Recently, the Chinese Communist Party fired rockets into the Pacific Ocean and conducted military exercises around Taiwan. As tensions in the Taiwan Strait escalate, the Chinese economy continues to weaken, and Beijing’s market rescue measures appear to be ineffective. Chinese leader Xi Jinping recently visited frontline areas in Fujian without official reports mentioning his visit to military camps, instead emphasizing “reform and opening up.” The possibility of military action against Taiwan by Xi, along with the complexity of stimulating the economy, has sparked various speculations, leading experts to provide analyses.
Since the end of the “zero-COVID policy,” the Chinese economy has been persistently weak. The Chinese authorities introduced a series of measures by the end of September, including interest rate cuts, reserve requirement reductions, lowering mortgage rates, and a policy tool worth 800 billion yuan to boost the stock market. However, following the “National Day” holiday, the stock market plummeted again despite multiple government announcements of policies, leaving the public unconvinced and the market in turmoil.
Yao Yuan, a professor at the University of St. Thomas in the United States, commented that China’s current economic measures are merely attempts to cover up problems when they have no effective solutions.
“Trade wars between the US and China have led to a gradual decrease in trade interdependence with most Western countries. Belt and Road countries cannot absorb Chinese products, and the excess production capacity is causing the economy to collapse. At the same time, to stimulate domestic demand, the Chinese Communist Party has lowered interest rates to boost the housing market, even using treasury funds to help real estate developers before they go bankrupt because it cannot afford a property market collapse. These economic measures are merely superficial and cannot address the fundamental issues. The fundamental problem lies in the lack of innovation and the inability to let the market self-regulate due to prolonged economic planning and control.”
George Magnus, a scholar at the University of Oxford, described China’s current economic stimulus as a “bazooka-style” program, effective in the short term but ineffective in the long run.
Shen Ming of Taiwan’s National Security Institute at the Institute for National Defense and Security Research told media that China has run out of ideas to rescue the economy. Stimulating the stock market leads to more people getting trapped, does not solve real estate issues, and fails to improve local government finances. Therefore, the market rescue measures are not just a shot in the dark but rather a momentary spectacle that quickly fades into darkness, garnering little support domestically and internationally.
Shen Ming further mentioned that China is adopting a defense economic concept, redirecting foreign trade profits to the defense industry to earn more money and stimulating economic development through the defense industry. In times of peace, defense and the economy can mutually benefit each other, but during war, civilian economies will be marginalized due to prioritizing defense needs, and war expenditures will deplete the national treasury.
“China has recognized the importance of wartime economy from the Russian example, with the establishment of defense mobilization offices in various provinces and preparations against foreign technology and food sanctions, indicating the shift towards wartime economic mode. However, this does not necessarily mean an imminent war against Taiwan but rather a preparatory step to establish systems and readiness.”
Hong Zijie, a researcher at the Taiwan Institute of National Defense and Security Studies, stated that China does not view its economic rescue measures and military expansion towards Taiwan as connected. Developing the defense industry may strengthen economic development, while military expansion around Taiwan is based on military strategy and deterrence considerations. There is a potential contradiction and conflict between China’s attempts to rescue its economy and its military expansion towards Taiwan.
Following the launch of intercontinental missiles into the Pacific Ocean last month, China conducted the “Sword Striker-2024B” military exercises around Taiwan on October 14. However, according to the Financial Times of the UK, the Chinese military test-fired two missiles towards the inland direction, while an unprecedented 25 Chinese navy and coast guard ships approached within 24 nautical miles of Taiwan’s contiguous zone.
After the military exercises, Chinese leader Xi Jinping visited Fujian from October 15 to 16. According to Xinhua News Agency, Xi emphasized exploring integrated development across the Taiwan Strait. While Xi typically visits military camps during inspections, there have been no official reports regarding his visit to military camps within the first two days. Xinhua News Agency later emphasized in a report that Xi’s inspection in Fujian will guide further comprehensive deepening of reform and opening up.
Shen Ming stated that this dual strategy reflects that military coercion has not been effective, resulting in the adoption of united front tactics. Xi’s ultimate goal has not changed, and due to pressure from the US and the current political situation in Taiwan, China must temporarily refrain from using military means for reunification. Domestically, Xi must address economic issues to alleviate scrutiny and challenges from opponents, with the Taiwan issue being pushed back in priority.
Yao Yuan stated that Xi’s rhetoric is aimed at the Chinese domestic audience, as emphasizing military confrontation with Taiwan or military threats against Taiwan cannot address the most pressing concern, which is the domestic economic issue. Since Chinese media lacks freedom and caters solely to political needs, the mounting economic problems and public sentiments have shifted the focus towards economic aspects in policy advocacy.
Current analyses suggest that the risk of conflict in the Taiwan Strait is increasing, potentially undermining Beijing’s efforts to rebuild confidence in the Chinese economy. Some viewpoints suggest that Beijing’s wartime economy is aimed at diverting attention from governance crises and could potentially lead to military action. As Beijing intensifies military deterrence against Taipei, many worry that Xi Jinping’s patience regarding the “military reunification” of Taiwan may be wearing thin.
Shen Ming expressed that the likelihood of a war breaking out in the Taiwan Strait is low, as evident from the reduced scale of military exercises. The main reasons include the absence of provocations from Taiwan, lack of legitimacy for a military invasion, the inability of Chinese military power to counter US intervention, and the dire internal economic conditions in China. Additionally, the political situation in Taiwan indicates that China hopes for a change in ruling parties and needs time for military strengthening.
Regarding the possibility of military action by China against Taiwan, Hong Zijie stated, “I believe the likelihood is low at this stage because if China fails to take down Taiwan, it could jeopardize its regime. To initiate a war, China must be certain of victory, but currently, the PLA lacks the necessary combat capability. The reorganization of the Strategic Support Force this year indicates that there is still a long way to go in terms of reform and development.”
Yao Yuan emphasized that if China resorts to military action against Taiwan, it would sever its economic ties with the rest of the world. The wartime economy entails investing all state-owned and private enterprises into industries related to war, leading to a collapse when the situation becomes unsustainable. The ongoing military exercises in the Taiwan Strait are meant to convey such threatening signals, as Beijing seemingly understands the high risks involved and, consequently, is unlikely to pursue such a perilous policy.
He added that this path signifies China reaching a point of no return, presuming that economic recovery is unattainable and a significant collapse looms in a few years. To avert this impending collapse, war is used to divert attention from economic realities, preventing public focus on these imminent challenges. “In my personal assessment, the Communist Party is unlikely to engage in such high-risk policies.”