In 2005, two decades after Deng Xiaoping declared that “to get rich is glorious,” we joined an investment tour of China.
Deng had used the phrase in the late 1970s and early 1980s to encourage entrepreneurship and pull China away from strict communism toward a more market-driven economy. By the time we arrived, the experiment had gathered enough speed to redraw entire cities.
The final stop on the tour was Hainan Island.
Ostensibly, we were there to evaluate a rustic tilapia farm seeking foreign direct investment. The ride through the interior was bumpy and dusty. The fish farm looked far removed from the modern China advertised in Shanghai and Beijing.
Then we reached the south coast.
Around Sanya, a resort community was rising beside the South China Sea. Workers mixed cement by hand and pushed wheelbarrows up bamboo scaffolding, preserving the area’s rustic charm. Marriott had already opened the Ritz-Carlton Sanya at Yalong Bay, where we stayed. Hilton, InterContinental, Crowne Plaza and Rosewood were claiming beaches of their own nearby.
Every time we hear rumblings about “tensions” in the South China Sea, we can’t help but recall the images of the tilapia farm, bamboo scaffolding, foreign capital and the Ritz-Carlton, all occupying the same island, separated by a few miles of unfinished road.
Today, Chinese warships, coast guard cutters and survey vessels move from ports along that coast toward the Paracels, the Philippines, the Pratas Islands and the approaches to Taiwan.
This week, Taiwan told its commercial vessels to ignore boarding or inspection demands from the Chinese coast guard. Hsieh Ching-chin, deputy head of Taiwan’s Coast Guard, told lawmakers that ships east of the island should notify Taiwanese authorities and “not respond to the so-called boarding inspections.” Taiwanese patrol vessels would intervene if Chinese cutters attempted to enforce an order.
China had sent coast guard ships into those waters during June for what Beijing called a “special maritime traffic law-enforcement operation.” The cutters questioned passing ships about their origins and destinations while asserting jurisdiction in waters Taiwan regards as its own or open to international navigation.
No attempted boarding was reported. Taipei’s instructions have prepared its captains for the first one.
📅 The Myth of 2027
Chinese officials have never officially said they will invade Taiwan in 2027.
The date came from American intelligence officials and military commanders. The People’s Liberation Army (PLA) celebrates its centennial in 2027, and former U.S. Indo-Pacific commanders warned that Chinese President Xi Jinping had ordered the PLA to develop the capability to take Taiwan by then.
Capability gradually became a deadline in the public imagination. Television maps treat 2027 as though it were written inside a Chinese war plan, even though American intelligence assessments have not identified a fixed invasion timetable.
Xi would prefer to gain control of Taiwan without paying the military, economic and political costs of war. President Donald Trump’s experience in Iran is all Xi needs to shape his plans covertly.
That said, a credible threat of invasion still gives the Chinese leverage. Taiwan must spend more on defense. The U.S. is all too happy to sell them weapons. Japan and the Philippines, also U.S. allies, have revised their own military plans.
Global defense spending continues to climb as geopolitical tensions reshape government priorities. From Europe and the Middle East to the Indo-Pacific, nations are committing record sums to modernize their militaries, creating a long-term tailwind for defense contractors and the broader aerospace industry. (Source: GlobalFirePower)
Semiconductor companies, shipping firms and insurers must reconsider how much business they want concentrated around an island beside a rapidly modernizing Chinese military.
The 2027 date tells us when Xi wants the military option ready. It does not tell us when or even if he plans to use it.
⚓ Two Coast Guards, One Patch of Water
On June 7, four Chinese government ships entered restricted waters southwest of Taiwan’s southern tip. Taiwan sent seven coast guard vessels to meet them. Reuters obtained recordings of the radio exchange.
“These are waters under Chinese jurisdiction,” a Chinese officer announced. His formation was conducting a traffic law-enforcement mission, and the Taiwanese vessels were ordered not to interfere.
A Taiwanese officer replied that China possessed no sovereign rights in the waters east of Taiwan. Taipei later said it had expelled all four ships.
The June 7 standoff between Chinese and Taiwanese coast guard vessels marked another escalation in cross-strait tensions. While no military conflict followed, the incident added another layer of uncertainty to an already fragile geopolitical landscape. (Source: Taiwan’s Coast Guard Administration)
Chinese officials said the June patrol inspected 198 passing vessels, corrected violations involving three ships, conducted a hydrographic survey and patrolled waters containing undersea cables.
