China’s “Subprime Mortgage Crisis” Avoided? Downscaling Real Estate Tax Might Have Saved China

Hello, everyone. Welcome to Zooming In China. I’m Simone Gao.

There is always a great deal to talk about in China, but perhaps the biggest topic right now is the real estate tax that Xi Jinping wants to implement and the resistance to it.  The topic is not new. Neither is the resistance. Since 2003, well before Xi Jinping’s rule, the Chinese government has been considering this tax. In 2011, they implemented pilot programs in Shanghai and Chongqing, but those programs taxed only higher-end apartments and second homes, at rates between 0.4% and 1.2%. 

Now, a decade later, the State Council, the top decision-making body of the Chinese government, has announced it will roll out a pilot of a broader real estate tax in some regions. They declined to name the regions or to provide more public details about the properties that would be taxed or the amount of the tax, but many experts expect real estate hot spots Zhejiang, Shenzhen and Hainan to be targeted. The pilot program is expected to last for five years before the government determines whether or not to roll the program out to the entire country.

This smaller-scale rollout is a far cry from the original desire of Xi Jinping and the Communist Party government to create a tax that some experts say would lead to one of the most profound changes to the country’s real estate policies in a generation. So, why would Xi trim down a country-defining change when he has the power to implement and enforce it? Might the timing of this change show a compromise meant to appease Communist leadership ahead of the Sixth Plenary Session in which Xi will likely be granted a level footing with Mao Zedong and Deng Xiaoping, the party’s widely recognized supreme leaders?

I do not believe this compromise is related to the Sixth Plenary Session. The battles for that session have already been fought and won by Xi Jinping, as we have seen with the October 18th announcement published on the official website of the Chinese government. In that report, they announce that the Political Bureau of the Communist Party of China Central committee held a meeting to discuss the resolution to be submitted for the Sixth Plenary Session and the result was the resolution was approved. 

The resolution says that the Chinese Communist leaders, with Mao Zedong, Deng Xiaoping, Jiang Zemin and Hu Jintao as the main representatives, had led the Chinese people to great achievements, but Xi Jinping led the country to new achievements and to new valuable experiences, providing a system to guarantee a great rejuvenation of the Chinese nation. 

The feeling in this passage is that although prior leaders had some major achievements, the new, more complete, more reliable power for China is in Xi Jinping’s hands.

The resolution continues by saying that China has ushered in a great leap from standing up, getting rich and getting stronger. Standing up, getting rich, and getting stronger represents three people: Mao Zedong made China stand up, Deng Xiaoping made China rich, and Xi Jinping made China strong. This statement makes Xi Jinping stand shoulder-to-shoulder with Mao Zedong and Deng Xiaoping.

Another goal of this historical resolution is to reshape and unify the ideas of the top elites of the Chinese Communist Party, that is, to “pinch Mao and Deng together.”

In the Mao era, China was governed by communist fundamental principles. Those were expanded in Deng’s era to combine the market economy with the communist one-party political system. In the era of Xi Jinping, the Communist Party once again began to monopolize and control all parts of the country, including the market economy. The market economy is allowed to exist, but only under the strict control of the government. You can develop only as the government allows you to develop. There will be no more disorderly expansions like the big ecommerce platforms such as Alibaba.  And those who have benefited most from the market economy are now under the tightest scrutiny.

That scrutiny has now extended to the real estate market in China, especially after the near collapse of Evergrande and the end of a market built on the notion of growing big by borrowing big. That Xi Jinping is reigniting a conversation that had been put on hold for a decade, then, is not surprising at a time of clear power-grabs by Xi and his leadership team. What is surprising is his willingness to compromise and scale back that tax. 

The Wall Street Journal says that, according to people familiar with the matter and with internal discussions, most of the feedback Xi received about his real estate tax plan was negative, from not only regular Party members but also the Party elites. 

There are many reasons for the antagonism toward the new tax. One reason comes from older Party members who benefitted from real estate purchases at a time when prices were low and favorable to Party members but who now say they cannot afford the additional taxes. Many of those Party members own multiple properties and so may face a substantial tax bill. Who are the people likely to own multiple properties and so be most affected by this real estate tax? CCP officials and wealthy citizens. CCP officials gained multiple properties as a perk of the power they held. The wealthy purchase homes as an investment. 

