Probability of a Taiwan crisis, short of armed conflict, erupting over the next 3 to 6 months: Unchanged at 55%.

Probability of a Taiwan crisis, including armed conflict, erupting over the next 3 to 6 months: Unchanged at 15%.

Probability of a Taiwan crisis, including armed conflict involving the US, erupting over the next 3 to 6 months: Unchanged at 15%.

In the short-term we still see no reason to change these probabilities at least until the new Taiwan president takes up his office in May.

Executive Summary

China’s political agenda was dominated by the Two Sessions, the annual gathering of China’s legislature, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). This year has witnessed a further diminution in the role of the State in favour of the Chinese Communist Party, with Premier Li Qiang being relegated to little more than a senior functionary with a remit to implement, not make, policy.

References to Taiwan during the Two Sessions contained nothing new. China’s defence budget was increased by 7.2 %, leaving China’s military expenditure still much below that of the US.

A new front has opened up around the Taiwanese islands of Kinmen and Matsu, both very close to the Chinese mainland, with China’s maritime paramilitary forces now regularly intruding into what Taiwan has always considered to be restricted waters. 

This increase in activity has raised concerns about a possible escalation of maritime incidents around these islands as China establishes another “new normal” to Taiwan’s detriment.

Taiwan has increased pressure on the US to deliver a long backlog of promised military materiel while also taking steps to enhance its own capabilities, an example being an ambitious plan to develop a satellite-based Internet system similar to Elon Musk’s Starlink.

The US has repeatedly emphasised its determination to outcompete China on all fronts, including during President Biden’s most recent State of the Union address. The Biden administration has authorised further military sales to Taiwan. Several US states have also introduced legislation designed to ensure resilience against an outbreak of hostilities over Taiwan, something the US federal government has yet to do.

The US and Japan are planning the most significant upgrade to their security alliance since signing their mutual defence treaty in 1960 though full details have yet to be announced. Japan has eased its arms export controls to enable the supply to US forces of US-designed weapons systems made under licence in Japan, thereby enabling the US to replenish stocks supplied to nations such as Ukraine and Israel.

What has changed in March

China

Premier Li Qiang kicked off the brief annual meeting of China’s Party-loyal legislature, the NPC, by using “security” a record 29 times in his government work report. To the Party, the term means not just tighter control over internal and external threats, but a comprehensive package that covers financial, economic and infrastructural security.

As expected, Li announced that the GDP growth goal is around 5% this year, a bullish target given China’s deep economic challenges. More unusual was Li’s praise for the boss, more direct and Mao-mimicking than that of Li’s predecessor. “We owe our achievements in 2023 to General Secretary Xi Jinping, who is at the helm charting the course,” said Li, who wasn’t allowed to elaborate as Beijing cancelled the Premier’s NPC-closing press conference without explanation – and for future years. 

The official defence budget, the NPC’s other most-anticipated stat, will increase by 7.2% in 2024 to a record $233bn, although the figure always masks Beijing’s actual spend on boosting military capabilities. The 7.2% nominal uplift matches the 2023 rate of growth, is comparable to the ten-year average of 7.5%, and marks the 30th consecutive year of increases according to the International Institute for Strategic Studies (IISS).

As a proportion of GDP, the core defence budget amounts to 1.25%, well below the global average of 1.8% and the 2% target for NATO countries. 

Adjusted for purchasing power parity, the IISS estimated China’s core 2024 defence budget would come to $439bn, while total military expenditure would reach $574bn, still considerably lower than the 2024 US defence budget request of $911bn.

Yet both China and the US face rising economic pressure on their defence spending, which may force Beijing to lower the cost of weapons acquisition. China nearly halved arms imports over the past five years as it replaced foreign weapons with its own technology, according to the Stockholm International Peace Research Institute (SIPRI). The shift reflects the increasing maturity of the domestic defence industry.

