China’s Trade, Foreign Investment, and Taiwan: When the Commercial and the Geostrategic Converge
This article was written by Lucas Blascos Argullós, Policy Fellow 2023-2024, and originally appeared in Reaction. The views in this article are the authors own.
In September 2023, US President Biden announced a multi-country agreement to build the India-Middle East-Europe Corridor (IMEC), connecting India to Europe through the Middle East to boost economic integration between the regions. This has naturally been seen as a Western-led challenge to China’s Belt and Road Initiative (BRI), which seeks to connect China and its Westernmost regions to Central and West Asia with Europe.
It may be tempting to analyse such commercial and infrastructure projects only from an economic perspective, but in a world of increased geopolitical tension, what separates the economic, the geopolitical, and the reputational is diffuse. China has, for well over a decade, invested in and economically aided countries in Asia, Africa, and Latin America, and has also made inroads in investment into European infrastructure. While Chinese Communist Party (CCP) leaders may want us to believe that they’re simply concerned about becoming a ‘responsible superpower’ by helping countries develop and by trading with the West, China has geopolitical and reputational objectives too. China knows that if it invades Taiwan, which is believed to be Xi Jinping’s ultimate goal in achieving “the rejuvenation of the Chinese nation”, much of its success will hinge on the unity (or lack thereof) of the West. While trade with China may be attractive, we must be prepared to stand firm and not be lured by China’s pretexts or economic attractiveness.
China’s foreign infrastructure projects and aid exports are funded mainly by state banks and constructed by state-owned firms (SOEs). The Chinese state has control over the heads of its SOEs, and thus influences decisions over the location and conditions attached, so the objectives of its SOEs closely mirror those of the CCP. The question is, what does China want? China is an export-driven economy aiming to expand the markets for its products and their interconnectivity, and the BRI is a vital tool in this strategy, so there are obvious commercial objectives attached. Nevertheless, we must be aware of the strategic and reputational ambitions behind these investments. The case of the Piraeus Port in Greece is telling. In 2016, the China Ocean Shipping Company (COSCO) purchased a majority share of the Piraeus Port after having previously secured a lease to operate Piers II and III from the Piraeus Port Authority in 2009. It later increased its share to 67%, making it the only European port under Chinese control at the time. Like with the Piraeus Port, COSCO has acquired shares in other major and critical infrastructure in Europe, slowly taking over European transport and trade infrastructure by increasing its stakes in container terminals in Germany, Belgium, the Netherlands, France, Sweden, Italy, and Spain, among others.
The fact that a systemic rival like China seeks to control our infrastructure is concerning. By administering European ports of entry, or by investing in the development of transport links such as the Balkan Silk Road connecting the Piraeus Port with Hungary and the European Union, China aims to further entangle the EU with its economy by facilitating and increasing Sino-European trade.
China is already the EU’s largest trading partner, so by enhancing its trade capabilities, it seeks to make Europe ever more dependent on China and its trade. While European leaders may believe this is merely international cooperation at work, and that China has fostered a reputation of a “responsible superpower” by engaging with the West, we must not fall into the same trap we did with Russia: interdependence does not guarantee our economic safety.
European leaders also fail to understand China’s wider geopolitical strategy. The “reunification” of Taiwan is Xi’s major ambition and he will take “all necessary measures” to this end, which accounts for nothing less than a full-on invasion of the island-nation. By strengthening Sino-European trade relations, China seeks for European leaders to hesitate in defending Taiwan, worsening relations with China, and upholding the principles upon which our free societies are built, by fear of the economic repercussions. Essentially, China wants us to turn a blind eye to the political to focus on the purely commercial. However, we must realise that there is no separation between them.
If and when China invades Taiwan, its semiconductor production would come to an immediate halt. As the supplier of over 60% of the world’s semiconductors and 90% of the most advanced ones, its invasion would slash the global supply of microchips and semiconductors and spiral inflation on vital products and services like cars, phones, or computers. Moreover, the reliance of our defence systems on microchips and semiconductors means that a potential Chinese takeover of Taiwan would also threaten our national security. If we allow China to invade Taiwan with impunity, we risk subjugating our national security to the interests of an autocracy.
European leaders seem unable to grasp that the networks of dependency that China is creating aim to entangle European economies to China to such an extent that they will not stand up to Beijing when it invades Taipei. Many European capitals still view China as a partner, especially in trade. In April 2023, French President Macron and European Commission President Von Der Leyen visited China, where, while China’s role as a Russian war enabler was criticised, Sino-European trade relations were front-and-centre of the discussions, as in similar previous visits of German Chancellor Scholz and Spanish PM Sánchez. Moreover, the only mention of Taiwan was President Macron’s warning of the risk that Europe would face in getting “caught up in crises that are not our own”. While the European Union must have a more geopolitical outlook, this should not serve as an excuse to isolate itself from a Sino-Taiwanese conflict, which would be a show of weakness rather than strength. A Union that prides itself in its commitment to freedom and democracy cannot shy away from standing up to authoritarianism and the law of the strongest. We rightly criticise those countries that have indirectly supported Russia in its war of aggression against Ukraine, such as China or India; by staying ‘neutral’, we risk enabling China to achieve its goals of regional hegemony, further global economic control, and international contestation of the rules-based system.
We must stand up to China and ensure that Taiwan is ready to defend itself. At the same time, we must reflect on the experience of Xinjiang, Tibet, and Hong Kong, and the militarisation of the Paracel and Spratly Islands as precedents of China’s increasingly authoritarian and assertive goals. “De-risking” is an important first step to reduce our trade dependency on China in critical raw materials, but the European Union seems to not have a road map for how to proceed. Investing in its industrial sector to reduce European dependency on Chinese technology and raw materials that are vital to its green transition must be a priority. We must ensure, however, that by trying to de-risk from China, the EU and the US coordinate their policies and do not instead compete against one another in green sector investment.
Altogether, both our economic and political futures hinge on Taiwan’s success. Economically, an invasion of Taiwan would be disastrous for the supply chains of microchips and semiconductors, but it’s also our political and moral obligation to defend a democracy from a Communist dictatorship that uses historical “reunification” to excuse conquest. The European Union, together with the US and the UK stood up to Putin, even when facing important economic costs, and remain steadfast in Ukraine’s defence. We, as liberal democracies, must have the same commitment to peace, freedom, and democracy in Taiwan.