Speculation about the original tax plan indicated that a 0.7% rate was possible, a rate that would have yielded 1.8 trillion yuan (or $281 billion) of tax revenue in 2020 and that could generate revenue equal to roughly 75% of land sales revenues, money that could be re-invested into the public services and infrastructure that are desperately needed to boost the Chinese economy and ensure the safety of its citizens. Over time, the tax could help local governments reduce their reliance on those land sales.

But, according to CNBC writer Evelyn Chang, “A nationwide property tax would likely require disclosures of business and government leaders’ real estate holdings, which means such a policy could meet resistance even as the country has been cracking down on corruption.” Revealing just how deeply the Party elite have benefitted from those positions may be a problem not just for them but for Xi Jinping as well.

In addition to pressure from the Party elite, and his own personal interests, Xi must also consider the catastrophic consequences that a sudden increase in real estate taxes could bring to the economy. These consequences stem from a core reason for the real estate tax, one Xi announced in August when he said that pursuing “common prosperity” in China would mean reducing “excessive” income and encouraging the wealthy to give back. 

The intent of “common prosperity,” is “to recreate a lot of new middle-class people who have affordable housing and affordable health care and affordable education. And in order to do this you need to make sure that housing is for living—that is, not speculation or for investment.” 

Theoretically, China’s real estate bubble will reduce once a real estate tax is imposed, because people will no longer hold houses for investments, instead allocating funds to other investments, such as capital market investments. According to China’s central bank, Chinese citizens currently have nearly 60% of their urban household assets held in real estate with only 20.4% allocated to financial assets like stocks and bonds. U.S. households have, on average, over 40% of their wealth in financial assets. 

But if common prosperity and the real estate bubble were the only concerns, real estate taxes would not have been placed on hold for a decade. This topic would have been addressed at the height of China’s real estate bubble, not as the bubble began to burst. 

Instead, Xi Jinping is levying real estate taxes in order to solve financial difficulties. The central government has no money, and its reliance on land sales cannot continue indefinitely. Then came the Evergrande disaster with secret dealings that led to their loans being paid on time—a situation that strongly suggests some level of government bailout—and billions being funneled into Chinese banks to prevent a collapse of the market. The government is out of money and quickly running out of options. 

But while the addition of real estate taxes may curb real estate speculation and drive prices down, if housing prices fall too sharply, many residents’ mortgages will default. The logic is simple. When house prices fall many people will not be able to afford a mortgage because real estate is their biggest asset, especially if they use one house to pay for another house. For others, they will simply walk away from a devalued house. For example, if you borrowed $5 million on a 30-year loan but, two years later, found that the home was now valued at just $3 million, would you continue to pay on the loan and take the $2 million loss? Or would you default and walk away? Many will walk away, leaving the banks in possession of billions in bad debt and a number of houses that are not worth the money that was lent.

Up to 80% of some Chinese households’ wealth is tied to real estate; when real estate depreciates, people’s core assets will shrink and their spending power will drop sharply, driving the entire economy into a sharp decline. This is the rhythm of economic collapse. Xi Jinping is nicknamed Chief Accelerator of China meaning he is pushing China over the cliff in an accelerated way. But, this time, even the chief accelerator saw the cliff just ahead of him.

That’s all for today. Thanks for watching Zooming In China. Please like, share, subscribe and donate to this program if you like my content. Thanks again and see you next time.

Will Beijing Attack Taiwan Sooner Than We Thought? Interview With James Fanell, Part 1

Simone Gao: (00:02)

Hello, everyone. Welcome to Zooming In China Chat. I’m Simone Gao. 150 Chinese fighter jets entered the southwest airspace recognition zone of Taiwan during the National Holiday of China two weeks ago, the most in the past 40 years. Taiwan’s defense minister said this is the most dangerous time for Taiwan. Would Xi Jinping really decide to invade Taiwan? Are the Taiwanese military and the U.S. military prepared for such a scenario? I had these discussions with James Fanell, former senior intelligence officer for China at the Office of Naval Intelligence and the chief of intelligence for CTF-70, 7th Fleet and the U.S. Pacific Fleet. Take a listen. 

Simone Gao: (00:56)

Thank you, James, for joining Zooming In China today. 

