China: Strategy with a Purpose

By Major General (retired) Michael Snodgrass

Authors Note: This article was inspired by the book “Chip War: The Fight for the World’s Most Critical Technology” by Chris Miller

Scenario

November 19^th, 2032. Eight days ago, the US elected their next president. Three previous elections have been marred by accusations of fraud, more and more divisive and negative attacks, and growing discontent across the country. In 2028 a third-party candidate achieved 20% of the popular vote, but in 2032 that same candidate was elected with 39% of the vote. The turmoil reached the US Congress, with each of the three parties having at least 25% representation in both houses. The President-Elect is planning a review of our Taiwan policy.

In 2016, President Xi’s called on the Chinese government and technology leaders to “gain breakthroughs as quickly as possible” and “…assault the fortifications of core technology research and development…to concentrate the powerful forces to act together, compose shock brigades and special forces to storm the passes”.[1] For decades, China has been slowly gaining market share across a wide range of materials and goods, and yesterday invoked export limits on many critical items. China announced cuts to exports of semiconductor chips by 70% to bring more “stability” to the market. Products ranging from cell phones and cell infrastructure, coffee pots to ceiling fans, automobile circuit boards, elevator and escalator controls, aircraft, power production as well as many other items are affected. The CCP has told Chinese business they will compensate them for the loss of profit for their cooperation in support of “comprehensive national security”, officially introduced in 2014. Supporting the NSS is directly linked to achieving the “rejuvenation of the Chinese nation” by 2049.[2]

As a result of the export controls, there is widespread concern as spare parts are increasingly unavailable to support even the most basic needs of Western consumers. Ford, GM, and other western auto makers have said they will no longer be able to produce any vehicles after December 3^rd of this year due to chip shortages. Unemployment is already beginning to rise, and banks report consumers are cashing out of investments to make ends meet during the crisis. Rare earth metals production has also been severely reduced, inhibiting the manufacture of electric car batteries and industrial magnets.

Today China launched a 5^th unannounced major “exercise” of amphibious landing craft from dual-use amphibious ferries and Roll-On-Roll-Off (RoRo) ships from Chinese beaches across from Taiwan.[3]. This exercise is the largest since 2029, including 17 ferries and 18 RoRo vessels. It is estimated these forces could land as many as 25,000 troops on Taiwan in the next 15 hours. There are also widespread reports of cyber-attacks on U.S. power generation systems as well as air traffic control and maritime reporting systems. It is likely these actions are coordinated.

In response, US INDOPACOM has sortied the US Seventh Fleet and Task Force 73 (Logistics support for the Seventh Fleet) from Japan, put the Third Fleet on alert for movement to backfill the Seventh Fleet, mobilized the I and III Marine Expeditionary Forces from Hawaii for movement toward Guam, and deployed 4 B-52 squadrons, 4 F-15, 3 F-22, 5 F-35 and 4 F-16 squadrons to forward locations in Guam and Japan.

The current administration, embarrassed by low support for the President’s reelection, is trying to convince the Chinese that such moves are provocative and may result in a miscalculation that could result in armed conflict. If it is an invasion of Taiwan we will know in a few hours.

Executive Summary

China’s strategy is complex and comprehensive. Their actions for over 20 years have been analyzed by various experts (military, business, economic, technology) but rarely evaluated as a whole. This leads to mirror-imaging: Seeing their actions from our perspective instead of theirs, resulting in denial of the realities involved.
China is capable technologically and politically of using multiple elements of power to reunify with Taiwan. Their desire to leapfrog the west is unambiguous. Capabilities such as AI, military power projection, and semiconductors are leapfrog targets.
Western business has failed to recognize the long-range intent of leapfrogging, which is to gain technological superiority and military advantage over the west by any means necessary. Instead, businesses consider only short-term gains in their decisions.
The inability to comprehend China’s ultimate goal and strategy leads to poor or late decisions by western governments and business.
The key question is: Would the Chinese invade Taiwan and if so, why, and/or when?

China’s Goal and Subsequent Strategy

China’s goal is the rejuvenation of the Chinese Nation by 2049 (100-year anniversary of the PRC). This goal, included in the party Constitution as well as other documents and laws, drives the concept of “comprehensive national security”, a wide-ranging litmus test for all government and private actions and decisions.[4] This includes reunification with Taiwan.