The Wall Street Journal reported that Chinese cutters also issued direct commands to foreign commercial vessels east of Taiwan. Ships sailing under several flags received radio instructions from crews asserting authority over their routes and cargo.
An analyst quoted by the paper said the activity laid the groundwork for stopping ships, boarding them, redirecting them toward mainland customs or refusing passage after an inspection.
The coast guard markings preserve an ambiguity that naval gray would remove. A warship stopping a merchant vessel would pose a military problem for governments. A white-hulled cutter demanding documents leaves captains, insurers and officials arguing over whether they are dealing with policing, coercion or the opening stage of a blockade.
A captain who stops, an insurer who rewrites coverage or a shipping company that changes course gives Chinese authority greater weight in the water.
🧭 From Hainan to the Pratas
China’s June operations stretched beyond the Taiwan Strait.
Taiwan reported coordinated activity involving coast guard cutters and survey vessels near the Pratas Islands, which lie between Hong Kong and southern Taiwan near shipping routes connecting the South China Sea with the Strait.
During one operation, a Chinese vessel broadcast that it was conducting law enforcement and declared that “Taiwan’s future lies in national reunification.” Taiwan dispatched its own ships and accused Beijing of creating the appearance of jurisdiction around the islands.
Chinese government vessels also entered restricted waters near Itu Aba, another Taiwan-controlled island deep in the South China Sea. Taipei said they came within 2.1 nautical miles of the coast before leaving.
Taiwan described the campaign as “multi-point, multi-form, and cross-regional.” Patrols east of Taiwan now connect with operations around the Pratas and Itu Aba, while survey ships work beside coast guard cutters, and military aircraft continue crossing the Strait’s old median line.
Hainan lies along the western edge of this arc. The resorts around Sanya face waters used by tankers, container ships, fishing fleets, survey vessels and the cables carrying Asia’s commercial data.
🚢 The Warships Are Already, “Always,” There
Semafor’s Lauren Morganbesser reported in June that Taiwan is now “almost always surrounded by five or six Chinese warships,” citing the Wall Street Journal.
Taiwan announced a five-day combat-readiness exercise based on a scenario in which a Chinese drill suddenly turns into an attack. The announcement followed the detection of 21 Chinese aircraft near the island, including fighters and surveillance planes.
Reuters accompanied a Taiwanese coast guard officer in June and reported that Chinese warships and cutters regularly cross the median line that once served as an unofficial buffer. Some approach Taiwan’s 24-nautical-mile contiguous zone.
China’s exercises now cover wider areas and involve forces already operating around the island. Taiwan’s drills increasingly assume they can continue beyond their announced conclusion, leaving officials less time to decide whether a rehearsal has become an operation.
Daily patrols collect intelligence, measure response times and familiarize crews with the waters. They also allow Beijing to practice parts of a blockade under the description of routine training.
🛰️ Mapping the Seabed
Chinese research vessels have operated near Taiwan and the Pratas while coast guard cutters assert jurisdiction above the water. Taiwan said the June patrol included a hydrographic survey and activity near undersea cable routes.
The Center for a New American Security reported in May that Taiwan suffered 28 human-caused subsea cable incidents between 2022 and 2025. Three were suspected or confirmed cases involving deliberate Chinese sabotage.
Older ships sailing under foreign flags complicate attribution. CNAS cited a Chinese-owned, Cameroonian-flagged cargo vessel reported to have damaged a cable near Keelung in January 2025.
Taiwan’s banks, manufacturers, ports, government agencies and military commands depend on those links. Repairs require access, calm conditions and time, while foreign registrations and uncertain evidence can leave officials arguing over responsibility after communications have already been disrupted.
John Robb described this form of conflict in Brave New War as “systems disruption,” a strategy aimed at the networks sustaining a modern society. He later told Wired that an attack on the right node could make an entire network “cascade into failure, very much like a line of dominoes.”
Around Taiwan, many of those nodes lie offshore.
🛢️ Energy, Chips and the Wider Bargain
Taiwan imports nearly all its energy. Oil tankers and LNG carriers must reach their ports, power stations must keep operating, and semiconductor factories require reliable electricity and water.
Bloomberg reported in April 2026 that Taipei planned its first joint exercise to escort vessels carrying oil and liquefied natural gas through a possible Chinese blockade.
