page would contain links to Taiwanese media resources and local stock markets.
General Economic Risks:
How are the Taiwanese not worried? (Taipology Substack)
At the behest of editors from the other side of the world, I interviewed at least 15 people from friends to sources I interviewed for unrelated stories to my plumber. None of them viewed the missile tests as an immediate danger no matter what their point of view on the medium or long term. “A barking dog doesn’t bite,” said my roommate Bob, summing up what I heard from just about everyone. But just because nobody’s worried doesn’t mean there isn’t a diversity of views.
Red Clouds of War Looming Over Taiwan (Culture Shock)
The article points out the only meteorological windows for a sea attack are October and April and summarizes five logical scenarios:
a minimalist seizure of outlying islands closer to the mainland;
hybrid warfare to interfere with the economy;
a serious attack but no invasion;
a proper invasion;
flattening Taiwan without invading it.
Rabobank: If Pelosi Now Chickens Out And Doesn't Go To Taiwan, China Will Have Proven It Controls Access To It (Zero Hedge)
We have warned for years that: globalization doesn’t deliver for enough people; not everyone who globalized shared the US world vision; global debt is too high; QE only makes rich people richer; inequality is ripping societies apart; we are living in a Lalaland of asset bubbles; populism is growing (just look at Italy’s opinion polls); China is also in deep structural trouble; the historical path is rising debt > bubbles > crisis > FX wars > trade wars > hot wars; a Great Power fragmented world order would re-emerge; fascism and communism would be back (and we can add imperialism); food prices would soar; so would energy prices (as the Wall Street Journal warns ‘Energy Prices May Keep Inflation High for Years’); industrial supply chains and logistics matter (and we remain ‘In Deep Ship’ as US port backlogs soar again); inflation isn't transitory (as the June US PCE deflator was 0.6% m-o-m, 6.8% y-o-y, and 0.6% m-o-m, 4.8% y-o-y core); global interest rates would have to rise sharply; and the US dollar was the only game in town.
Pelosi Is Irrelevant: China Was Already Planning An Invasion Of Taiwan (Zero Hedge)
It's interesting that Pelosi appears to be scheduling her visit sometime in the next month, so close to when weather conditions are the most ripe for a Chinese attack. Typhoons are expected to strike Taiwan through August and then dissipate in September/October when invasion is preferable.
Growing Number Of CEOs Asking About Risk Of War Between China & Taiwan (Zero Hedge)
Executives seek briefings on Taiwan war risk (Financial Times) $ (Non-Paywalled)
"Firms want to know how to perceive situational risks and they want to know what key elements they should be tracking on an ongoing basis," said Tong, a former veteran Asia diplomat. Tong added that the clients requesting briefings ranged from technology and financial groups to pharmaceutical makers and consumer goods manufacturers.
A Chinese Invasion Of Taiwan Could Unleash An Economic Disaster (19FortyFive)
Taiwan presently accounts for 92% of the world’s semiconductor manufacturing capacity, and should China invade the sovereign territory, those manufacturing facilities may wind up destroyed. Last year, American academics recommended that Taiwan threaten to destroy its own factories to deter a Chinese invasion.
Economic Chaos of a Taiwan War Would Go Well Past Semiconductors (Bloomberg) $ (Non-Paywalled)
According to a RAND Corporation study, a war lasting one year would slash America’s gross domestic product by a painful 5% to 10%. But it would gut China’s gross domestic product by an excruciating 25% to 35%. And lest Americans console themselves that China would get the worst of it, the entire world would suffer as the war ripped apart critical technological supply chains.
Over 90% of the world’s most advanced semiconductors are manufactured in Taiwan.
Why Markets Are Calm As Taiwan Tensions Intensify (Zero Hedge)
Finally, markets’ reactions to geopolitical risks tend to be short-lived. For example, US stocks actually increased during the Cuban missile crisis and rallied even more in six months.
Military:
War Game Finds U.S., Taiwan Can Defend Against a Chinese Invasion (WSJ) $ (Non-Paywalled)
In the first three weeks after invading Taiwan, China sank two multibillion-dollar U.S. aircraft carriers, attacked American bases across Japan and on Guam, and destroyed hundreds of advanced U.S. jet fighters.
China’s situation was, if anything, worse. It landed troops on Taiwan and seized the island’s southern third, but its amphibious fleet was decimated by relentless U.S. and Japanese missile and submarine attacks and it couldn’t resupply its own forces. The capital, Taipei, was secure in Taiwanese hands, and Beijing was low on long-range ballistic missiles to counter America’s still-potent air and maritime power.
Mind the Gap: How China’s Civilian Shipping Could Enable a Taiwan Invasion (War on the Rocks)
Taiwan’s Military Is a Hollow Shell (Foreign Policy) $ (Non-Paywalled)
The end of conscription has left the army critically undermanned.
