China Military Drills Disrupt Global Supply Chain
According to Indonesian Employers Association chair Hariyadi Sukamdani, the situation has not had much impact on Indonesia yet, given that the trade volume between Indonesia and Taiwan is relatively small.
An aerial view shows Taiwanese navy ships (foreground) in Keelung harbour on August 4, 2022, as China held military exercises encircling Taiwan. - China's largest-ever military exercises encircling Taiwan kicked August 4, in a show of force straddling vital international shipping lanes after a visit to the island by US House Speaker Nancy Pelosi.
Blockage of the main shipping routes in the Taiwan Strait due to China’s military exercises risks disrupting supply chains in East Asia. The escalation in territorial tension comes in the aftermath of the visit by Nancy Pelosi, the Speaker of the United States House of Representatives, to Taipei on 2-3 Aug.
BEIJING, FRIDAY — China expanded the mobilization of its war machine around Taiwan territory on the second day of military exercises on Friday (5/8/2022). Beijing's immediate response to US senior politician Nancy Pelosi’s recent visit to Taipei has raised concern about disruptions to trade and commercial sea traffic, not only in East Asia, but also globally.
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According to Indonesian Employers Association chair Hariyadi Sukamdani, the situation has not had much impact on Indonesia yet, given that the trade volume between Indonesia and Taiwan is relatively small.
"So, even if there are disruptions, we can look at other sources as substitutions for both exports and imports," he said when contacted in Jakarta.
Hariyadi said he could not yet predict the impact on Indonesia in the event that the tensions led to a prolonged supply chain disruption. However, he expressed the hope that the Taiwan issue would be resolved quickly to stem complications in the global economy, including business activities in Indonesia.
This, he added, would heighten Indonesia’s vigilance against the potentially worst scenario for regional stability, as well as for the national economy.
With the US-China rivalry currently dominating international geopolitics, Hariyadi expected the Indonesian government to lead all domestic stakeholders in anticipating risks and preparing mitigation measures for possible adverse impacts. This, he added, would heighten Indonesia’s vigilance against the potentially worst scenario for regional stability, as well as for the national economy.
The day after Pelosi rounded off her Taipei tour, China announced four days of war games from 4 to 7 Aug. around Taiwan. The drills include simulated combat involving firing ballistic missiles into the air and the waters around Taiwan.
100 warplanes
The Chinese military said more than 100 warplanes and 10 warships were taking part in the military exercises. China's Xinhua news agency reported on Friday that warplanes, bombers, destroyers and frigates had been deployed in what it called a joint “blockade” operation.
An aerial view shows an empty Keelung Harbour as Chinese People Libration Army hold a four-day live fire drill surrounding Taiwan on August 4, 2022.
The Eastern Theater Command of the People's Liberation Army (PLA) said new version of missiles were also fired at an unidentified target in the Taiwan Strait with high accuracy.
Data compiled by Bloomberg show that almost half of the global container and logistics fleet passed through the Taiwan Strait in the first seven months of this year. Three of the six shipping lanes blocked by the Chinese military are located in or near the Taiwan Strait. These lanes are important routes for the supply chain of semiconductors, which are vital to various global industries and electronic equipment manufactured in East Asia for exporting to the global market.
The Taiwan Strait is a major shipping route for China and Japan, respectively the world's second and third largest economies, as well as Europe. The Taiwan Strait also serves as a trade route for tech powerhouse South Korea and carries manufactured goods from Asian factories to many of the world's consumers.
Natural gas shipments
The route is also the primary artery for the world's natural gas shipments, which are currently being disrupted by Russia's military invasion of Ukraine.
The Taiwan Strait, a 110-mile body of water separating the island of Taiwan and the Asian continent, is a major route for trade fleets transporting goods between major economies in northeast Asia, such as China, Japan and South Korea, and the rest of the world.