A Chinese inspection campaign could change the economics of shipping before it stopped a single tanker. Insurance premiums would rise, routes would change, inventories would grow, and manufacturers would pay more to protect supplies.
Taiwan remains home to most of the world’s leading-edge semiconductor production. Those chips flow into data centers, artificial-intelligence systems, communications equipment, advanced weapons and industrial machinery.
The U.S. military restricts Chinese access to advanced semiconductors and manufacturing equipment. China controls major industrial capacity, commercial markets and much of the global drone supply chain.
Taiwan manufactures the chips both sides need. Its factories depend on machinery, specialty chemicals, fuel and components arriving by sea. Their finished products leave through the same ports.
A war would threaten the factories, engineers, power supplies and logistics Beijing would want intact after any successful campaign. Maritime pressure gives China leverage while preserving the industrial asset.
The energy contest extends beyond Taiwan.
Trump’s “super deal” with Saudi Arabia was intended to strengthen American influence over Gulf energy, investment, weapons and technology. Since then, the United States has conducted military operations in Venezuela and become directly involved in the war with Iran. The ceasefire with Tehran remains provisional, and Trump has little appetite for another escalation before the November midterm elections.
Saudi Arabia still depends heavily on the United States for security, but it has expanded trade, technology and military cooperation with China. Beijing has become Riyadh’s largest oil customer, while the kingdom has considered settling some trade in yuan and pursued Chinese partnerships in artificial intelligence, data centers and weapons production.
Saudi Arabia is balancing powers rather than replacing one patron with another. American weapons and security guarantees remain important, while Chinese demand, capital and technology give Crown Prince Mohammed bin Salman alternatives Washington once worked hard to prevent.
Riyadh also formally recognizes Beijing under the One-China policy. As Saudi economic ties with China deepen, the kingdom has little incentive to jeopardize them on Taiwan’s behalf.
Trump, therefore, enters the Taiwan dispute while trying to hold together a provisional settlement with Iran, manage oil prices before the midterms, preserve Saudi cooperation and keep Chinese technology out of Gulf infrastructure.
Xi can read a calendar just as well as Trump, even if the numbers on the calendar represent different histories and reference points.
🚁 Building the Hornet’s Nest
As we’ve detailed in our coverage of the US drone manufacturer Anduril, Taiwan’s military planning has increasingly focused on drones. The Ukraine and Iran conflicts serve as a proving ground for future conflict in its Strait, too.
Semafor’s Brendan Ruberry reported that an American drone manufacturer partnered with a Taiwanese technology company to build scalable systems for Taiwan’s armed forces. China still dominates much of the global drone supply chain, while Taipei has tried to create a domestic industry.
Taiwan’s effort suffered a setback when legislators removed the drone-production program from a recent budget. The Center for a New American Security (CNAS) a Washington, D.C.-based, nonpartisan think tank, published “Hellscape for Taiwan: Rethinking Asymmetric Defense” in February. CNAS’s proposed defense begins at the water’s edge, using aerial, surface and underwater drones to attack Chinese ships and exhaust their defenses before landing forces reach shore.
A senior American diplomat said this week that Taiwan needs a “hornet’s nest” of drones. President Lai Ching-te called the buildup of asymmetric capability “a race against time.”
🗣️ Xi, Trump and the Arms Package
Xi Jinping placed Taiwan at the center of his May summit with President Trump.
Chinese media reported that Xi said Taiwan was the most important issue in the U.S.-China relationship. Mishandling it could cause the countries to “collide or even enter into conflict” and put them in an “extremely dangerous place.”
The U.S.-China relationship has evolved beyond a trade dispute into a broader economic and geopolitical rivalry. Under President Trump and President Jinping, negotiations, tariffs and technology restrictions have become key drivers of market volatility, making the relationship one investors can’t afford to ignore. (Source: ChinaPower)
Beijing repeated the warning on July 1, urging Washington to approach Taiwan with “utmost caution.”
Trump discussed pending arms sales to Taiwan with Xi during the summit and later suggested the weapons package could become part of a broader negotiation. Semafor quoted a Brookings scholar saying the comment would “embolden Beijing to increase pressure on Taipei.”
Administration officials later sought to reassure Taiwan that American policy had not changed. A bipartisan group of senators wrote Secretary of State Marco Rubio before Trump arrived in China, reaffirming support for the Taiwan Relations Act and defensive weapons sales.