James Fanell: (01:00)

Thank you for the invitation, Simone. 

Simone Gao: (01:03)

Okay. Let’s talk about the possible war on the Taiwan Strait. First of all, the Taiwan defense minister recently said the People’s Liberation Army already has the capability to attack Taiwan right now, but they have to consider the cost. By 2025, their cost of invading Taiwan would drop to the lowest. What do you make of it? Can you explain what he meant exactly? 

James Fanell: (01:30)

Well, I think that the defense minister was, uh, specifically referring to, um, what I characterize as the decade of concern, which is based upon the, uh, the facts that who’s in town and Xi Jinping had ordered, uh, the PLA to be ready to have the capability to militarily invade Taiwan starting as early as 2020. And I think at that point in 2020, uh, Xi had assessed that they have a modicum of a capability to conduct an invasion, uh, but they would like to be able to continue their modernization efforts as well as their, uh, comprehensive national power to use, uh, political warfare, information warfare, economic warfare, to continue to try to wear down, uh, the people of Taiwan and the leadership of the current administration, uh, to, uh, capitulate essentially. And so I think part of the calculus also is the strength of the United States resolve and where their capabilities will be. 

James Fanell: (02:44)

And so I think, uh, somewhere around mid-decade, what I call the decade of concern, because we all pretty much–not all, but I–believe that by 2030, China will have to make a decision whether or not to use military force or not. And so I think around 2025 will be a decision time, uh, for the leadership of the Chinese Communist Party and the PLA. And I think they’ll be looking for, as you know, there’ll be an election, uh, in, uh, November of 2024 for president. And if, if for some reason, uh, Trump or somebody like Trump were to come back into power, uh, Beijing would know then that they would have, uh, you know, basically no time in, in, in response because of a new administration would take much greater, presumably greater, actions to confront China than maybe we see right now.

Simone Gao: (03:41)

Right. Although 2024 is already very near, very close to now, but people are even worried about right now, you know, even before the 20th Party Congress, which is going to happen in 2022. So, you think right now there’s, I mean, what’s the possibility of having a war right now, before 2022? 

James Fanell: (04:03)

It’s very difficult to, uh, precisely determine when the PLA and the PRC would launch an invasion. Uh, and my personal assessment is it’s unlikely that Beijing would want to launch an invasion before their hosting of the Olympic games in 2022 and before the, uh, Party Congress, as you mentioned, uh, in later, in the fall of 2022. That said, it is still entirely possible, uh, that, uh, Xi and the Party could make the determination that now was the best time. As we know, in America in 2022, we will have mid-term elections and if a strong showing from a party like the Republicans, it’s possible that there could be, uh, more emphasis put on pressuring the Biden administration to take much more, uh, strong, uh, overt responses to Chinese action. So, again, these are timelines that are very difficult to determine, but my sense is is that, uh, they’re going to want to continue to at least, uh, enjoy the presence of the world’s attention for the Olympics. 

James Fanell: (05:16)

Even though they’ve now said they’re not going to have spectators. So, this announcement this last week that Beijing will not have spectators at the Olympics, uh, was a little bit of an interesting twist for me, uh, because it could mean that China possibly is preparing for something even before, or during, the Beijing Olympics. I don’t think it’s likely, but it’s entirely possible. And what we’re seeing from the PLA in terms of operational readiness training with these, uh, high amount of exercises this summer and fall and the air incursions that we’ve seen over the PRC’s 1 October Day celebrations, uh, those were very dramatic, but I’d remind folks, those were just tip of an iceberg in terms of the total capacity of the PLA Air Force and PLA Navy. 

Simone Gao: (06:04)

Right, right. Um, I just want to go back to, uh, the Taiwan defense minister, uh, a little bit. So he said right now, the PLA already has the initial capability to attack Taiwan. What does that mean exactly? Does that mean that, uh, you know, the PLA has the ability to attack Taiwan and the ability to fend off U.S. aid? What does that mean exactly? 

