China isn’t likely to invade Taiwan any time soon. Here’s why

Could Russia’s invasion of Ukraine prompt Chinese action in Taiwan? That’s not likely in the medium term argues Pendal’s OLIVER GE

ALARM bells are ringing in the East.

As fighting intensifies in Ukraine’s urban core, Chinese jets have entered Taiwan’s air defence zone, leading some to speculate that it’s only a matter of time before we see People’s Liberation Army boots on the ground.

At times like this it’s understandable that investors pondering their exposure to Russia’s invasion of Ukraine might also think harder about the China-Taiwan stand-off.

Pre-election positioning among Australian politicians pulls the China-Taiwan situation into even sharper focus for local investors.

However a Chinese invasion of Taiwan is a very low probability event in the short and medium term.

Near term, the Chinese Communist Party has other priorities at stake. 

President Xi has promised to rectify growing domestic discontent over diminished living standards. Housing affordability and employment opportunities are key focal points for the CCP leadership.

They do not have time for major external distractions.

In the medium term, Taiwan’s support from the US remains crucial. Remember that Taiwan (but unfortunately not Ukraine) is of great strategic importance to Washington. 

Its proximity over major shipping lanes and dominance in semiconductor manufacturing has seen consecutive US administrations pledge Taiwan military support in the event of a war. 

China has no appetite for a direct confrontation with the US.

In the longer term these reasons above do not negate the possibility of a future conflict. 

A unified China is arguably the biggest political objective of the CCP. China’s dominance in the region and military capacity continues to build.

But for now the carrot of economic cooperation remains the preferred policy over brute force.

About Oliver Ge and Pendal’s Income and Fixed Interest boutique

Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.

Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.

Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

The invests across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

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