“National rejuvenation has been the greatest dream of the Chinese people and the Chinese nation since the modern era began…National reunification is the only way to avoid the risk of Taiwan being invaded and occupied again by foreign countries, foil attempts of external forces to contain China, and to safeguard the sovereignty, security, and development interests of our country. It is the…best means to consolidate Taiwan’s status as part of China and advance national rejuvenation.”[5]

The CCP strategy is complex and comprehensive, spanning several areas: Military, Business, Global Economics, and Technology. There is overlap but often the west sees Chinese actions as isolated events, not an overall strategy.

Chinese Military Moves

China has been increasing military capability and capacity for decades. After the Gulf War the CCP began to renovate capabilities, doctrine, and tactics for all military services. This approach was outlined in the Military Strategic Guidelines published by the Central Military Commission in 1993. In short, the CCP recognized their emphasis on mass vs technology was a failed construct. In ensuing years, their 2,000,000-man army was reduced, and the Chinese Navy and Air Force began technology-based modernizations.[6]

However, their lagging technology position was a severe handicap, requiring acquisition of new equipment from Russia and some European nations, and attempts to reverse engineer capabilities while also conducting covert operations to steal technology.[7] Technologies were incorporated and, in some cases, improved upon and integrated into their military.

Chinese Business Approach

The CCP approach to business is to support Chinese enterprises to make them integrated with, or essential for western consumers and infrastructure. This 2006 strategy began when the Chinese issued their “National Medium- and Long-Term Program for Science and Technology Development”. Here they clearly spell out their approach with guidelines for the next 15 years as well as setting a priority for advances in integrated circuits, industrial biotechnology, information technology, broadband mobile telecoms, and many other sectors. It called for China to “leapfrog in priority fields” and “lead the future.”[8]

An example recipient of this policy is the Chinese company, Huawei. Using a combination of state support, estimated by the Wall Street Journal at approximately $75B,[9] combined with theft of intellectual property as well as some naïve actions by Silicone Valley and investment in consultants (who they listened to); Huawei is now a global competitor with 2022 net revenue of over $16B and $125.3B in assets.[10]

For years Huawei advanced China’s chip design abilities and intellectual capital. Relying on U.S. manufactured chips as well as their own designed processor (which is manufactured in Taiwan by world-leader TSMC, Taiwan Semiconductor Manufacturing Company), Huawei is one of the top three global providers for cell tower equipment. (Nokia {Finland} and Ericsson {Sweden} are the other two.) Cell towers throughout the US rely on Huawei 4G components. Although currently restricted from US and Australian 5G equipment[11] Huawei still supplies 5G chips to many nations including the UK.

Chinese Economic moves

For years China has attempted to control both quantity and price of Rare Earth Metals. Since the mid 1990’s China has dominated the market for these 17 elements and made attempts to control prices, limit exports, limit outputs (after the WTO struck down the use of export quotas in 2014) and most recently consolidating producers under state control.[12]

China’s uneven success in controlling the market still allows the CCP to use Rare Earths as leverage against the west. Party controls markets more easily, causing the west to increase production and refining capacity. As a result, China’s share of global rare earth production has fallen from 80% in 2017 to 63% in 2022 but still has 85 percent of rare earth processing, and 92 percent of rare earth magnet production.[13]

Chinese Technology Strategy

One of the chief technologies of interest to the Chinese is the production of semiconductor chips. Advanced semiconductors facilitate a wide range of military and civilian applications from AI to centralized command and control. China’s years-long strategy is to acquire leading edge semiconductor technology. To accomplish this, the Chinese government has backed various undertakings and mergers/acquisitions of western semiconductor companies. The Chinese company Tsinghua received a $1 billion investment in 2014 from the government and attempted to purchase large stakes in foreign companies such as TSMC, MediaTek, Micron, and Lattice Semiconductor. Some of these deals were exposed as violations of insider trading restrictions. According to Chris Miller in, Chip War:

There were too many Chinese state-owned and state-financed “private equity” firms circling the world’s semiconductor companies to describe this as anything other than a government-led effort to seize foreign chip firms. Amid this frenzied deal-making, Tsinghua Unigroup announced in 2017 it had received new “investments”: around $15B from the China Development Bank and $7B from the Integrated Circuit Industry Investment Fund—both owned and controlled by the Chinese State.[14]

The combination of state backed finance and covert operations dedicated to stealing intellectual property through cyber-attack and manipulation over the past 30 years unmistakably shows how the CCP plans leapfrog the west. Without government intervention, many more business deals and technology transfers would have been realized, resulting in a significant vulnerability for the U.S. and the west in general.