James Fanell: (06:31)

Well, I think we know that the PLA has a strategy for conducting an invasion of Taiwan, and it’s composed of various elements. Clearly, they will be using their new Strategic Support Force to conduct, uh, cyber, uh, type of actions, offensive actions to, uh, shut down critical infrastructure in Taiwan, even to shut down or disrupt, uh, networks and infrastructures in Japan where American bases are. And even in the United States to cause confusion and, uh, create, uh, uh, delays in the ability of the U.S. military and other militaries to get into the theater. So, that would be the first thing that they would do. And then the Chinese writings talk about, uh, a joint fire strike campaign, which is essentially, uh, launching the missiles of the Strategic Rocket Force, the ballistic missiles that they have, uh, launching them at key targets in Taiwan, uh, at Naval ports at, uh, airfields, at garrison locations of the Taiwan Army, uh, at supply centers, at critical choke points, uh, at rail or at, uh, transportation hubs and things of this nature. 

James Fanell: (07:50)

So, those missiles would be flying into Taiwan in the midst of a cyber attack. And then once that is accomplished almost simultaneously, but after the missiles are flown, uh, the PLA air forces would then establish what they call a joint, um, uh, air, uh, an air superiority over the island. And so you would have the joint fire strike campaign, a joint anti-air raid campaign, which is the air component which would prevent any Taiwan air forces that remained from the strike campaign. Uh, those air forces would be either targeted on the ground, or if they are able to get up, they would be taken out in the air so that Taiwan would have, uh, China would have, and the PLA would have, air superiority over Taiwan, would be able to prevent, uh, U.S. air forces or Japanese air forces from getting in over Taiwan, which would allow them the final segment of the, uh, plan, which is the, uh, island, uh, invasion campaign to come across the Strait. 

James Fanell: (08:53)

And to be able to actually not have a contested landing on beaches where there’s barbed wire and tank, uh, restrictions, but they would actually be able to take maybe some of the key ports or airfields where they could actually come in with massive amounts of PLA troops that would be able to then, uh, conduct combat operations into the island. And so these phases, uh, a cyber event, a joint fire strike, uh, joint anti air raid campaign, and then the island landing campaign would be conducted in a, in a, in a sequential order but a couple of those up front. The cyber and the fire strike would be conducted almost simultaneously with the air, uh, activities. And actually, I think Chinese doctrine now is sophisticated enough that they would be able to actually do fire strikes. And when they would launch, uh, strikes, then they would have aircraft that would operate over. 

James Fanell: (09:47)

And then if they saw that there was still remaining targets that needed to be struck with ballistic missiles, the air forces would retreat back over the mainland, and they would restart relaunching, uh, missile strikes in, in a sequence like that. So, this is exactly how they would do that. And they’ve been practicing each element of that over the last two decades. First, they’ve been acquiring, uh, acquiring over two decades of military modernization, acquiring these materials, these ballistic missiles, these flighters, these, uh, naval vessels, uh, these helicopters, amphibious carriers, all of this. And they’ve been training in a complex electromagnetic environment up and down the coast of China from the North Sea fleet and the Bohai, inside the East China Sea and in the South China Sea, and across the Strait from Taiwan. 

Simone Gao: (10:39)

Okay. That’s a very complicated plan. And if they have been developing this plan, would you say this is the most likely battle plan that they will launch? 

James Fanell: (10:51)

Yeah, I think it’s entirely likely that they will, uh, this is the, it may sound complex, but it’s very, it’s pretty basic. It’s neutralize your enemies, command and control with cyberwarfare attacks, launch ballistic missiles to take out the key ports and airfields, establish air superiority so that your aircraft can control anything that happens in the airspace over Taiwan, and then you start the invasion. Uh, so that it would be, you know, their plan is to make it almost impossible for Taiwan’s military to be able to launch a counterattack against the invading forces that had come across. That’s the strategy. Included in that is also this idea of, uh, uh, counter-intervention strategy, which is to keep the United States and other foreign militaries outside of the theater of operations. We call it A2AD in the U.S., it’s called anti-access area denial, but it’s this idea that they would also use ballistic missiles, like the DF-21D or the DF-26, which can range Guam, the DF-26 and the DF-21D, can range past the first island chain and be able to target U.S. Navy aircraft carriers. And you just saw this last, uh, week or so a large exercise with two U.S. Navy aircraft carriers, the USS Ronald Reagan, USS Carl Vinson, uh, the United Kingdom’s Queen Elizabeth, and then a Japanese amphibious carrier, uh, the Ise. So those missile systems, the DF-21D and the DF-26, are specifically designed to sink large, big floating aircraft carrier-type ships. So, those missiles would be used as well as a counter-intervention strategy to keep supporting forces from Taiwan at bay. 

