A new study by the German Marshall Fund of the United States has outlined the potentially massive and catastrophic consequences for China should a military operation against Taiwan fail. The report indicates that Beijing would face significant challenges across its economy, military capabilities, social stability, and international standing.

The research, which analysed two scenarios ranging from a minor skirmish and maritime blockade to a full-scale invasion, found that the costs to China would be far-reaching and non-linear, with various tipping points that could dramatically escalate risks.

Economic and Military Repercussions

Economic experts Logan Wright and Charlie Vest of Rhodium Group projected costs running into trillions of dollars, exacerbated by financial market reactions and shifts in capital flows. They explained that these costs would increase non-linearly due to financial market reactions and shifts in capital flows and exchange rates.

Joel Wuthnow, an analyst specialising in Chinese foreign policy and the People’s Liberation Army (PLA), concluded that military losses would be severe and long-lasting. Such losses, he noted, could jeopardise future operations and strain party-army relations for the Chinese Communist Party (CCP) leadership.

Social Stability and International Standing

Sheena Chestnut Greitens and Jake Rinaldi, researchers in Chinese foreign policy and internal security, highlighted the treacherous consequences for social stability should China’s economy and military be significantly damaged. This damage could lead to increased concerns about domestic unrest.

Zack Cooper, focusing on U.S. strategy in Asia, suggested that the international costs of a major conflict could set China back decades on the global stage. He emphasised that Chinese leaders should not underestimate these diplomatic and reputational implications.

Xi Jinping’s Calculus and Risks

The study underscored that President Xi Jinping’s personal risk calculus is crucial. Having linked his legitimacy to the “Chinese Dream” of national rejuvenation by 2049, a failed military venture against Taiwan could result in massive economic disruption, catastrophic military losses, significant social unrest, and devastating sanctions. These outcomes, the report suggests, could transform his vision into a “nightmare” and undermine his political authority.

Despite these substantial risks, the analysis noted that national leaders might still act due to perceived benefits or political considerations. Xi might fear that inaction could be more personally costly, leading to questions about his legacy or challenges from hard-liners within the party or army.

The report also pointed to historical precedents of misperception leading to conflict, citing the Korean War and World War I. Concerns were raised that top Chinese military officers might be unwilling to provide President Xi with an unvarnished assessment of their capabilities, potentially leading to an underestimation of costs and risks, akin to Russia’s invasion of Ukraine.

Deterrence and Future Paths

The inexperience of the PLA in major high-stakes conflicts since China’s brief invasion of Vietnam in 1979 was cited as a potential factor that could breed either caution or risk-taking. Chinese leaders might overestimate their own capabilities or underestimate those of Taiwan, the United States, and third parties, particularly within a personalist dictatorship where officials may have few incentives to provide negative news to their leader.

Alternatively, Beijing might initiate an operation believing it has no better option, perhaps triggered by events such as a Taiwanese declaration of independence or U.S. diplomatic recognition of Taiwan. There is also a risk of a limited military operation spiralling into a wider conflict, especially if Chinese officials mistakenly believe de-escalation pathways are readily available and long-term costs manageable.

For deterrence to be effective, policymakers in Taipei, Washington, and allied capitals must demonstrably show their capability and commitment to repel a Chinese military operation, underscore the substantial costs of failure for Beijing, and present credible alternatives to military action.

The study concludes that a failed Chinese military operation against Taiwan would incur profound and lasting negative consequences across multiple critical domains for China, reiterating the significant and unpredictable risks inherent in such an endeavour.