The NPC failed to make some expected personnel appointments. Top Party diplomat Wang Yi stayed in his additional job as the government’s foreign minister, while Defence Minister Dong Jun was not given a State Councilor title nor added to the State Central Military Commission (CMC). Background checks are likely ongoing to avoid the embarrassing downfalls of the former, disgraced foreign and defence ministers.

The delay also further concentrates power at the top of the Party CMC, where second-ranking Vice Chair He Weidong told a PLA delegation at the NPC that China must crack down on “fake combat capabilities.” This was likely related to weapons procurement – the focus of corruption investigations – and problems with training that fail to offer “real combat” conditions. A series of recent articles in PLA media have also argued that the PLA must improve learning and training methods. 

Xi has made repeated calls for more integrated armed forces, indicating that joint operability remains a major weakness undermining his ambition to take Taiwan.

While Premier Li dropped the usual mention of “peaceful reunification” in his work report, other statements at the NPC maintained that Party mantra for Taiwan’s future. 

Given the PLA likely remains incapable of a successful full-scale invasion any time soon, Beijing’s focus will be on intensifying “grey zone” tactics that make incremental gains to build a higher-profile presence in Taiwanese waters and airspace, and undermine Taiwanese sovereignty.

The clearest signal is China’s increased dispatching of coast guard patrol vessels into waters Taiwan considers “restricted” near Taiwan’s Kinmen County, very close to the mainland city of Xiamen. Beijing has capitalised on the death of two Chinese fishermen in February during an incident with a Taiwan coast guard patrol boat off the coast of Kinmen. Security experts in Taiwan believe China is repeatedly trespassing in these waters to establish “de facto” jurisdictional control and bolster its sovereignty claims.

Several more incidents in March highlighted the perilous new normal. On March 14, Taiwan dispatched coast guard boats at China’s request to join a rescue mission after a Chinese fishing vessel capsized near Kinmen, killing two people, with two rescued and two missing. Taiwan’s coast guard chief Chou Mei-wu told a parliamentary committee that such requests were common. “The waters are narrow around the Kinmen-Xiamen (area) and co-operation between Taiwan and China is very important,” he said.

On March 15, Taiwan also sent several boats at China’s request to search for a Chinese fisherman who went overboard near the Taiwan-controlled Matsu islands. But on the same day, and the next, China sent several coast guard ships into the restricted waters of Kinmen, forcing Taiwan to warn them off. "We’re confused", complained a senior Taiwan security official. “We tried to save their fishermen yesterday, and today they are baring their teeth and claws.”

Then on March 18, two men from Kinmen were rescued by China’s coast guard after the engine on their boat failed. A spokesperson for the State Council Taiwan Affairs Office hailed cross-Strait mutual assistance as people on both sides “are of the same family and naturally will help each other”. But only one survivor was returned to Taiwan, while the other, a military officer on a “fishing vacation”, is still being held in China, accused of concealing his identity.

Incursions by military aircraft and navy vessels have also stepped up. Taiwan’s Ministry of National Defence detected 36 Chinese military aircraft and six naval ships operating around Taiwan on March 21, the largest single-day number of planes in 2024, including 13 that crossed the median line of the Taiwan Strait.

The carrot and stick approach remains China’s core strategy. At the same time as ratcheting up grey-zone activity, Beijing continues to roll out measures at the Fujian provincial level to promote integration with Taiwan and boost relations with Taiwanese who favour closer ties with China. 

The Party’s Taiwan Affairs Office and macro planner NDRC held a forum in Fujian’s Fuzhou on March 19 on deepening cross-strait integration, including building a demonstration zone. “They play soft on one hand and hard on the other,” said Taiwan’s National Security Bureau Director-General Tsai Ming-yen.

After Hong Kong’s tough new Article 23 national security law took effect on March 23, the Special Administrative Region offers an even less enticing model of greater integration with the mainland. Taiwan’s Mainland Affairs Council, Tourism Administration, transport minister and Mr Tsai all warned Taiwanese travellers to take more care when visiting Hong Kong, such as checking first whether their phones contained any criticism of China.