Taiwan

What do all these actions mean for Taiwan and the Chinese goal of reunification? What conditions would need to exist for a Chinese invasion of Taiwan? What can the west, both government and private, do to preserve the peace as well as our leadership role?

The Chinese plan is working even if their success is irregular. Gains made in Rare Earth markets and production, success in advancing the capabilities of Chinese semiconductor firms, exerting control internally and externally and continued military improvements in capability (including AI) are all indicators. Many gains have been possible because the U.S. and other western nations erroneously believe we can compete on a level, capitalist-based playing field. We make the miscalculation repeatedly; assuming the Chinese will play by the same rules as we do. When we scrutinize a Chinese company, we see a company whose goal “must be” to increase shareholder value (mirror imaging); when in fact many of the most important companies are party controlled, and therefore business decisions are not driven purely by economic factors. At best decisions are influenced by the CCP; at worst they are the result of Party direction. Relentlessly they are closing technology gaps through acquisitions or espionage, eliminating competition, or offering “partners” no choice but to work with Chinese firms.

The west is not entirely asleep at the switch. Some academics, the last two administrations and Congress have raised the alarm and taken steps from trade wars to the Chips Act in attempts to counter China’s aggressive policies. Even so, the Chinese continue on the path to reunification as their ultimate goal.

Is an invasion scenario realistic?

Perhaps, but it would have to be fueled by desperation and miscalculation. The crown jewel of Taiwan is TSMC. TSMC fabricates 37 percent of the world’s logic chips. Obtaining TSMC either by force or by coercion could assist the Chinese to leapfrog the west in the production of semiconductors. Attaining world class design and assembly capabilities, including the intellectual property for many steps necessary in chip design, manufacture and supply could, in many ways, be achieved by acquisition of TSMC.[15]

If China believes that reunification could not happen peacefully, that their already small market share in fabrication of chips (none of which involves today’s leading-edge technologies) was in danger of falling even lower, that advances in other areas were stagnant, they might then consider other options.

As outlined in the scenario above, it is unlikely an invasion would be an isolated action. The CCP has many tools. These include influence over the world’s Rare Earth markets and production dominance; Chinese tech company’s ubiquitous presence on consumer goods, power production grids and global cell networks; and their supply dominance in a host of other exports.[16] It is conceivable a multi-pronged attack in these areas, leading to the conquest of Taiwan, may be seen as worth the risk. The military option could be considered if the CCP believed that the west, in particular the U.S., lacked the political will to respond to halt an invasion in combination with their influence in so many other areas.

This would be a broad miscalculation of more than the military balance of power or political will of the west. As Miller points out, the workforce in Taiwan would likely evacuate, taking their experience and most of their intellectual capital with them. The actual physical infrastructure, if it survives combat, might allow the Chinese to eventually replicate many or most of the fabrication processes, but not before trillions of dollars of losses strike the world’s economy. By the time the CCP could restart production, the advance of semiconductor technologies would make any capability obtained years behind the competition. If unsuccessful, an invasion could also threaten the party’s control of their population and the Party’s very legitimacy.

Conclusion

The west’s challenge is to present a unified international system that keeps China in the cooperation stage and disallows them from becoming dominant. Steps like the Chips Act, export controls that are coordinated with allies and partners, actions to punish insider trading and unfair governmental investments in private Chinese firms must be supported with broader supply chains for products and capabilities that consumers rely on for their daily lives. The alternative is allowing Chinese dominance in these areas; that will tempt them to use their power to exert more pressure and dominate world markets in the name of national rejuvenation and reunification of China with Taiwan.

Learn more about the author, Advisory Board member and retired U.S. Air Force Major General Michael Snodgrass.

“…nearly every element of the technology-based digital smart grid is dependent on Chinese-made components.”