NEWS
Why China’s sabre-rattling over Taiwan matters to UK investors The island nation is a crucial link in global supply chains
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ast week’s trip to Taiwan by US House Speaker Nancy Pelosi – the highest-ranking American politician to visit Taipei in 25 years – seems to have been the pretext for China to unleash a demonstration of both its military might and its intention to unify the island with the mainland. While the White House has sought to reduce tensions over the Speaker’s visit, the strategic and economic importance of Taiwan meant the president had no alternative but to say the US would defend the country in the event of an attack by China. Aside from the impact a full-blown conflict over Taiwan would have on world stock markets, investors need to brace themselves for the possible knock-on effects China’s live-fire exercises could have on global trade. The strait between the island and mainland China is the primary route west for ships from Taiwan, China, Japan and South Korea carrying goods to ports in Europe and the US. According to Bloomberg, almost half of the global container fleet and nearly 90% of the world’s very largest container ships passed through the strait this year. The US maintains the strait represents international waters and routinely sends naval vessels through the channel on so-called freedomof-navigation exercises. China insists the waters are part of its territory and has made no secret of its desire
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| SHARES | 11 August 2022
to unify Taiwan. Andrew Bird, chief executive of Tilstone Partners, advisor to real estate investment trust Warehouse REIT (WHR), told Shares China’s extended military operations around Taiwan could ‘create a ripple effect on global supply chains, driving up prices’. Taiwan is also home to the world’s largest producer of semiconductors, TSMC (2330:TPE), which manufactures under licence for just about every major US chip firm including AMD (AMD:NASDAQ), Intel (INTC:NASDAQ), Nvidia (NVDA:NASDAQ) and Qualcomm (QCOM:NASDAQ). Given the sophistication of its production facilities, which are in real-time contact with customers and suppliers all over the world, any attempt by China to take the country by force would likely result in the complete shutdown of the company, according to analysts. Fears of supply chain shortages and in particular a lack of chips is already forcing UK companies to think not just about where they source components but even how they design their products. Ronnie George, chief executive of ventilation products firm Volution (FAN), recounts how after being quoted a 70-week lead time for certain chips earlier this year his engineers redesigned their circuit boards to take alternative components, thereby making sure the company had a steady supply of products available when customers needed them. [IC]
