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China’s Penghu Island Annexation Shows Taiwan Was Never Too Far Off

Editors’ Note: This article is part of our special series Predictions & Predicaments. It should be read as if written in January 2023. Read more about the special series here.

On January 8th, 2023, China conducted live-fire naval exercises in the Strait of Taiwan. Like similar wargames held in 2018, the exercise was viewed as an effort to intimidate Taiwan and deter American naval movements through the Strait. China’s East Sea Fleet appeared to be ending operations at midnight when it sailed near the Penghu Islands and a flotilla broke off to surround an island chain consisting of the Magong, Huxi, Biasha, and Xiyu townships, population roughly 100,000. A remnant of the East Sea Fleet remains on the west side of the archipelago. There are only a handful of small land-based military units on the islands which are approximately 70km from Taiwan.

Northern islands of Penghu (the Pescadores) Image Courtesy of Wing1990hk © 2015

China’s move should not have come as a surprise. President Xi Jinping is under increasing pressure from a restless populace still angry after yet another poor response to a virus outbreak. Mr. Xi has struggled to steer the economy back into the rapid growth China experienced prior to 2019. A conflict will probably only deepen the economic pain, but finally confronting a recalcitrant Taiwan shows that Xi is betting on nationalism to keep the restive population at bay. Taiwan now finds itself in an impossible position. It has condemned the move and received vocal support from the global community and placed its naval forces between itself and Chinese naval forces.  Any attempt, however, to retake the islands is out of the question, as Taiwan would almost certainly be humiliated by the Chinese navy.  While Taiwan can count on American naval forces, expected to move between Penghu and Taiwan within hours to complement the Taiwanese navy, President Trump’s reluctance to involve American troops in a high-risk conflict, despite the typically heated rhetoric, rules out any physical assistance in retaking the islands.

The Penghu Islands invariably belong to China now, yet Beijing decided to ignore Kinmen and Matsu islands, Taiwanese islands which are mere kilometers from China’s coast. That China didn’t act on these islands indicates it does not plan to hold on to the Penghu islands and instead coerce Taiwan into adopting a less assertive foreign policy while also providing diplomatic concessions.

For example, China could pressure Taiwan to rescind or downgrade its invitation to President Trump for an official visit later this year. If accepted, it would mark the first time a U.S. president has ever visited the island. It might be most prudent, though, for the American president to simply turn down the invitation, noting a looming budget impasse at home, in order to make the situation less painful for Taiwan.

In addition, Taiwan will likely need to give up its recently attained observer status in the World Health Organization. Taiwanese President Tsai Ing-wen, alongside diplomatic leadership from the United States, European Union, and Japan, waged a relentless campaign to get Taiwan that status both for practical and political reasons. China forcing Taiwan to back out would undo years of grinding diplomatic work, leaving little future for Taiwan to rejoin any international organizations. 

The final demand could be to reject the United States’ next arms transfer to Taiwan, which is rumored to include at least one Terminal High Altitude Area Defense (THAAD) battery. THAAD is a ground-based anti-ballistic missile system that intercepts ballistic missiles during their final, or terminal, phase of flight. South Korea’s THAAD deployment, while ostensibly aimed at deterring and defending against North Korean ballistic missiles, created a substantial political and economic rift between Beijing and Seoul, since it put possible American missiles within reach of China. The presence of even one such battery on Taiwan would be a tremendous signal that Beijing had effectively lost Taiwan.

Taiwan views THAAD as overly provocative and possibly inspiring a severe response from Beijing. So it was never a given that Taiwan would accept it or even consider it. The mere existence of this rumor, however, is evidence to Beijing that it has lost considerable influence over a process that it used to have a heavy hand in.

The crisis also comes roughly one year before Taiwan’s next presidential election. President Tsai Ing-wen’s Democratic Progressive Party (DPP) was, as of one week ago, expected to sweep the elections again as it had in 2019. She has, until now, amassed an impressive array of diplomatic accomplishments, taking advantage of China’s weakening global position and President Trump’s brash anti-Chinese foreign policy to make broad and partially successful attempts to shift Taiwan out of China’s economic orbit. Her successor has already been buoyed by these accomplishments, promising more of the same. In the days since the Penghu Islands incident, however, members of the more China-friendly Kuomintang (KMT) party have publicly harangued the DPP for what it sees as reckless provocations and posturing towards independence. This debacle could cost the DPP the next round of elections.

As Taiwan waits for China’s next move, it should expect Matsu and Kinmen islands, mere kilometers from China’s coast, to be China’s next targets if the situation escalates. It should also pressure the United States and its allies to form a stronger response. While China has lost some of its economic clout, it is still of vital importance to global supply chains, so general sanctions are likely out of the question especially as a real military conflict isn’t expected. But countries could still restrict movement and freeze funds of Chinese political and military officials. Stronger moves against Chinese firms in foreign countries are certainly possible, but could invite retaliation as well. Beijing wants Taiwan to feel that its recently assertive foreign policy brought this situation about and to serve as a warning for the future. Without significant support from the international community, this might just be the lesson Taiwan walks away with.


Jonathan Stutte

Jonathan Stutte is an English language business consultant in Mannheim, Germany. He holds a Bachelor of Arts in Linguistics from Truman State University and a Masters of Di-plomacy and International Commerce with a focus on National Defense Policy from the Patterson School of Diplomacy and International Commerce at the University of Kentucky.

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