Taiwan

Tensions over Kinmen were not the only maritime matters troubling Taiwanese President Tsai Ing-wen in March. Its name means Peaceful, but Taiping Island some 1,600km south of Taiwan is also disturbing her final weeks in office and delivering yet another reminder of Taiwan’s precarious place in the crosshairs of Chinese ambition.

Tsai decided to expand the pier in 2020 on this remote strip of land in the South China Sea, the largest naturally occurring island in the disputed Spratly Island group – but still tiny. Taiping hosts about 200 Taiwanese coast guard personnel, and is also claimed by China, the Philippines and Vietnam.

The new, typhoon-proof pier, which after dredging can now berth vessels as large as 4,000-tonne coast guard frigates, was inaugurated on March 26. The President attracted widespread bipartisan criticism for heeding security warnings not to attend. Taiwan’s intelligence chief had raised the risks to Tsai’s safety from “interference by relevant countries” during the four-hour flight, and from Beijing’s military presence.

Closer to home, in northeastern Taiwan, Tsai instead spent the day at another naval ceremony taking delivery of two locally built Tuo Chiang-class corvettes. Dubbed “carrier killers”, these highly mobile vessels are small but pack quite a punch. They’re testament to Taiwan’s shipbuilding capability and resolve to defend democracy and freedom, said Tsai.

Taiwan’s Cabinet approved the 2024-28 Coast Guard Patrol Preparedness Program to better protect Taiwan’s maritime rights and ensure vessels are seaworthy as China’s coast guard increasingly enters restricted waters near Kinmen County. The Premier also approved the purchase of 3,061 surveillance cameras, including body cameras, for coast guard vessels and crew. The service was criticised for lacking video evidence from February’s fatal collision with a Chinese speedboat.

After public doubt last year about the effectiveness of the military’s bulletproof vests, the Armaments Bureau said it will begin mass production in 2025 of a new, more bullet-resistant panel, able to withstand steel core bullets.

Taiwan is losing patience on other crucial items, amid fears that promised arms shipments from the USA have been diverted to Ukraine. 

US foot-dragging since 2021 on the delivery of 250 FIM-92 shoulder-fired Stinger missile air-defence systems has sparked 11 letters from Taipei requesting delivery and two formal complaints. Recently, the US assured Taiwan of the goal of 2024 delivery, according to Taiwanese media.

Inspired by Ukrainian hits on the Russian navy, Taiwan’s army was reported to be considering buying 200 armed sea drones from the Chungshan Institute of Science and Technology. Mass production begins in 2026 of these multipurpose uncrewed boats that can perform coastal defence missions and detect submarines and mines.

Also inspired by Ukraine, Taiwan’s government is trying to achieve what no country or company has been able to do: build an alternative to Elon Musk’s Starlink satellite internet service.

Taipei wants to send its first communications satellite to orbit by 2026, with a second to follow within two years, while developing four more test satellites. 

President Tsai has pledged $1.3bn for Taiwan’s space program to develop the best results into a satellite internet network entirely made and controlled from Taiwan.

Meanwhile, there was uncertainty over Taiwan’s aspiration to be integrated into the US military’s Link-22 communication system, which would enable Taiwan’s armed forces to enjoy secure communications interoperability with partner countries. Taiwan may already possess the earlier Link-16 system, but it is unclear whether they will be permitted to upgrade to Link-22.  Some indications suggest the US may have decided not to allow this.

Defence Minister Chiu Kuo-cheng this month confirmed that Special Forces personnel are stationed on Taiwan’s outlying islands (Kinmen and Penghu) and said their presence was part of an exchange and “learning opportunity” for Taiwan’s armed forces. These exchanges do not involve any proposals regarding the purchase of military equipment,” he added. US Indo-Pacific Commander Admiral John Aquilino confirmed there are no Green Berets permanently stationed in Kinmen County, but he said there were “absolutely” plans to create a “Home Guard” in Taiwan.

