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Taiwan’s Conscription Reform, Supply Chains Bifurcate, The Philippines Balancing Act, US Building Advanced Over-the-Horizon Radar on Palau
News Brief (1/5/23)
Happy New Year to everyone. All of us at Vermilion are expecting that 2023 in the Indopacific will be significantly more volatile than 2022. Keep your ears open and your eyes peeled for all new developments.
The most important article of the past two weeks is from The Diplomat. These authors break down US export restrictions on China and show how European countries are trying to negotiate their way out of complying with them. We expect that in the coming years, US-China economic decoupling combined with continued energy reliance on Russia will result in a significantly weakened EU. European countries will continue to act in their own self-interest to the detriment of the Union as a whole.
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Taiwan’s Conscription Reform
VERMILION: Lengthening conscription from 4-months to 1 year and adding realistic training is a step in the right direction for Taiwan. This move is supported by effectively every political party in Taiwan (no easy feat) and underscores how serious the PRC threat is perceived in Taipei. Questions around training and effectiveness of the program will only be addressed once training is underway.
From 2024, compulsory military service for men will be extended from the current four months to a year and conscripts’ pay will be quadrupled to bring it in line with the minimum wage, said Tsai.
In addition, the defence ministry pledged to transform conscripts’ training — currently ridiculed as a waste of time because of its lack of shooting practice and focus on menial tasks — into a rigorous programme featuring wartime scenario simulation.
Po Horng-huei, vice minister of national defence, said the new training regime would also include Stinger missiles, Javelin anti-tank missiles and Kestrel anti-armour rockets. These are all weapons the US has long pushed Taiwan to use to build its capability to deter an invasion by a Chinese military that is vastly superior in both quantity and financial power.
According to the proposed reform, Taiwan's voluntary force, which constitutes the backbone of Taiwan's armed forces, will be responsible for defending the country's territory, airspace, and surrounding waters.
Conscripts serving their mandatory one-year-service and reservists, meanwhile, will be responsible for handling homeland defense, guarding military posts and key infrastructure, while serving as backup forces for the armed forces, Tsai said.
Civil defense units will be mainly responsible for playing supportive role during wartime and help disaster relief efforts in peacetime, she said.
Meanwhile, Tsai also announced that Taiwan's military will introduce the latest training models from the United States and other countries that have actual combat experience to beef up training programs for conscripts.
At a Tuesday press briefing on "adjusting the structure" of the military and defense, Taiwan regional leader Tsai Ing-wen announced to extend mandatory military service from its current four months to one year starting from 2024.
The plan, which is strongly opposed by Taiwan people due to non-peaceful associations, is viewed by experts from the Chinese mainland and Taiwan as a deplorable decision to push Taiwan people, especially youth, to the front line of a possible military conflict under the irresistible pressure of the US.
Tsai, who has resigned as president of the secessionist Democratic Progressive Party (DPP) after a fiasco in local elections in November, described the decision as "extremely difficult." Hyping the "military threats" from the Chinese mainland, Tsai said that "as long as Taiwan is strong enough, it will not become a battlefield," Taiwan-based media reported.
VERMILION: It is not a surprise that many in China oppose this reform. In contrast to what this author might believe about Taiwanese opposing this plan, it has overwhelming public support with approximately 73% of citizens being in favor of the decision.
Supply Chains Bifurcate
VERMILION: Although seemingly piecemeal, US-China economic decoupling has arrived and it is only going to get worse from here. Various multinational corporations are beginning to bifurcate their supply chains to satisfy the US and Chinese markets. The days of foreign high tech manufacturing in China are numbered.
The US is a particularly important market for Panasonic’s car battery business. The Japanese group runs a $5bn gigafactory in Nevada with electric vehicle maker Tesla.
Panasonic plans to invest $4bn to build a plant in Kansas, a decision Kusumi said was aided by the recent passage of US president Joe Biden’s Inflation Reduction Act, which includes $369bn of incentives to fund clean energy efforts.
The Kansas factory is likely to be partly funded by the ¥400bn ($3bn) Panasonic has set aside to invest in growth areas such as EV batteries, supply chain software and air conditioners over three years until March 2025. Another ¥200bn has been earmarked to develop hydrogen fuel cells and other new technologies.
But Panasonic has also made an aggressive wager on the expansion of its home appliances and housing equipment business in China, where local management is given autonomy over its operations, in marked contrast with other regions.
