Despite sabre rattling by China, Asian markets didn't flinch as U.S. Speaker of the House Nancy Pelosi embarked on her whirlwind Asian trip that included a visit to Taiwan. There is good reason the markets didn't become unhinged, because there is a case to be made that Pelosi's visit adds to stability in the region rather than unsettles it.
The Taiwan stock market moved higher on Wednesday despite a dip on Wall Street overnight. The benchmark Taiex index nudged ahead 0.2% for the day. It did dip 1.8% between Monday's close and Tuesday morning as Pelosi's trip was confirmed, but that was a generally down day for world markets, with the MSCI World index off 0.8% in the same timeframe.
After flying into Taipei's smaller Songshan airport and military base in a U.S. Air Force Boeing emblazoned with the U.S. government colors, Pelosi walked down the airplane gangplank shortly before 11 p.m. local time on Tuesday, standing out in a pink trouser suit as she was greeted by a delegation of officials.
Pelosi noted she had the "distinct privilege" on Wednesday of meeting with Taiwan's president, Tsai Ing-wen, with the two discussing how the United States and Taiwan "can deepen our economic ties, further strengthen our security partnership & defend our shared democratic values," as Pelosi explained on Twitter.
China's stock markets are the only significant decliner on Wednesday. The CSI 300 index of the largest stocks in Shanghai and Shenzhen fell 1.0%. But Hong Kong equities advanced 0.4%, and the rest of the region was generally in the green, with the Tokyo market up 0.3% in the form of the Topix index.
South Korea's stock market, which like Taiwan is driven by tech and in particular semiconductor manufacturing, added 0.9%. Most Southeast Asian markets were also higher on Wednesday. There were no signs of instability in stocks, and U.S. futures also indicate a move higher after Pelosi's peaceful trip.
Pelosi is the most senior member of the U.S. government to visit Taiwan since Newt Gingrich, also Speaker of the House at the time, made the trip in 1997. Pelosi's visit has bipartisan support inside Taiwan, where attitudes to China have hardened.
Pelosi, who also received the Order of Propitious Clouds civilian honor from Taiwan with its top rank, Special Grand Cordon, said the award serves as "a symbol of our treasured friendship." Pelosi said in response that "America remains unwavering in our commitment to the people of Taiwan - now & for decades to come."
The Speaker of the House also visited Taiwan's legislature and the National Human Rights Museum, a pointed visit with Beijing's dictatorship looming 100 miles in the background across the Taiwan Strait. Again and again Pelosi stressed what she says is "ironclad support for Taiwan's democracy" from the United States, upholding the island's security, governance and economic growth.
Pelosi left at 6 p.m. local time, meaning she was on the island for less than a full day. But Taiwan may be the most significant legacy of her trip, a whistle-stop destination after visits to Singapore and Malaysia and ahead of her arrival in South Korea and Japan.
Although the Speaker's visit has caused mainland China to announce six days of military drills in the waters surrounding Taiwan, it also demonstrates a commitment from the United States to protect and defend Taiwan from China's bullying. It may be a timely reminder to Beijing, which has steadfastly refused to criticize Russian President Vladimir Putin's invasion of Ukraine, not to get any ideas.
Beijing's feathers ruffled
Beijing published unexpectedly detailed plans for its war games, with state news agency Xinhua printing a map of the exact locations targeted by the live-fire exercises. The six blocks targeted look a lot like planning for a military blockade of Taiwan. Beijing has also recently been pushing the diplomatic line that the Taiwan Strait is exclusively Chinese waters, a new concept it wants to advance. Freedom of navigation trips by U.S. and allied warships through the strait are therefore all the more important.
U.S. President Joe Biden has let his staff indicate to the press that he does not support Pelosi's trip, but can't stop Pelosi because she is a leader of a separate branch of the U.S. government. Despite the administration's protestations - the "separate branch" talking point popped up repeatedly and all of a sudden in press briefings - he may secretly be supportive.
Biden is certainly on board with the overriding message that the United States is committed to protecting and preserving Taiwan and its democracy. Biden himself has repeatedly said that the United States would defend Taiwan militarily against a Chinese attack, a shift in U.S. policy that he made explicit and crystal clear in May, as I outlined at the time.
As the White House has noted, Pelosi is perfectly entitled to visit Taiwan, so the suggestion that the trip should be cancelled because it would heighten geopolitical tensions only plays into Beijing's hands. Refusing to visit Taiwan establishes that there's some kind of debate about Taiwan's status as a self-governed entity, a nation relegated to non-nation status by United Nations rules.
We in Hong Kong are increasingly concerned that Chinese President Xi Jinping will mount an offensive on Taiwan. He needs something to distract attention from the stop-start stalled efforts to revive China's economy as he approaches his re-election this fall to an unprecedented third term as president. The Chinese Communist Party conclave coming in October or November was expected to be a coronation of the "Emperor for Life," Xi having changed the constitution to allow him to run as many times as he likes. But his insistence on a zero-Covid strategy has caused a series of logistical snafus and city- or district-level lockdowns, damaging any Covid bounce-back as well as hurting consumer and business confidence. Xi faces more doubts about his leadership from within the party than he has previously encountered as China's strongest leader since Mao Zedong.
A good old-fashioned war has many times served as a suitable distraction from domestic problems for despots around the world, so the chance is higher than any time in recent history of a significant action against Taiwan. Armed forces analysts say the People's Liberation Army is not currently confident of a swift and overwhelming victory in the case of an invasion of Taiwan, an island with significant marine defenses and a mountainous interior. Staunch U.S. support for Taiwan adds to the danger of any physical assault.
China had been well on the way to conquering Taiwan not by force but economically, using bucket loads of Chinese yuan instead of bullets. Taiwan and China are woven together through business and financial ties as thousands of Taiwanese companies have set up factories in the mainland. The process was proceeding smoothly until the 2016 election of Tsai to the Taiwanese presidency, her Democratic Progressive Party favoring greater autonomy for the island as opposed to the Chinese-friendly policies of the rival Kuomintang.
The Hong Kong effect
Any hopes that China would subsume Taiwan peacefully were trashed by China's treatment of Hong Kong. China has not lived up to its commitments to maintain Hong Kong's autonomy under "One Country, Two Systems," instead reacting to pro-democracy protests in 2019 by imposing a dreaded National Security Law in 2020 that has been used to silence dissent and imprison Beijing's critics. Politicians and citizens in Taiwan were delivered a timely reminder that the Chinese Communist Party would never live up to its promise of a "Two Systems" offer to let the island continue to govern itself while under Beijing's wing. Even the Kuomintang backed off its ideal of peaceful reunification.
It's the sense that the civil war never truly ended that causes Beijing to insist that it must ultimately conquer Taiwan. Taiwan has never been a part of the People's Republic of China, calling itself the Republic of China instead. But it is to Taiwan that the Chinese Nationalists under Chiang Kai-shek fled in 1949 after losing the war. Until the early 1990s, the Taiwan government still claimed to be the true, legally elected government of all of China, not just Taiwan.
Pelosi's support comes at a time of heightened risk that China will launch actions to claim Taiwan physically. Her visit is therefore crucial in reinforcing a commitment from not only from the U.S. president but also from U.S. Congress to ensure that Taiwan's democracy prevails.