China is likely to increase its campaign of pressure on Taiwan both before and after Vice President Lai Ching-te takes office on May 20, warned National Security Bureau Director-General Tsai Ming-yen. Taiwan expects China to continue its dual strategy of “push and pull” tactics: maintaining military and political intimidation against the government in Taipei while offering economic incentives to those who help further Beijing’s goal of unification.

Tsai said China runs “joint combat readiness patrols” near the democratic island every 7-10 days on average, as Chinese forces try to “normalise” drills near Taiwan. Beijing usually dispatches around 10 warplanes and 3 to 4 naval ships on joint patrols near Taiwan that Tsai called part of a “multi-front” effort also including economic coercion and misinformation campaigns to pressure the island. Taiwan has been rated, for the 11th consecutive year, the country most affected by disinformation according to a study by Varieties of Democracy.

There is “currently no intelligence indicating an imminent war in the Taiwan Strait,” Tsai said on March 11. 

Defence minister Chiu told the Legislative Yuan on March 7 that the Taiwan Strait is “on the brink” of a heightened alert with China launching more frequent and closer military drills. But 50.4% of people polled by the Taiwanese Public Opinion Foundation rejected his thesis.

Military experts expressed doubts after Taiwan’s deputy defence minister Po Horng-huei asserted that Taiwan’s forces would have “absolute air superiority” over the Chinese Air Force in a conflict. Po also agreed with a lawmaker’s (overly) optimistic assessment that Taiwan’s better trained pilots could counter China’s numerical advantage.

China should face up to public opinion on Taiwan and start talks, said the chair of the Straits Exchange Foundation on March 20. 

But with the DPP staying in power, Beijing looks set to continue refusing to hold talks with a DPP administration.

The opposition KMT has however continued engagement with Beijing. From February 26 – March 3, Andrew Hsia made his seventh trip to China for talks since becoming KMT vice chairman in 2021. And former President Ma Ying-jeou may see “old friend” Xi Jinping during his second ever trip to China, from April 1-11. The Ma-Xi meeting in Singapore in 2015 was the first meeting of leaders from the two sides of the Taiwan Strait since Chiang Kai-shek met Mao Zedong in Chongqing in 1945. Premier Chen urged Ma to be mindful of the Taiwanese people’s views regarding the values of sovereignty, democracy and the rule of law during his China visit.

US and allies

“We’re in a stronger position to win the competition for the 21st century against China, or anyone else for that matter,” claimed President Joe Biden on March 7 during his last State of the Union address before November's presidential election. “We must employ all the tools at our disposal to outcompete China, wherever possible,” said a top State Department official after the White House released its budget proposal for 2025, including a modest $2bn to “combat PRC coercive financing” by establishing an International Infrastructure Fund as an alternative to Beijing’s massive, influence-building Belt and Road Initiative (BRI).

The budget also includes $100m for a standalone request for Taiwan military assistance through the Foreign Military Financing (FMF), a mechanism typically reserved for sovereign nations. 

This “historic investment”, the first time the White House has included a specific line item for Taiwan, will “strengthen deterrence and maintain peace and stability across the Taiwan Strait,” said the State Department.

A Chinese foreign ministry spokesperson criticised the US for its “vicious competition in which the opponent is trapped and obstructed at every turn…which will only push China and the US into confrontation and conflict.”

Separately, Biden signed into law a spending package that included $300m in military funding to Taiwan, as well as funding for Taipei-Washington cooperative projects. The act doubles security cooperation funding for Taiwan and directs the US Secretary of Defense to prioritise the delivery of defence articles and services to Taiwan. It also includes an “Honest Maps” amendment prohibiting the Pentagon from using any map depicting Taiwan as part of China.

Amid increased Chinese military activities near Taiwan this year, the top US commander in the Indo-Pacific warned that China remains ready to potentially invade Taiwan by 2027. 