Simone Gao: (12:42)

How powerful are those Chinese missiles? Are they able to keep the aircraft carriers out of the area so they can’t function? 

James Fanell: (12:50)

Well, there’s been a lot of debate over these missile systems, these anticarrier ballistic missiles, and for a long time, uh, since the, you know, the late 2000s–2008, 9, 10–uh, we were learning about these missile systems and then for the next five, ten years, people were debating their efficacy and whether or not they were effective against, uh, targets at sea. And many critics of the missile systems pointed to the fact that China had never tested these missiles at a target at sea. Um, that’s not entirely true, but suffice it to say last August, in 2020, uh, China shot a salvo of missiles, two from the DF-21D and two from the DF-26, we believe, uh, at, uh, a maneuvering target, uh, in a closure area south of Hainan Island. So, it was a signal, uh, to the United States and Japan and others that yes, China’s missile systems are effective and have been tested against a maneuvering target at sea. Does that mean that they’re, they’re 100% accurate each and every time? No, our, our ships, uh, have, uh, uh, capabilities to, uh, uh, deceive incoming missiles. The missiles themselves are traveling at a high rate of speed, and if you can deceive their seekers, uh, just a little bit, they will miss, because it’s very difficult to hit a, hit, a moving ship, even a big aircraft carrier that’s, uh, a thousand feet long. 

Simone Gao: (14:17)

Okay. But what if they, what, what if they launched like hundreds of missiles? I mean, one of those will land on the aircraft carrier, right? 

James Fanell: (14:27)

Well, that’s the strategy that China would use. You know, the, the old saying that, uh, quantity has a quality all of its own. So, if you know that your missile system has an error rate of, uh, 10% or 15%, whatever it is, well, then you launch more missiles to ensure that you have the probability on your side that you’ll have a chance to hit one of these, uh, big, uh, uh, large-deck carriers. And just hitting a carrier, uh, would have, uh, the, it doesn’t have to sink the aircraft carrier to have what we call a mission kill, which is to effectively take the carrier out of the fight because it can’t launch and recover aircraft. 

Simone Gao: (15:07)

Right. Right. So, if that’s the case, and it seems like that’s not very hard to do, because if they just launch bunch missiles, one of them will land on the aircraft carrier and the carrier will be out of the fight. Then, what will the U.S. do? 

James Fanell: (15:24)

Well, as I mentioned, we’re not totally, the U.S. is not totally unaware of this strategy of you sending a lot of missiles, and we’re not unaware of the capabilities of the missiles and how they’re configured and things of that nature, which I can’t talk about in detail. But what I can at least say is we have, we have the capability and the thinking that we’ve been working on for, for a long time to how do we deceive and disrupt a missile system like that? Whether we deceive it through, uh, sending a false signal of what our signature of the aircraft carrier looks like, maybe five miles away. If you were able to create a signature that said, well, it looks like the USS Ronald Reagan is not here, it’s over here, uh, that will defeat the missile system. There are other systems that we can do. 

James Fanell: (16:09)

We have a U.S. Cyber Command that has the ability to do its own offensive cyber operations. So, maybe you disrupt the command and control of the missile system before it’s even launched. So, there’s a lot of things that the U.S. military has the capability to do, but presumably, uh, you know, we have also considered the fact that these large-deck, uh, aircraft carriers could be taken out. So, what does the United States also have? Well, we have a series of, uh, other platforms. We have surface ships, which are not quite as capable, but they’re becoming more capable with, uh, uh, like the team LAAM, uh, Navy, which we have, uh, there was a new missile system that’s being developed. It’s actually been tested already. They shoot a T LAAM that can go and strike Chinese ships that would also be involved with the invasion. Uh, and then we have our submarine force. And so we have a number of submarines, nuclear powered submarines, that carry a variety of, uh, uh, vertically launched, uh, cruise missiles and attack missiles that could be used to also disrupt the Chinese invasion plan. 

Simone Gao: (17:14)

Hmm. Okay. Will America and its allies be able to defeat the PLA in a scenario like that? 