“Given that much of the world's container fleet passes through the waterway, there will inevitably be disruptions to global supply chains due to rerouting,” said James Char, associate research fellow at Singapore's S. Rajaratnam School of International Studies.
A further 60 were expected to arrive between Thursday and Sunday.
London-based shipping consultancy VesselsValue said that ahead of the commencement of China’s military exercises, 256 container ships and other vessels in Taiwan's territorial waters as of Wednesday. A further 60 were expected to arrive between Thursday and Sunday.
"There is potential for substantial disruption to trade in the region," Peter Williams, a trade flow analyst at VesselsValue, was quoted as saying on Friday (5/8) on the CNN website.
In this photo released by the Taiwan Presidential Office, U.S. House Speaker Nancy Pelosi, left, and Taiwanese President President Tsai Ing-wen arrive for a meeting in Taipei, Taiwan, Wednesday, Aug. 3, 2022. U.S. House Speaker Nancy Pelosi, meeting top officials in Taiwan despite warnings from China, said Wednesday that she and other congressional leaders in a visiting delegation are showing they will not abandon their commitment to the self-governing island.
Nick Marro, lead analyst at the Economist Intelligence Unit, said China's military exercises around Taiwan also had consequences for South Korean and Japanese trade. He warned that global supply chain disruptions triggered by the Covid-19 pandemic and Russia's military aggression against Ukraine would continue to persist amid flaring tensions in Taiwan.
Semiconductor trade
Taiwan has an important position in the global semiconductor industry. Taiwan Semiconductor Manufacturing Co., according to the Financial Times website, accounts for 90 percent of the world's semiconductor supplies. Meanwhile, downstream electronics industries such as Foxconn manufactures components and assembles products from smart devices to servers, for some of the world's biggest technology companies including Apple.
The impact on the Taiwanese economy is expected to be enormous. According to Capital Economics, 40 percent of Taiwan's export destinations are Hong Kong and China.
"In the event of a disaster that completely shuts down Taiwan for a period of time, I really don't know how the global supply chain for the tech industry will survive," said TriOrient Investments vice president Dan Nystedt.
Surging operational costs
Paul Tsui, managing director of Janel Group, a Hong Kong-based logistics services company that counts large companies like General Electric among its clients, said several clients had raised concerns about business disruption stemming from Pelosi's visit to Taiwan.
"If tensions in the Taiwan Strait escalate, costs and transit times would hike significantly and could be worse than the Covid-19 disruptions," Tsui said.
The growing uncertainty has dragged down Taiwan's Taiex Shipping and Transport Index. Shares of major shipping and airlines fell 1.05 percent on Thursday, with the index declining 4.6 percent since the start of the week.
This indicates that commercial air space is being used by the military.
Tensions in the Taiwan Strait also have an impact on China, especially in regions close to the area. Over the past two days, more than 400 flights to and from the main airport in Fujian, the Chinese province closest to Taiwan, have been cancelled. This indicates that commercial air space is being used by the military.
Meanwhile in Taiwan, China’s military exercises have disrupted 18 international flight routes that cross Taiwan's flight information region (FIR).
Other moves taken by the Chinese government in a retaliatory response to Pelosi's Taipei trip include imposing sanctions on the Democrat senior politician and suspending several China-US dialogue and cooperation programs.
In this Nov. 23, 2017, photo released by Xinhua News Agency, a Chinese military H-6K bomber is seen conducting training exercises, as the People’s Liberation Army (PLA) air force conducted a combat air patrol in the South China Sea. With record numbers of military flights near Taiwan over the last week, China has been stepping up its harassment of the island it claims as its own, showing an new intensity and sophistication as it asserts its territorial claims in the region.
China's Foreign Ministry said in a statement that dialogue between regional commanders and heads of the US Department of Defense and China had been cancelled, as had the planned talks on maritime safety between the two countries. Cooperation in the repatriation of illegal migrants, criminal investigations, transnational crimes, and climate change were also now on hold. (AP/AFP)
This article was translated by Musthofid.
