Nancy Pelosi, the Speaker of the United States House of Representatives, visited Taiwan last week, sparking China’s largest military exercise drill around the island in history. The drills are not only raising global concern for possible conflict, but also disrupting one of the world’s busiest shipping zones, causing detours and delays to various markets and economies.
The Chinese government took offence to Ms. Pelosi’s trip and labeled it as a “gross interference” to its internal affairs. Taiwan has been separated from the People’s Republic of China since a civil war in 1949, but China still claims the island as its own territory and considers visits to Taiwan by foreign officials as recognizing its sovereignty.
While the drills were originally scheduled to wrap up on Sunday August 7th, China decided on Monday to extend them indefinitely. This isn’t China’s first military exercise around Taiwan. In the 1990s, China conducted similar drills around the island that lasted for months, so it is understandable why businesses as well as the rest of the world are concerned.
The exercises, which involve warplanes, navy ships and missile strikes, are taking place along some of the busiest shipping lanes in the world. The exercise zones encircle the island and the Taiwan Strait, a major ocean route for the Indo-Pacific trade.
The local branches of China’s maritime safety administration issued multiple warnings for vessels to avoid the exercise zones. Additionally, Taiwan’s Maritime and Port Bureau advised ships to find alternative routes to access and depart from the seven major ports on the island. Despite Taiwan’s advice, many carriers have rerouted completely to avoid any risk of potential confrontation with the Chinese military.
Peter Sand, Chief Analyst of maritime data provider Xeneta told the Wall Street Journal last week that, “Shanghai, the world’s busiest port, is literally next door and any major disruption will affect the Chinese merchant fleet as well,”.
Given that nearly half of the world’s container ships pass through the narrow waterway, there will inevitably be disruptions to an already stressed global supply chain. The drills have also affected the air freight market. Just in the last week, more than 400 flights were cancelled at major airports in Fujian, the Chinese province closest to Taiwan. This suggests that the Chinese government wanted to use the airspace to demonstrate their air superiority over Taiwan.
The Chinese Global Times newspaper said last week that the drills were aimed at showing that China’s military was capable of blockading the entire island. However, economic analysts say that due to China’s ongoing economic challenges, it’s unlikely they’d risk a major disruption and would most likely limit themselves to aggressive posturing.
It isn’t in the interest of the Chinese government to close off traffic through the Strait for any extended period of time as it would negatively impact China’s economy. "It's not in Beijing's interest to interrupt civilian travel and trade in the region," said Natasha Kassam of the Lowy Institute, an Australian think tank.
Since we are unable foresee how long these exercises will last, it’s important for businesses to stay informed on updates regarding the Chinese military drills.
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