Two missiles could blow up Three Gorges: strategist (Asia Times)
Taiwan should buy 1,000 missiles to seal off China’s central and southeastern provinces in the event of war, said the scholar.
China’s Nightmare: Taiwan’s Yun Feng Supersonic Cruise Missile Could Hit Beijing (19FortyFive)
Attack Beijing Or An Invasion Fleet? How Taiwan Should Use Its Cruise Missiles (19FortyFive)
Taiwan Touts "Ability To Attack Beijing" With Supersonic Cruise Missiles (Zero Hedge)
2022 Taiwan Military Strength (Global Firepower)
For 2022, Taiwan is ranked21of 142 out of thecountries consideredfor theannual GFP review. It holds a PwrIndx* score of 0.3215(a score of 0.0000 is considered 'perfect'). This entry last updated on 05/02/2022.
Taiwan Semiconductor Manufacturing Company Limited:
TSMC Chairman Tells Reporter, “Nobody Can Control TSMC by Force” (tom’s Hardware) + On GPS: Can China afford to attack Taiwan? (CNN)
In a rare interview with Mark Liu, chairman of Taiwan's TSMC — Asia's most valuable company — Fareed asks about the ongoing tension between the self-governing island and Beijing.
Big Chip in US-China Crisis (Consortium News)
One aspect of U.S. House Speaker Nancy Pelosi’s trip to Taiwan that has been largely overlooked is her meeting with Mark Lui, chairman of the Taiwan Semiconductor Manufacturing Corporation (TSMC). Pelosi’s trip coincided with U.S. efforts to convince TSMC – the world’s largest chip manufacturer, on which the U.S. is heavily dependent – to establish a manufacturing base in the US and to stop making advanced chips for Chinese companies.
As a result, the Biden administration’s 100-Day Supply Chain Review Report says, “The United States is heavily dependent on a single company – TSMC – for producing its leading-edge chips.” The fact that only TSMC and Samsung (South Korea) can make the most advanced semiconductors (five nanometres in size) “puts at risk the ability to supply current and future [US] national security and critical infrastructure needs.”
Earnings Conference Transcript (PDF File)
2022 TSMC Update (The Asianometry Newsletter)
Taiwan’s second most important company after 7-11 recently released their second quarter 2022 results.
The U.S. is TSMC’s largest market, with U.S. buyers making up 64% of TSMC’s total sales last year, up from 60% two years ago. TSMC’s chip sales to American tech giant Apple alone made up one-quarter of TSMC’s revenue last year.
TSMC has become less reliant on revenue from China in recent years. The Chinese market makes up 10% of TSMC’s revenues, down from 20% two years ago.
United Microelectronics Corporation:
Taiwan tycoon pledges $100m to defend island from ‘evil’ China (The Telegraph)
He is the founder of United Microelectronics Corporation (UMC), one of the world’s biggest chip makers and Taiwan’s second largest behind Taiwan Semiconductor Manufacturing Co (TSMC).
United Microelectronics Corporation (UMC) Management on Q2 2022 Results - Earnings Call Transcript (Seeking Alpha) $ (Non-Paywalled)
Other Stocks:
10 Stocks That Will Suffer If China Invades Taiwan (Insider Monkey)
[Take some of these names with a grain of salt given the source, but there are more details in the article]
United Microelectronics Corporation (NYSE:UMC)
Texas Instruments Incorporated (NASDAQ:TXN)
Morgan Stanley (NYSE:MS)
Cheniere Energy, Inc. (NYSE:LNG)
QUALCOMM Incorporated (NASDAQ:QCOM)
Tesla, Inc. (NASDAQ:TSLA)
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Advanced Micro Devices, Inc. (NASDAQ:AMD)
NVIDIA Corporation (NASDAQ:NVDA)
Apple Inc. (NASDAQ:AAPL)
Apple warns suppliers to follow China rules on 'Taiwan' labeling (Nikkei Asia)
Stepped up scrutiny of import documents raises disruption fears for iPhone maker
In addition, note our recent article:
The VanEck Vietnam ETF (VNM) better reflects the Vietnam market than 10 years ago, but remains flawed e.g. 10% exposure to Taiwan listed stocks, 29% weight in real estate & 12.6% weight in financials.
Finally, a quick history lesson:
The Craziest Stockmarket Bubble You’ve Never Heard of (Allocators Asia)
The financial bubble that gripped Taiwan in the 1980s is one of the wildest the world has ever seen. Stock prices went up more than 12x in less than four years, over a third of the Taiwanese population over the age of 15 were actively playing the stock market, and on peak days trading on the Taipei Stock Exchange exceeded the turnover of both the Tokyo and New York stock exchanges, combined! This is the story behind the boom and bust of Taiwan’s seldom discussed, yet spectacular stock market bubble.
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