China honing abilities for a possible future attack, Taiwan defence report warns

China is intensifying military activities and employing advanced "hybrid warfare" tactics, including AI-driven cyberattacks and social media manipulation, to undermine Taiwan's government and defense capabilities, according to Taiwan's defense ministry. The report details increased "grey zone" harassment, the potential for converting military drills into surprise attacks, and the use of civilian vessels for military transport, signaling a growing threat to regional peace. In response to this comprehensive pressure, Taiwan is accelerating its military modernization program, pledging to allocate 5% of its GDP to defense by 2030, highlighting escalating geopolitical risks in the Indo-Pacific.

Analysis

TAIPEI, Oct 9 (Reuters) - China is increasing military activities near Taiwan and honing its ability to stage a surprise attack, as well as seeking to undermine trust in the government with "hybrid" online warfare tactics, the island's defence ministry said on Thursday. Democratically-governed Taiwan, which China views as its own territory, has faced increased military pressure from Beijing over the past five years, including at least seven rounds of major war games around the island since 2022. The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. Advertisement · Scroll to continue "The Chinese communists have adopted routine grey zone harassment tactics, combined with joint combat readiness patrols, targeted military exercises and cognitive warfare, posing a comprehensive threat to us," the defence ministry said in a report released every two years. Grey zone refers to non-combat operations designed to put pressure on Taiwan such as coast guard patrols, damage to undersea cables and flying balloons. China's coast guard is expanding its activities around Taiwan and may in future take "aggressive containment measures" in concert with the military while rehearsing attack scenarios, the report said. Advertisement · Scroll to continue SHIFTING A DRILL TO AN ATTACK Beijing is also using "hybrid warfare" to weaken people's trust in the government and support for defence spending, and using artificial intelligence tools to weaken Taiwan's cybersecurity and to scan for weak points in critical infrastructure, it added. "Through both conventional and unconventional military actions, it aims to test its capabilities for attacking Taiwan and confronting foreign forces," the ministry said. China's defence ministry did not respond to a request for comment. China has never renounced the use of force to bring Taiwan under its control. China could also try to suddenly shift drills into active combat mode to catch Taiwan and its international supporters off guard, posing a significant threat to regional peace and security, Taiwan's ministry added. In recent years, China has been extensively using civilian roll-on/roll-off merchant vessels for military transport operations and continues to develop specialised equipment for beach landing operations, the ministry said. MANIPULATING SOCIAL MEDIA The report said China is using a "professional cyber army" to manipulate social media accounts and flood them with misinformation to sow division in Taiwanese society and weaken trust in the government. Chinese state media outlets and collaborators have also worked to weaken the will to fight, it said. The ministry added China has also been using deepfake technology to make videos and utilising AI to "generate polarising political rhetoric". China considers Taiwan President Lai Ching-te a "separatist". Lai rejects Beijing's sovereignty claims, saying only the island's people can decide their future. Taiwan's government has embarked on a military modernisation programme and pledged to spend 5% of GDP on defence by 2030. The report was released one day before Lai gives his key national day speech. China last year held war games after that same event in what it said was a warning to "separatist acts". China's last formal war games around Taiwan took place in April, though its warplanes and warships operate almost daily in the skies and waters close to the island. Reporting by Yimou Lee and Ben Blanchard; Editing by Himani Sarkar and Kate Mayberry Our Standards: The Thomson Reuters Trust Principles. China is significantly intensifying its military coercion against Taiwan, employing both conventional and "hybrid warfare" tactics, according to Taiwan's defense ministry. The report highlights increased "grey zone" harassment, including coast guard expansion and the potential for aggressive containment measures, alongside rehearsing attack scenarios. Beijing's use of civilian vessels for military transport and specialized beach landing equipment further indicates an escalating physical threat. Beyond traditional military maneuvers, China is actively utilizing advanced "hybrid warfare" techniques to undermine Taiwan's government and societal cohesion. This involves leveraging a "professional cyber army" for social media manipulation, misinformation dissemination, and employing AI tools for deepfake technology and scanning critical infrastructure for vulnerabilities. These tactics aim to weaken public trust and support for defense spending, posing a comprehensive non-kinetic threat. In response to this multi-faceted pressure, Taiwan is accelerating its military modernization program, committing to allocate 5% of its GDP to defense by 2030. The sustained military pressure, including at least seven rounds of major war games since 2022 and the potential for drills to transition into active combat, signifies a heightened geopolitical risk in the Indo-Pacific region. This situation maintains an "extremely negative" sentiment with a high market impact, reflecting increased regional instability.

Key Decisions for Investors

• Investors should reassess geopolitical risk exposure, particularly for portfolios with significant investments in the Indo-Pacific region or companies with direct exposure to Taiwan.
• Monitor key supply chains, especially in the semiconductor sector, for potential disruptions or increased production costs due to rising regional tensions and cyber threats.
• Consider allocations to defense contractors or cybersecurity firms, as Taiwan's commitment to 5% GDP defense spending by 2030 and increased regional cyber warfare suggest growing demand.