British business prepares for war as China saber rattling in Taiwan

The Chinese Navy is conducting exercises off the coast of Taiwan, which it considers a breakaway province to be reintegrated. Photo: Zhang Lei/China Military. Online

On a cloudy April morning, as the world's media was distracted by an explosive leak of sensitive Pentagon documents, more than 100 Chinese warplanes and ships circled Taiwan.

The three-day attack earlier this month was not the start of a war, but the last in a series of increasingly aggressive military exercises dubbed the Joint Sharp Sword, in which Beijing rehearsed a full-scale invasion of its tiny democratic neighbor.

China's military, it confidently declared, is now «ready for battle '.

Xi Jinping's latest military exercise, which came after leaks from the Pentagon revealed a warning that Taiwan was unprepared to repel a Chinese attack, was a timely reminder of the threat of conflict that would further destabilize an increasingly fragile geopolitical situation.

Alicia Kearns, chairman of the foreign affairs committee, says bosses «should not ignore» escalating tensions in the Indo-Pacific.

against China and Taiwan,” she adds.

Taiwan has long been a source of political tension as China tries to assert its control over the small island nation. The threat from Beijing has intensified in recent months, and the US military has warned that an attack may be imminent.

Admiral Philip Davidson, former head of the US Indo-Pacific Command, previously predicted that China would invade in 2027 — the time frame now known as the «Davidson window».

rehearsing for a full scale invasion of Taiwan. Photo: An Ni/Xinhua via AP

Dr. Sidharth Kaushal, Maritime Research Fellow at defense think tank RUSI, argues that Davidson's window is overly alarmist, but adds: «I think it's highly likely that there will be a collision in the Taiwan Strait at some point and that there will be no delay.» it is for an indefinite period.

Threats are not only geopolitical, but also economic. Despite having a population of only 24 million, Taiwan has become a powerful player in Asia, primarily due to its status as the world's microchip factory.

The country produces 65% of the world's computer chips, also known like semiconductors. which are used to power smartphones, laptops, telecommunications networks and cars, as well as other technologies.

The Taiwanese semiconductor company, which is the world's largest contract chip manufacturer and supplies tech giants including Apple and Qualcomm, operates four major chip manufacturing plants, or «factories,» on the island.

Heavy dependence on the West The region's chip sector has been exposed during the pandemic as lockdowns have crippled global supply chains. However, the prospect of war poses an even greater threat.

Mark Williams, Chief Economist for Asia at Capital Economics, says: “The reality is that global electronics production is concentrated in East Asia, and a lot of that will be disrupted if China invades to Taiwan».

«In such a scenario, China is not a viable alternative supplier, as it is likely to be sanctioned.»

1904 TSMC dominates the chip market

Even Korea and Japan cannot provide crisis protection as large part of their trade passes through them. The Taiwan Strait, Williams adds.

As Kearns says, «The prospect of conflict in Taiwan threatens to undermine both regional stability and global economic security.»

This looming danger means that some British companies are forced to deal with this problem.

Last year, BT held two days of «war games» to test its ability to deal with the aftermath of any conflict in Taiwan. According to the Financial Times, the exercise, conducted in the Dublin purchasing department of a telecommunications company, included a scenario in which China sank a ship near Taiwan.

Johan Gott, co-founder of Prism, a US political risk consultancy that helped run the exercise, told the newspaper that participants were shown a series of fictitious news stories, stressing them out and forcing them to «make decisions under time pressure.» /p>

A BT spokesperson said: «Like many companies, we regularly run simulations to stress test our business in a range of scenarios as part of our planning and risk management.»

However, for many in the chip sector, the responsibility for risk mitigation lies with the government.

Last year, US President Joe Biden unveiled the $280bn (£226bn) Chip and Science Act aimed at boosting domestic semiconductor industry. manufacturing and reducing dependence on Chinese supply chains.

The EU followed suit, approving this week its own €43bn (£38bn) plan that it hopes will double the bloc's share of global chip production to 20% by 2030.

And Yet the UK is far behind. The long-awaited semiconductor strategy is expected to include an investment of at least £1bn, but details have yet to be released.

The announcement was scheduled for this week but has again been delayed, according to Politico. that the latest delay is due to uncertainty about who will take over the maternity leave of Technology Secretary Michelle Donelan.

The inertia has angered British chipmakers, with MPs and British semiconductor bosses warning of a US exodus if ministers don't act soon.

Darren Jones, chairman of the BEIS committee, said last month that any further delay «would be an act of self-mutilation at the national level.»

Kearns says the strategy is «long overdue», adding: «Developing sovereign capabilities in this area will be a long-term challenge and I hope recent legislation in the US and EU will encourage UK lawmakers to take action.»

But since a comprehensive strategy has not yet been implemented, many enterprises into their own hands.

Telecom companies such as Virgin Media O2 are hoarding chips. This trend began during the supply chain disruptions caused by the pandemic.

Car manufacturers using chips for electric vehicles are also taking action. A BMW spokesman said the German firm is taking new long-term approaches to secure semiconductor supply, including direct agreements with chip suppliers such as INOVA Semiconductors and GlobalFoundries.

Worldwide chip manufacturing

Capital Economics' Williams says companies have two options to reduce his exposure to conflict in Taiwan, although he admits that both have their drawbacks.

“[Companies] can work with governments to expand supply chains outside of East Asia. knowing that these efforts will take time and can be costly,” he says.

“Or they can store larger stocks of critical resources to provide a buffer, which is also costly and only helps if there is a failure in work. the offer is short-lived.”

A survey by Make UK, which represents manufacturers across the country, found that many companies are trying to bring their supply chains closer to home to avoid disruption: 40 percent have switched suppliers in the last year.

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Verity Davidge, director of policy at Make UK, says: “Over the past few years, there has been clear evidence that companies are increasingly looking into their supply chains to make them more resilient, including, where possible, redirecting them, the process, which has accelerated in recent years. in particular given rising geopolitical tensions.”

However, Davidge warns that the vast majority of companies are struggling with day-to-day problems such as rising inflation and a shortage of skilled workers, leaving them with limited bandwidth to worry about. about what is happening in the South China Sea.

But as the Davison window gets closer and worries about Taiwan's military readiness grow, British firms may have no choice but to take action.

«As government and military actors assess and mitigate risks, I encourage the private sector to do the same,» Kearns says.