James Fanell: (17:22)

That’s the big question. And, and right now, I think the answer is more and more folks like me that have been giving warning about the PLA modernization for a couple of decades, um, we’re very, very concerned about the, uh, uh, the gap in military capabilities between the PLA and the U.S., uh, Indo-Pacific forces that are forward deployed into that region. Uh, and even the, you know, it takes a couple of weeks for aircraft carriers to get from the west coast of the United States across the expanse of the Pacific. So, uh, I’m very concerned that the balance of power is shifting into the PRC’s favor. And that is why I’m a strong advocate of building up our deterrent capability. And so we have the, we have, uh, uh, an existential threat in many ways, uh, from the PRC. Certainly Taiwan as an existential threat from the PRC and the PLA. 

James Fanell: (18:23)

And so it’s incumbent upon us that want to ensure freedom and democracy and liberty in this region, uh, is not overcome by the, by the Chinese Communist Party. We need to have the force structure and military that can deter, uh, the PRC from acting. And unfortunately to get those forces and get that force structure that would really deter China, it’s going to take a lot of time, beyond 2025. And this has been my worry for so long, which is when I first started giving these warnings, uh, over a decade ago, I, I was well aware that it would take awhile for the U.S. to be able to start producing the kinds of military equipment that would deter China. We don’t have those completely yet. We have some, and we’re, we’re working on it, uh, but is it enough to actually stop China in the conventional arena? 

James Fanell: (19:15)

And I’m not so sure it is, which leads to the other arena, which is the nuclear arena. And in that regard, the United States is still, uh, the world’s leading power when it comes to nuclear weapons. And so, I think there’s a place in this, uh, deterrent, uh, uh, strategy to deter the PRC from, uh, launching an invasion that would, you know, put 23 million people at risk. That the United States needs to communicate to Beijing that not only will we fight you conventionally, but you have to worry about whether or not we will use nuclear weapons. And that sounds crazy to a lot of people, uh, but right now we need to do that. And it’s not so crazy when we consider that in just the last six, seven months, China has already built, uh, constructed 350 new nuclear ICBMs, intercontinental ballistic missile silos, out in central and western China. Uh, so China recognizes that they’re behind in the nuclear, uh, arsenal, uh, race. And they’re now racing towards building a nuclear arsenal that could very quickly close that gap that the United States has over, uh, China. And so, we need to pay attention to that as well. 

Simone Gao: (20:34)

That’s it for today. Thanks for watching Zooming In China Chat. Please like, share, subscribe and donate to this program if you like my content. Our website is I’m Simone Gao, and I’ll see you next time.

Is Being the World’s Dominant Chip Supplier a Blessing or Curse to Taiwan? | Zooming In China

(YouTube subtitles transcription)

hello everyone welcome to zooming in china i’m simone gao in january 2019 xi jinping delivered its most important taiwan policy speech in the six years since he came to power she declared that unification with taiwan is one of the most important parts of the great rejuvenation of the chinese nation in fact taiwan must unite with china and china would not kick the can down the road forever did he imply that if a peaceful unification is not achievable china would take over taiwan during his lifetime and under his leadership now the whole world is depending on taiwan for chips how has this impacted america’s determination to protect taiwan i had these discussions with robert hammond chambers president of the u.s taiwan business council take a listen thank you rupert for joining zumi in china today thank you simone it’s it’s my pleasure always

okay let’s talk about tsmc in the context of the cross-strait relations recently i’ve heard an argument that if china occupied taiwan the whole world would be paralyzed because i mean if beijing decided to cut off the chip production from tsmc is this an overstatement well i think what it speaks to is the importance of taiwan in the semiconductor ecosystem simone i mean you identified tsmc and of course tsmc is arguably the most important semiconductor company in the world now given its technology particularly at the highest levels and its relationship with the global technology community if taiwan was severed if the island’s semiconductor manufacturing was severed from the global economy yes it would have ramifications across the world not just for supply chains which were seeing fact perhaps as an example and the tightness of supply in this in the auto industry uh you can magnify that across the entire global economy manufacturing would be impacted equity markets would be impacted and so on so yes it would it would have ramifications way beyond just the taiwan straight right right and i think that tsmc has really changed the cross uh straight uh relations quite a bit so the question is how much has tsmc changed america’s resolve to protect type one well i i i know you want to put it in the context of tsmc the company but i would continue to come back to the taiwan semiconductor ecosystem for of course tsmc is at the center of taiwan’s semiconductor community but there are many many companies that make up taiwan’s strength as a manufacturing base for chip manufacturing and and for uh for partnering with the rest of the world in this space how has it changed the calculation for the united states well it’s strengthened it there are many different issues about why taiwan is and will remain a critical partner for the united states for japan for the australians for the british and others globally of which its technology importance is a key feature and of course at the core of that is the semiconductor miracle that has grown on the island since the 1980s

