In recent years, the Chinese Communist Party’s (CCP) encroachment on Taiwan’s grey zone has been increasing. A recent joint military exercise conducted by the United States and Taiwan to test Taiwan’s financial resilience revealed that Beijing has been encroaching on Taiwan’s grey areas, but has not crossed the “red line” of the United States and its allies. The most likely scenario is that Beijing may exert long-term economic pressure on Taiwan and conduct cyber attacks on Taiwan’s financial markets to achieve political goals.
To address this issue, Economic strategists interviewed by Dajiyuan suggested that Taiwan should reduce its economic reliance on the mainland and enhance information security to the highest level. The United States can help by advocating for collective defense and bilateral agreements to counteract China’s unilateral economic threats against Taiwan.
Beijing has continuously claimed sovereignty over Taiwan. In mid-September, 103 Chinese military aircraft flew over the median line of the Taiwan Strait, with 40 entering Taiwan’s Air Defense Identification Zone in a single day, breaking historical records. Beijing’s military actions have not escalated to invasion but have stayed in the “grey zone,” a term describing tactics that lie between war and peace.
A bipartisan think tank, the Foundation for Defense of Democracies (FDD), based in Washington, held a two-day tabletop exercise in Taipei in early August in collaboration with the Taiwan Institute of Finance and Training. Two months later, on October 4, the results of the exercise were presented at a press conference.
Experts participating in the exercise outlined potential scenarios Taiwan may face, including prolonged economic coercion in the financial market, information network attacks lasting several months, and mixed attacks combining economic warfare elements such as large-scale military exercises, disruptions in Taiwan’s transportation, and inspections of ships in the Taiwan Strait.
Experts at the exercise indicated that Xi Jinping perceives that he has not crossed the red line with the U.S. and aims to limit Tsai Ing-wen’s tenure to a single term. Therefore, over the next one to two years, China may start destabilizing Taiwan’s financial markets to weaken support for the Democratic Progressive Party and attempt to undermine the current ruling party.
In response to conflicts with China in these grey areas, Professor Chen Songxing, from the National Development and Mainland China Studies Institute at the Chinese Culture University, explained that grey zone strategy refers to the period before escalation to blockades or full-scale armed conflict. Once it escalates to a blockade, it essentially means going to war.
Reported by The Wall Street Journal on September 25, a Chinese hacker group known as “Salt Typhoon” infiltrated several U.S. broadband network service provider systems over the past few months, potentially gaining access to systems authorized for government surveillance, posing significant national security risks.
American officials have continuously warned since last year that Chinese hackers are infiltrating critical infrastructure across the United States. Their conclusion is that the aim is to disrupt major services like electricity and water supply in the event of future conflicts with the U.S.
Professor Chen mentioned that if cross-strait relations worsen, China could implant malicious software to cause a power outage in Taiwan, leading to a halt in economic activities, highlighting the importance of tightening all information security measures to maintain public trust in the government.
Regarding China’s cognitive warfare and cyber attacks on Taiwanese companies, General Yu Zongji, former dean of the Political Warfare School at the National Defense University, stated that Taiwan has already experienced various incidents, emphasizing shortcomings in public and private sector cybersecurity infrastructure.
Additionally, there was a case of a senior executive from Taiwan’s Formosa Plastics Group being interrogated upon entry to mainland China in September and subsequently placed under “border control” and prevented from returning to Taiwan. Taiwan’s Mainland Affairs Council clarified that the individual’s inability to return was not due to political or national security issues.
General Yu said that this vulnerability is Taiwan’s weakness, stressing the need to diversify investments and reduce economic reliance on the mainland. It is crucial to swiftly move industrial chains to safer allied countries and decrease dependence on mainland imports and exports to counter potential economic threats in the future.
Regarding his role as portraying Chinese President Xi Jinping in the tabletop exercise, Craig Singleton, a senior researcher at the Foundation for Defense of Democracies, highlighted the importance for Xi to apply various pressure tactics such as psychological warfare, deep fakes, ransomware, and network attacks on Taiwan’s infrastructure to weaken Taiwan’s resistance without crossing the U.S.’s red line.
In terms of defining red lines with China, Professor Chen expressed the complexity of this issue, suggesting that the U.S. should inform the public and industry sectors more clearly about the current situation.
Recently interviewed by The Economist, Admiral Tang Hua of the Republic of China Navy warned that the PLA has been gradually increasing its presence around Taiwan since Tsai Ing-wen took office, implementing the “Anaconda Strategy” to pressure Taiwan.
Admiral Tang underscored that Taiwan’s military has shown restraint to avoid providing Beijing with excuses for blockades or conflicts.
Professor Chen mentioned that during expert war gaming simulations, scenarios were tested where if China implemented isolation or blockade on Taiwan’s outlying islands, it could potentially trigger a red line. Any rhetoric from China threatening to attack Taiwan could impact foreign exchange markets, put pressure on foreign capital outflows, and potentially lead to capital withdrawal.
According to CNN’s report, based on a June report by the Center for Strategic and International Studies (CSIS), China could utilize coast guard, maritime militia, and various police and maritime security agencies to impose a comprehensive or partial blockade on Taiwan, disrupting Taiwan’s access to ports and critical supplies like energy.
In the recent FDD exercise, nearly 66% of Taiwan-U.S. experts believed there was a possibility of China implementing isolation on Taiwan’s outlying islands (Kinmen, Matsu, and Penghu), with a 71% chance of isolation on the main island.
General Yu remarked that while defining red lines is challenging, the U.S. could mitigate China’s unilateral economic threats or coercion through collective or bilateral agreements.
He suggested measures such as actively promoting a bilateral free trade agreement between Taiwan and the U.S., encouraging Taiwan’s participation in multilateral organizations like the CPTPP, and having allied nations help offset China’s financial risks. For instance, if China restricts wine exports from Australia, first island chain countries could increase imports to compensate for the lost market.
Moreover, General Yu emphasized the importance of relocating Taiwan’s critical databases, data chains, or network nodes to countries like Japan, the U.S., or the Philippines, emulating European nations’ practices.
In conclusion, the U.S. can integrate Taiwan through a collective cooperative mechanism, strengthen bilateral free trade agreements with each country, and establish a joint response mechanism to counter China’s economic threats effectively.