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With provocative incursions of Chinese aircraft across the Taiwan Strait median line around Christmas Day (perhaps as a message responding to the US defense bill), it’s useful to review China’s military posture. Here’s the disposition of Chinese forces in the Eastern and Southern Theaters, as noted by the DoD’s 2022 assessment.

Source: DoD,Military and Security Developments Involving the People’s Republic of China, 2022 (November 2022).

Source: DoD,Military and Security Developments Involving the People’s Republic of China, 2022 (November 2022).

In other words, China’s military posture in the region adjoining Taiwan remains — if not prepared for imminent assault — certainly less than completely friendly. DoD predicts (factsheet):

The PLA will likely continue to increase military pressure — in combination with diplomatic, information, economic pressure — in an attempt to compel Taiwan toward reunification.

While this is hardly an out-of-the-box prediction, I have to say I don’t understand the reason for this in terms of a rational actor model, unless these moves are for domestic consumption. Heightening uncertainty will not only hurt Taiwan’s economy, it can’t help China’s economy — which is in dire shape — either. Perhaps, it’s just the view that wearing down the Taiwanese economy by forcing greater defense expenditures and inducing capital flight will finally make the Taiwanese yield (see discussion from this August). I’m dubious about whether this approach will succeed — although I have no particular insight into the views of the CCP or the Taiwanese government. (Taiwanese reported forex reserves rose in November, after decreasing in September in the wake of Pelosi’s visit. Q3 growth was positive 1.83% q/q, so that growth was positive YTD.)

Below is the Caldara- Iacoviella GPR (Geopolitical Risk) index for Taiwan, through November (so omits the massive air incursions by the PLAAF of three days ago).

Source: Caldara-Iacoviella (2022).

Presumably, in light of the air incursions and Taiwan’s move to extend compulsory military service from 4 months to a year (announced today), December’s GPR will be elevated.

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