Takshashila Issue Brief - India’s Options as China-Taiwan Tensions Rise
After several days of speculation, U.S. House Speaker Nancy Pelosi finally landed in Taiwan on Tuesday, August 2, 2022. The most senior U.S. politician to visit in 25 years, she met Taiwan President Tsai Ing-wen and reaffirmed unequivocally that the U.S. will not abandon its commitment to Taiwan. China termed Pelosi’s visit a provocation challenging international order and its Foreign Minister Wang Yi stated that “those who play with fire will perish by it and those who offend China will be punished.”
China then proceeded to impose certain economic sanctions on Taiwan and conducted live-fire military drills in six exclusion zones encircling Taiwan over the next few days (including over Taiwan territorial waters and Taiwan Strait). Taiwan labelled China’s actions tantamount to an economic blockade.
In the past week, a delegation of US legislators led by US Senator Ed Markey visited Taiwan and met officials. China again termed the action provocative and announced further military drills in areas surrounding Taiwan. Chinese warplanes have regularly flown past and Chinese naval ships have intruded across the Taiwan Strait.
As far as India is concerned, its Ministry of External Affairs’ spokesperson urged “the exercise of restraint, avoidance of unilateral actions to change status quo, de-escalation of tensions and efforts to maintain peace and stability in the region” but did not expressly reiterate India’s commitment to any One-China Policy. While the China-Taiwan situation remains tense with possible chances of escalation, we take a look at our past research and analysis on Taiwan and where Indian interests lie.
Indian Position on a Possible China-Taiwan Conflict
The spike in tensions along the Taiwan Strait is not new, but over the years, there is a growing degree of probability of use of military force by China to attain its “reunification” objectives. China recently issued a white paper on Taiwan where it reaffirmed that it will not renounce use of military force in safeguarding itself from external interference and separatist activities.
However, any such escalation of tensions impacts Indian interests by limiting the scope for engagement with Taiwan, affecting trade and commerce in the East Asian region and influencing future Chinese manoeuvres along the Indo-China border.
In the Takshashila Intelligence Estimate on Scenarios for Cross-Strait Tensions: An Indian Interests Assessment, we examined three scenarios of conflict between China and Taiwan and also highlight key insights for Indian policymakers from each scenario:
Scenario 1: The Status Quo
While the status quo is the best-case scenario for India, it seems unlikely to continue for long given growing Chinese aggression in Taiwan Strait, which began even before Pelosi’s visit. India must deter China from undermining the status quo by signaling that it will back the international community in imposing costs on China if it seeks to do so. At the same time, India must deepen engagement with Taiwan and support its participation in international forums where statehood is not a criterion for membership, while cautiously discouraging any independence ambitions.
Scenario 2: Taiwan Declares Independence
Such a move will provoke a military response from China. While India must dissuade Taiwan from making a declaration of independence, in the eventuality, India must sustain diplomatic efforts towards containing escalation. India should reiterate support for a One-China Policy but work with other powers like the U.S. and Russia in urging restraint from China.
Scenario 3: China Invades Taiwan
There is a possibility of 3 distinct scenarios emerging out of this – short and decisive conflict, short and indecisive conflict and broad regional conflict. A short and indecisive conflict is the best-case scenario for India. While India should condemn Chinese actions, it should shy away from any military signaling. A failure to seize Taiwan will deflate the morale of Chinese armed forces and lead to domestic political instability, while keeping China occupied away from its western front alongside India. A protracted regional conflict is the worst case scenario for India (and the world) as it could destabilise international trade and world order.
Economic Partnership with Taiwan
Taiwan’s New Southbound Policy and India’s Act East Policy can converge into economic partnership in areas such as technology, education and manufacturing, especially in the field of semiconductors. While uncertainty over economic ties and trade looms large due to China-Taiwan tensions, the crisis may afford an opportunity to India to fast-pedal some of the long-pending measures to boost economic partnership with Taiwan.
Taiwan is the world’s largest producer of semiconductors. However, pandemic related disruptions have affected semiconductor supply chains worldwide and any escalation of the China-Taiwan conflict will exacerbate the issue.
In the article titled Complement to Succeed: A Case for India-Taiwan Collaboration on Semiconductors, we note that semiconductors have become geopolitical, economic and technological battlegrounds between nations. The QUAD has announced a semiconductor supply chain initiative and by involving Taiwan in this initiative, all five countries will be able to address the weaknesses they possess in the semiconductor value chain and reduce dependence on strategic adversaries. The Taiwan Semiconductor Manufacturing Company (TSMC), being the largest manufacturer, has already signed agreements for setting up manufacturing units on international soil. Since India is recognized as a semiconductor design powerhouse, it can benefit from entities like TSMC setting up fabrication units in India to meet the global demand.
Perhaps most importantly, India and Taiwan can collaborate in the domains of semiconductor technology and supply chains:
Semiconductor R&D: Governments can set-up centres of excellence for design architectures, new technical standards and composite research and also involve universities and companies in this effort.
Semiconductor IC design: Governments can enable strategic cooperation between companies of both countries by easing restrictions on capital flow, technology transfers, and peoples’ movement which can lead to mutual benefits through licensing agreements, cross-licensing agreements, technology exchange, visitation and research participation.
Semiconductor IC Assembly, Testing, and Packaging: This stage requires a large number of low-skilled labour which is readily available in India. Taiwanese companies can outsource their operations to India.
As China’s threat grows over Taiwan, there are two immediate steps India can take to keep the global semiconductor chain afloat and create economic benefits for itself in the process:
Finalising the free trade agreement with Taiwan: This should be a priority both from an economic and strategic perspective to enable investment, technology-sharing, rationalisation of trade duties and cooperation with Taiwanese semiconductor manufacturers.
Setting up a manufacturing hub in India: Considering the expertise of Taiwanese companies and their desire to shift offshore which may attenuate during the conflict with China, setting up a manufacturing hub in India should be a near-term priority. This is mutually beneficial as it will help India generate revenue and jobs while Taiwan can maintain its strategic hold over the manufacturing process.
Compiled by Shrikrishna Upadhyaya, with inputs from Manoj Kewalramani.
August 17, 2022.
Selected Reading:
Takshashila Intelligence Estimate - Scenarios for Cross-Strait Tensions: An Indian Interests Assessment by Suyash Desai, Megha Pardhi and Manoj Kewalramani
Heed Napoleon’s words as China fancies its odds of taking Taiwan by Nitin Pai
Complement to Succeed: A Case for India-Taiwan Collaboration on Semiconductors by Arjun Gargeyas and Pranay Kotasthane
As China Threat Looms over Taiwan, This is How India Can Keep Global Chip Industry Afloat by Arjun Gargeyas
Why India, Taiwan should strengthen ties by Arjun Gargeyas
On Taiwan, China will adopt salami slicing. Keeps US at bay by Lt. Gen. Prakash Menon
