China’s Taiwan war games threaten more global supply chain disruption: Analysts

BEIJING: Chinese military exercises around Taiwan are set to disrupt one of the world’s busiest shipping zones, analysts told AFP, highlighting the island’s critical position in already stretched global supply chains.

The drills – China’s largest-ever around Taiwan – are a major show of strength after US House Speaker Nancy Pelosi infuriated Beijing by visiting the island.

The manoeuvres kicked off Thursday (Aug 4) and will take place along some of the busiest shipping routes on the planet, used to supply vital semiconductors and electronic equipment produced in East Asian factory hubs to global markets.

The routes are also a key artery for natural gas.

Nearly half the world’s container ships passed through the narrow Taiwan Strait – which separates the island from the Chinese mainland – in the first seven months of this year, according to data compiled by Bloomberg.

“Given that much of the world’s container fleet passes through that waterway, there will inevitably be disruptions to global supply chains due to the rerouting,” said James Char, an associate research fellow at Singapore’s S Rajaratnam School of International Studies.

“INCREDIBLY BUSY WATERWAY”

Even a small disruption in global supply chains, already battered by the COVID-19 pandemic and Russia’s invasion of Ukraine, could prove costly.

“China’s planned live-fire exercises are occurring in an incredibly busy waterway,” Nick Marro, the Economist Intelligence Unit’s lead analyst for global trade, wrote in a note.

“The shutting down of these transport routes – even temporarily – has consequences not only for Taiwan, but also trade flows tied to Japan and South Korea.”

The uncertainty dragged the Taiwan Taiex Shipping and Transportation Index, which tracks major shipping and airline stocks, down 1.05 per cent on Thursday.

The index was down 4.6 per cent since the beginning of the week.

Taiwan’s Maritime and Port Bureau has warned ships in northern, eastern and southern areas to avoid the areas being used for the drills.

But several shipping companies contacted by AFP said they were waiting to see the impact of the drills before rerouting.

The ongoing typhoon season made it riskier to divert ships around the eastern coast of Taiwan through the Philippine Sea, some added.

Others said they would stick to their schedules.

“We don’t see any impact during (this) period and we don’t have any plan on re-routing our vessels,” said Bonnie Huang, a spokesman for Maersk China.

The drills have also hit air routes.

Over the last two days, more than 400 flights were cancelled at major airports in Fujian, the Chinese province closest to Taiwan, signalling that the airspace could be used by the military.

Taiwan’s Cabinet meanwhile, has said the exercises would disrupt 18 international routes passing through its flight information region (FIR).