right uh you know the recent news is tsmc is planning to build several more chip making factories in arizona beyond the one currently planned u.s domestic manufacturers such as intel is also planning on building factories in the area as is samsung and the biden administration is preparing to spend tens of billions of dollars to support domestic chip manufacturing so how significant it is this trend to the u.s and also to taiwan will this make uh tsmc and the rest of the you know taiwan’s semiconductor industry less significant strategically in the future actually i think simone it’s quite the opposite i think that tsmc and the semiconductor community from taiwan is only becoming more relevant more important for the considerations of american politicians and leaders the investment and commitment that tsmc is making here in the united states it’s huge at the highest technology levels five nanometer the possibility that as the arizona investment expands over time we may see three nanometer production and even higher as time progresses speaks volumes to how important tsmc places the importance tsmc places on its relationship with its american partners and customers as well as geostrategically the importance of the u.s taiwan relations what we’re seeing which is an excellent development is more balanced less less less focus only on one place for high in manufacturing particularly taiwan and more balance between taiwan and the united states for higher manufacturing that’s good for geostrategic politics it’s also good business and allows tsmc and the taiwan technology community to engage and service its global customers and partners which is a favorable outcome

okay that makes sense let’s talk about xi jinping uh do you think xi jinping has decided to take over taiwan within his lifetime well certainly xi jinping has made very clear that he has every intention of pressuring taiwan to accept a a uh to accept a political relationship with beijing with china along beijing’s lines that of course is at the core of the one china principle what is the one china principle the one china principle is there is only one china the people’s republic of china communist china of which taiwan is a part well taiwan isn’t a communist country it’s a it’s a flourishing democracy so for taiwan to uh accept the terms that mr uh she is is demanding is to accept that the democracy that taiwan has built on the island will go away and it will be replaced by authority authoritarian communist party rule from beijing well has as mr as mr xi settled that he will accomplish this only time will tell but he’s certainly demanding it at the moment in january 2019 in a speech regarding type 1 xi jinping said that taiwan must unite with china and the party will not kick the can down the road forever so if he has decided to take over taiwan within his lifetime what do you think would be a good window for him well who could know what the right timing is for china to undertake some sort of action my response to your question is that i think the chinese should be very wary of any action that undermines peace and security in the taiwan strait whether the gray zone activities that they have been pursuing of late the saltying of aircraft in taiwan’s adiz south of the island between taiwan and the philippines or other gray zone activities that limit and restrict taiwan’s ability to engage other countries in the world these all under all these actions undermine confidence in china’s role as a a responsible player in the global community um moving forward um you know certainly china’s best play is to act peacefully and magnanimously towards taiwan and seek cooperation and not confrontation

i don’t think if that’s very likely let’s talk about president biden biden said one of the main reasons for america to withdraw from afghanistan is because america wants to focus on china and his current strategy regarding china has three components competition cooperation and confrontation i was thinking would there ever be a scenario where you know in this post pandemic era in the face of a possible hard landing of the u.s economy america would need china more than before and in that case what would it mean for taiwan well i think that the the issue of economic instability whether in the united states or quite frankly simone in china is certainly one that analysts should consider about the ability to manage stable relations between china and the united states the two the world’s two largest economies that has to be a consideration but i believe here in the united states that the overall attitude towards china is one now steeped in confrontation and once steeped in pushing back on china’s behavior regionally and globally whether it’s military militarily or economically so it’s hard even in your scenario where the united states may be experiencing some economic challenges to imagine that that would curb america’s willingness to uh um to compromise on other areas of american national interest in fact i would imagine that that would probably strengthen america’s willingness not to be perceived as vulnerable in that moment and as a consequence be taken advantage of and i think that’s true for china as well if i had a concern frankly about u.s china relations moving forward in respect to the united states i think it’s probably over climate change cooperation and the extent to which american domestic politics may undermine broader american national interest as uh the left wing of the american democratic party push for some sort of climate accommodation with china that comes at the expense of all the other american national interests taiwan certainly being high on those priority lists but economic issues technology issues and so on

