China: Economic weapons against Taiwan

China responds with economic sanctions and military exercises to House Speaker Nancy Pelosi’s visit to Taiwan this week.

the visit of Nancy Pelosi The Taiwan aroused the ire of the Chinese authorities. In addition to the military exercises that were scheduled from today, Beijing reacted with a series of economic sanctions against the rebel province.

On the import side, the China suspended purchases of fruit, fish and Taiwan’s famous cookies. On the export side, sales of natural sand, widely used in civil construction, were reduced by half.

The island’s food exports represent, on average, less than 1% of total exported products. Therefore, the impact of China’s import bans is greater on the agricultural industry.

Still, the move has an important impact for the ruling party in Taiwan. The sector is crucial to maintaining the support base for the current president, Tsai Ing-wen.

“More significant is the ban on sand exports from China to Taiwan, which will affect the island’s construction industry,” notes ING in a report. “Taiwan can import sand from other economies, but shipping costs will be higher,” comment the Dutch bank’s Asia experts Robert Carnell and Iris Pang.

Semiconductors and the global chain

However, Taiwan’s main export item is semiconductors. But China is also already preparing a technological triumph.

China’s Yangtze Memory Technologies has unveiled a memory chip technology that could help close the chip gap against rivals. United States and South Korea. The chip is the first to feature 232 layers of memory cells, according to reports in the international press.

At the same time, the purchasing managers index (PMI, in the acronym in English) of Taiwan lit the warning signal about the prospects of global trade. The new electronics export orders component of the indicator drops nearly 7 points, sinking further into contractionary territory at 34 points.

For BCA Research, the figure suggests that demand for semiconductors is contracting amid a slump in consumer spending on goods, which has already dropped by two-thirds since the peak of the pandemic. With high inflation weighing on purchasing power, families end up spending more on services.

“And this is weighing on the entire production of the industry”, he says, in a report. Thus, the headwinds faced by the global manufacturing chain also cause negative dynamics for semiconductor inventories.

Treasuries as a weapon?

Recently, China has reduced the amount of US Treasuries held to below $1 trillion. It was the first time since 2010 that exposure to so-called Treasuries was below this symbolic mark.

But any relationship between the movement and the Taiwan question seems pointless. There are many other factors driving the Chinese decline in Treasuries holdings.

For ING, the reduction in exposure appears to be related to Chinese currency intervention to keep the yuan (renminbi) price stable in a strong dollar environment.

However, Carnell and Pang do not rule out that a further decline in Chinese holdings in Treasuries seems likely. “Especially considering the worsening of the geopolitical issue after the invasion of Ukraine by Russia and the blockade of Russian foreign exchange reserves”, comment the ING analysts.

Therefore, two of the five points that could make a major conflict between the US and China more likely have already had updates. And the game keeps moving.

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Source: Moneytimes

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