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This assessment was issued to clients of Dragonfly’s Security Intelligence & Analysis Service (SIAS) on 31 January 2023.
Several global corporations have asked us in recent weeks what we now assess are the probabilities of the most plausible scenarios this year and beyond.
We disagree with recent reports by some international media outlets that seem to suggest that a military conflict between the US and China is a credible scenario within the next couple of years. But we assess that within that same timeframe, the potential for a scenario of an acute but temporary military and diplomatic crisis in the Strait (falling short of a war) has risen from a probability of around 15% to 30%. Our assessment about the potential for military conflict reflects the existence of several other options Beijing would be more likely to pursue first to achieve its objectives of political control of the island.
The chances of a crisis scenario involving a blockade with global ramifications are still low. But several developments in the past year, particularly militarisation of the Indo-Pacific, have contributed to a regional context in which unintended escalations and disruptive crises are slightly more likely than before. Greater global focus on the issue as well as political and military support for Taiwan might also make China feel pressured to take more assertive steps to try to offset this trend.
As the situation continues to shift, we have updated and refined our scenarios for how the situation around Taiwan might develop in 2023 and beyond. We have also spoken with a range of sources in Asia and Europe in recent months that include senior security managers from various industries, diplomatic contacts and former government officials as well as analysts well-connected with the US military. Those conversations have informed our updated scenarios. The main changes to our assessments since issuing our Strategic Outlook 2023 are:
For each scenario, we have outlined how we anticipate the current conditions might evolve into that scenario, timeframe projections and a set of indicators. The convergence of several of these indicators – rather than one in isolation – would suggest that the scenario is becoming more likely. These scenarios are also not mutually exclusive; one has the potential to lead to another, neither does one preclude another scenario, particularly as new information comes to light and probabilities shift over time. This is also why the percentage probabilities together add up to more than 100%.
We have framed the scenarios around making reasonable inferences about China’s intentions. This is due to several reasons, but mainly because we assess that out of all players involved, it is Beijing that is most likely to take actions to try to change the political status quo. That said, we have factored in the potential for actors to take decisive steps, and included alternative outcomes in the descriptive parts of the scenarios. We have also decided not to include some of the scenarios, such as a major improvement in cross-Strait relations, as this seems implausible on current indications.
In this scenario, which we assess to be likely (80%) in the coming two years at least, China pursues a strategy of gradual military, economic, and political coercion against Taiwan. This is to incrementally undermine the island’s sovereignty and attempt to normalise Beijing’s activity, but refraining from actions that in its calculations would carry a high likelihood of resulting in military conflict. This is a projection of continuity of the current situation, which itself envisages China taking actions that continue to move it closer to its goal of political control of Taiwan in a five – ten-year timeframe.
On current indications, Beijing’s policy priorities towards Taiwan still seem to mainly involve progressively making the island politically and economically isolated in the coming few years at least. This is to eventually achieve its objective of political control while responding to attempts to counter this effort. The crisis over the Pelosi visit in August demonstrated President Xi Jinping’s willingness to respond to any perceived provocations assertively. The new normal is therefore characterised by increased militarisation and a high likelihood of recurring disruption to maritime routes and supply chains, particularly in response to any measures intended to assert Taiwanese sovereignty.
Indicators of the continuation of this scenario:
In this scenario, which we currently assess to be unlikely this year, China takes an assertive action against the island that triggers a short-term acute escalation to clearly signal its red lines to the international community.
There are several reasons, both internal and external, why China would potentially do so. The first would be to respond to a perceived major provocation by Taiwan/US (such as a visit by an incumbent US president) to demonstrate its intent and capability to prevent Taiwan’s full sovereignty. But other reasons include a calculated step aimed at increasing pressure on Taiwan and achieving a political win domestically or testing foreign countries’ resolve to defend the island.
Beijing has several options that it would probably pursue should it decide to further escalate tensions around Taiwan, the likelihood of which will probably increase over time, particularly beyond the coming couple of years. However, there are several factors that could accelerate this timeline. In our analysis, these primarily include internal or external developments that Beijing would perceive either as creating an opportunity or threatening its long-term strategy of achieving control of Taiwan.
Strategic early warning indicators of this scenario:
Although this scenario involves China seeking escalatory action that would stop short of conflict, there is some chance – albeit low – that this could lead to miscalculation or unintended military escalation, including with the US. However, even in those circumstances, it would be highly unlikely that this would push China to invade Taiwan. If China were intent on invasion, it would be more likely that Beijing would seek some element of surprise to achieve a more rapid and less costly outcome.
In this scenario, which we assess to be extremely unlikely in the coming two years based on currently available information, China decides to invade Taiwan, most likely as a response to an action by Taiwan or the US that it perceives as crossing its ‘red lines’. This includes a change in the One China Policy by the US to recognise Taiwan’s sovereignty. Such an outcome would most likely be preceded by a transition from Scenario 1 to Scenario 2.
However, beyond this timeline, rising pressure on Xi Jinping – particularly if he decides to pursue another term in office in 2027 – could lead Beijing to take actions that would lead to a situation where an invasion would be a viable option. And although its preference would still most likely be a non-military option, in this scenario, Beijing would be ready to use military means to obtain full control of Taiwan if needed.
We continue to assess that a Chinese invasion of Taiwan is highly unlikely in 2023. Such a scenario would carry high political and economic risks as well as human costs that Beijing does not seem willing to carry just yet. Nor does it appear to be calculating that it would need to. There have also been no major observable changes in Beijing’s strategic military posture in the past year. We also understand from a reliable source well-connected with the US military that the US authorities are not particularly concerned about this scenario in the coming year.
Indicators that this scenario is liable to occur at short notice:
In contrast to the scenario of limited military action, the invasion scenario also carries a high risk of military conflict between China and the US, and potentially other regional powers. On current indications, the likelihood of China invading Taiwan without the situation escalating to a military conflict involving other foreign powers would be low.
Image: Taiwan’s armed forces hold drills in Kaohsiung, Taiwan, on 12 January 2023 Photo by Annabelle Chih / Stringer via Getty Images.