“All indications point to the PLA meeting President Xi Jinping’s directive to be ready to invade Taiwan by 2027,” Admiral John Aquilino told the US House Armed Services Committee. “The PLA’s actions indicate their ability to meet Xi’s preferred timeline to unify Taiwan with mainland China by force if directed.”

China’s air and sea incursions represent “a new, more dangerous status quo for PLA activity and posture around Taiwan” that form part of rehearsals for encircling Taiwan and simulating a maritime and air blockade, while bracketing the island with ballistic missile launches, he added. Drills last year “focused on rehearsing counter-intervention and amphibious assault operations,” featuring extensive use of civilian ferries and vehicle carriers as Beijing “leverages civilian capabilities to prepare its forces for seizing Taiwan.”

The US House Select Committee on Strategic Competition between the United States and the Chinese Communist Party has a new leader, five-term Republican congressman John Moolenaar of Michigan, after the departure of the hawkish Mike Gallagher. Moolenaar pledged to “help our country prepare for the challenges we face from the [Party] and win the competition” against it.

The US House of Representatives passed a bill that would make it illegal for TikTok to operate in the US unless Chinese owner ByteDance sells its stake in the social media platform, but the bill’s fate in the Senate remains uncertain. Lawmakers are concerned the current ownership structure represents a national security threat.

TikTok has now been classified a national security threat in Taiwan, said Minister of Digital Affairs Audrey Tang. Hostile foreign actors have substantial indirect control over the platform, Tang told a legislative hearing. TikTok is currently prohibited from use by Taiwanese government agencies and the ban may be extended to school campuses, non-governmental agencies and other sectors.

At the US state level, the Arizona State House of Representatives introduced a bill to mitigate the effects of a Taiwan conflict, after a similar bill failed in its Senate. The Pacific Conflict Stress Test mandates Arizona carry out a comprehensive risk assessment for emergency response and prepare mitigation strategies “to limit or eliminate the risk posed to the critical infrastructure or other assets in the event of a Pacific conflict.” Nebraska and Illinois introduced similar bills in February as a precaution against Chinese aggression. 

The moves indicate states are acting faster than the federal government on concerns a Taiwan Strait conflict would prompt China to take hostage major US infrastructure, such as water systems or the electric grid.

Allies: The US and Japan plan to counter China with the biggest upgrade to their security alliance since signing their mutual defence treaty in 1960, reported Reuters and The FT. On April 10, Biden and Japanese Prime Minister Fumio Kishida will discuss tighter military cooperation, including appointing a four-star US commander to oversee US forces in Japan as a counterpart to the head of a proposed Japanese Self Defense Forces (SDF) HQ overseeing all of the country's military operations.

In December, the White House welcomed Japan’s easing of arms export curbs to permit the transfer of American-designed Patriot interceptor missiles and other weapons systems made under licence in Japan to the US military, a change that could replenish US weapons stockpiles depleted by supplying Ukraine. In September, Japan elevated security ties with Taiwan by appointing a serving government official as its de facto defence attaché in Taipei, instead of a retired SDF officer.

Tensions stayed high between China and the Philippines, as Beijing continued to direct China’s coast guard (CCG) to take aggressive measures against Philippine vessels in disputed South China Sea waters near the Second Thomas Shoal and Spratly Islands. Journalists from Japan and Taiwan observed repeated harassment of Philippine sailors by the CCG. A first trilateral summit between the leaders of Japan, the US and the Philippines is planned for April 11 in Washington. China will dominate their agenda.

Conclusion

As the Chinese Communist Party further strengthens its grip on all levers of power, its determination to achieve national reunification remains undiminished.  Peaceful reunification remains the watchword. But China continues to enhance its grey-zone pressure of Taiwan with the islands of Kinmen and Matsu becoming the latest potential flashpoint.

At the same time the US has made clear its determination to outcompete China and continues to take further measures to strengthen its regional alliances.

We can expect further Chinese pressure on Taiwan up to and during William Lai’s presidential inauguration though this will likely be carefully calibrated to minimise the risks of escalation.