Kusumi said the company might try to sell products made in China in Asian markets that do not fall under US export controls designed to obstruct Beijing’s access and ability to develop advanced semiconductors.
Washington moved quickly in 2022 to deny China access to advanced chips. With the Chips and Science Act, the US is luring chip manufacturing back to American soil with grants. To receive subsidies for plants built in America, Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics might not be able to build advanced facilities in China, making it much harder, perhaps impossible, for China to keep up with the US.
The US also updated export controls in October, restricting China’s access to certain advanced chips, equipment and US personnel. Furthermore, the Biden administration has stepped up diplomatic pressure on its allies to stay on the same page in restricting advanced tech exports to China.
Taiwan, the self-ruled island that China regards as a renegade province that it may take over by force if necessary, is clearly drifting away from China’s orbit. TSMC, the world’s most advanced chip foundry, is building a plant in Japan and may consider a second one there. It is also flirting with the idea of setting up its first fab in Europe in addition to its new plant in Arizona.
TSMC’s plan to spend US$40 billion to make advanced 4-nanometre chips in the US contrasts with its plan to spend US$3 billion to expand production at its Nanjing fab in mainland China, which produces mature 28-nm node chips. Apart from US restrictions, Taipei has long had restrictions barring any Taiwanese chip makers from investing in advanced technologies in mainland China to keep a technological gap of at least two generations.
VERMILION: Companies are scrambling to find new places to set up shop and there just aren’t enough low cost skilled labor centers to satisfy current demand. We expect that Mexico will be a big winner in this supply chain reshuffle.
The Philippines Balancing Act
VERMILION: Marcos Jr, the President of the Philippines, visited China as it expands its Shenhai-1 gas field in the South China Sea. This comes as China’s energy demand continues to grow and the CCP seeks to stop the Philippines, a key SCS player, from growing closer to the United States. China offered a joint exploration deal to the Philippines as a way to offset tension over ongoing territorial disputes and pull the Philippines out of U.S. orbit. Marcos Jr. is trying to get the best deal by appealing to both sides.
Philippine President Ferdinand Marcos Jr. flew to China on Tuesday for a three-day state visit, saying he looks forward to his meeting with Chinese leader Xi Jinping as they work to boost bilateral ties. “As I leave for Beijing, I will be opening a new chapter in our comprehensive, strategic cooperation with China,” he told officials and diplomats, including the Chinese ambassador, prior to boarding his flight from an air base in the capital.
Alluding to the two countries’ territorial dispute in the South China Sea, he said he looks forward to discussing bilateral and regional political and security issues. “The issues between our two countries are problems that do not belong between two friends such as Philippines and China,” he added. “We will seek to resolve those issues to mutual benefit of our two countries.”
Beijing has said it will make relations with Manila a priority as it seeks to stop the country moving further into the US orbit. Xi says China wants to settle its disputes through consultation, but does not mention the South China Sea – a frequent area of complaints for Manila.
Chinese President Xi Jinping has offered to open talks on a joint gas and oil exploration deal with the Philippines, as he pledged to make relations with Manila a diplomatic priority. It is Marcos’s first visit to China since he succeeded Rodrigo Duterte as president in June, although he and Xi met in Bangkok in November on the sidelines of the Asia-Pacific Economic Cooperation Summit.
The trip is seen as crucial to China’s efforts to stop a key member of the Association of Southeast Asian Nations getting closer to the United States amid the heightened rivalry between Washington and Beijing.
US Building Advanced Over-the-Horizon Radar on Palau
VERMILION: The island of Palau, south of Guam, is located at the southern end of the second island chain. OTH radar is generally used to identify missiles, aircraft, and maritime vessels over a very wide swath of territory over a very long range. More radars are always better, and this system will give the US better situational awareness within the Philippine Sea up to the first island chain. Critically, it appears to be an upgraded quick-setup/quick-disassemble type of system.
A modern OTHR on Palau will be able to support space-based and terrestrial-based sensor and weapon systems for the potential cueing and early warning of incoming hypersonic weapons, cruise missiles, ballistic missiles, enemy aircraft, and ships. Most of all, OTHR allows for persistent monitoring of specific areas that would otherwise require many types of radar systems forward deployed over a huge area on the ground, in the air, and at sea at any given time, which may not even be possible.
Not Enough Hours in the Day Links
Douyin Bans Pro-LGBT Content - IPVM
US Moves to Reopen Solomon Islands Embassy to Counter China - Military.com
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