The package remains delayed while Chinese coast guard operations continue.
Taipei has told its captains to refuse inspections without knowing how quickly American forces would respond if China attempted to enforce one.
🇯🇵 The Wider Maritime Alignment
Japan’s position has become harder to separate from Taiwan’s.
Semafor reported that Prime Minister Sanae Takaichi’s description of a Chinese invasion as a potential “survival-threatening situation” alarmed Beijing. Japan has expanded military cooperation across the region while China accuses Tokyo of renewed militarism.
Australia has ordered 11 Japanese stealth warships. The Philippines is receiving six used Japanese escort destroyers equipped with anti-submarine and anti-ship weapons.
China cited maritime-boundary discussions between Japan and the Philippines when it began its June patrols east of Taiwan. Japanese territory lies close to Taiwan, American bases in Japan would be central to any U.S. operation in the Strait, and the Philippines sits beside the southern approaches.
Those relationships raise the cost of invasion while leaving each government to decide how much risk it will accept over a boarding demand, customs inspection or cable incident.
🌫️ A Quarantine by Installment
China’s recent operations have been conducted under the language of law enforcement, traffic regulation, hydrographic surveys, customs and maritime safety.
A selective campaign could begin with ships carrying military cargo, tankers ordered to provide manifests, and foreign container vessels instructed to alter course or exercise zones kept closed beyond their announced duration.
Shipping companies would evaluate routes, insurers would reprice coverage, manufacturers would revise inventories and energy companies would prepare alternate delivery plans before governments agreed on whether China’s actions constituted inspections, a quarantine or a blockade.
The Wall Street Journal has reported direct Chinese commands to foreign commercial vessels. Bloomberg has reported Taiwan’s plans to escort energy ships. Semafor has reported the routine presence of Chinese warships, while Reuters has documented coast guard and survey operations from Taiwan’s eastern waters to the Pratas and Itu Aba.
🔮 The Second-Half Forecast
Two years ago this week, the argument over jurisdiction moved from radio warnings to an actual boarding.
On July 2, 2024, two Chinese coast guard ships seized the Taiwanese fishing vessel Ta Chin Man 88 roughly 27 miles northeast of the Kinmen Islands while it was fishing for squid.
Five crew members were detained: the Taiwanese captain and four migrant workers from Indonesia.
Taiwan dispatched patrol vessels to recover the boat. Chinese ships blocked them and ordered them not to interfere.
Beijing said the fishing vessel had violated a summer fishing ban and used illegal trawling nets. Taiwan’s Coast Guard Administration described the seizure as a gray-zone tactic intended to test Taiwanese forces and assert Chinese jurisdiction in the Strait.
The incident occurred as Beijing introduced judicial guidelines aimed at what it calls “Taiwan independence die-hards.” The rules allowed for life imprisonment or the death penalty in cases deemed to have caused serious harm to Chinese sovereignty. Beijing also claimed jurisdiction over people who were not physically present in mainland China.
Taiwan responded by raising its travel alert for mainland China, Hong Kong and Macau and advising its citizens to avoid unnecessary travel.
A similar incident involving a merchant vessel, energy tanker or foreign-flagged ship could create far greater tension in late 2026 or early 2027.
Taiwan has now instructed captains to refuse Chinese boarding demands. China continues sending coast guard cutters into waters where it claims the right to inspect them. Chinese naval forces remain close enough to support those cutters, while Washington’s arms package remains delayed and Trump’s attention remains divided among Taiwan, Iran, Saudi Arabia, Israel and the approaching midterm elections.
The next confrontation could begin when a Chinese coast guard ship orders a commercial vessel to stop. The captain refuses, Taiwan dispatches patrol boats and Chinese ships block them. Washington and Tokyo would then have to decide how much risk they were prepared to accept, while insurers and shipping companies made decisions of their own.
We anticipate an incident like the seizure of Ta Chin Man 88 will trigger, either by design or by accident, extreme tensions in the Taiwan Strait in late 2026 or early 2027. The prospect puts further stress on Trump’s timeline in the Persian Gulf.
~ Addison
P.S. Our latest Grey Swan contributor, Moh Khashoggi, maintains a residence in Taipei. His observations on how Taiwanese families, business owners and investors see their economy developing beside the mainland as these maritime confrontations move closer to ordinary commercial life have become critical to our understanding of the next potential conflict that could pockmark Trump’s second term.