interesting last question what is your evaluation of the biden administration’s china policy so far i i have been impressed with the continuity that the biden administration has pursued in respect to the shift that mr trump made in 2017 when he was elected and that has been most welcome parochially for us on taiwan policy uh the biden administration through both the selection of top-notch personnel kurt campbell dan crittenbrink eli ratner there are certainly many others worthy of note but those are three who i would identify right off the bat as well as the pursuit of policies that consistently keep us national interest at the forefront keep pressure on china to live up to its obligations and to act as a responsible player in the global economy and a responsible economic partner to the united states has all been most welcome perhaps seymour you noted yesterday ambassador thai at the united states trade representative office gave a speech at the center for strategic and international studies in which he framed a trade policy that looks very similar to the one that mr trump and his colleagues pursued for us here at the u.s taiwan business council we welcome that and i would also note that while mr trump and his colleagues did not see fit to engage taiwan bilaterally on economic matters for fear that it might disrupt u.s china trade relations mr biden has in fact proceeded and a trade and investment framework agreement meeting was hosted this past summer and it did not have a negative impact on u.s china economic engagement my point to you is we can do important economic bilateral trade issues with taiwan and with china at the same time

interesting okay robert these are all my questions do you have anything else to add no simone i i think uh i love all of your questions i particularly like the last one i i did want to note for you that that uh i think it’s interesting now we’re looking at the the parliament in taiwan has just started its autumn early winter session running through to the lunar new year um you’ll note within uh the life you end session this autumn there are two important uh defense pieces of defense legislation their regular defense budget which again you’re seeing a significant increase in spending by the taiwan government and then we for the second year in a row we’re seeing a special defense budget for taiwan this one to focus in on capabilities that will deter the kind of adventurism that you were asking about in respect to the chinese um increased production of domestically produced missiles uh a naval aircraft that would complicate pla planning so my point to you simply is is that the sense of urgency on taiwan over the threat from china is very real and the us has been attempting to encourage taiwan to be more aggressive and to lean into this issue more and we’re seeing that now from the psy government and the dpp right from the last administration the trump administration i’ve heard from the senior office officers from the trump administration that their strategy is to let more countries to invest in taiwan so they have more tighter economic ties with taiwan and if china one is becoming you know so important to so many countries then taiwan would have more protection uh do you think the biden administration is also um you know adapting that strategy simone i love that point that you’re raising 100 the broader uh and deeper the economic relations taiwan has with the rest of the world the more the rest of the world is vested in ensuring of peace and security in the taiwan strait the way i like to describe it is there is so much more permission to invade to to engage taiwan today than there was in 2015-2016 when the focus was always on china getting along well with china and and the focus on taiwan was for taiwan to be quiet taiwan not to cause a problem tai want to keep the low profile now what you have is an assessment of taiwan based on the merits of taiwan of the relationship with taiwan and that has really opened things up economically of course that’s also been driven the last several years by the importance of the technology supply chain and taiwan’s role within it and of course as you astutely noted in several of your earlier questions the semiconductor industry simone is just such a critical piece of the global economy and who’s the most important country in the world in the semiconductor industry now in partnership with the united states and that’s taiwan those are the two most important countries that play in the semiconductor space i’m not suggesting there aren’t other important countries there are like japan holland for example but the two most important are the united states and taiwan right right and yes i just feel the dynamics of taiwan the u.s taiwan relations is different now which is which is awesome all right thank you robert um really appreciate you joining zumi in china today simone it’s always my pleasure thank you so much you take care you too that’s all for today thanks for watching zoom in china chat please like share subscribe and donate to this program if you like my content and also head over to my new membership website at zooming in tv you can get video audio formats of my shows full transcripts and in-depth reports available only to members i will also do live q a with members on the website just five dollars a month or fifty dollars a year please check it out thanks again i’m simon gao and i’ll see you next time