The Strategic South China Sea is Turning into a Possible Military Flashpoint for Investors
The South China Sea is vital to investors because all export and import trade from China, Vietnam, Laos, South Korea, and parts of Japan and The Philippines travel these seas worth between an estimated $2.8 and $5.3 Trillion US dollars per year. How will changes affect investors?
- Plus, 25% of all oil transported by sea freighters also travel through these essential waters.
- If a country tries and succeeds in trolling and tolling, these waters will control a portion of the world’s economy. So, the stakes are high
- In late January 2021, The Chinese Communist leadership (PRC) announced that its PRC Coast Guard would fire on ships in the South China Sea that do not have authorization.
- According to International Law from The Hauge, the South China Sea is international water for all vessels. This move has outraged the international community.
- Last week a French nuclear submarine and surface warship sailed through the South China Sea in a “freedom navigation” operation like US warships have been conducting for the past two years
- In a further show of force, France deployed two more warships to the South China Sea to join the US, Japan, Australia, and other countries in the spring. In a statement, French leadership said, “International maritime law is the only law that matters.”
Bidden’s Response to the Dilemma
A Bidden administration official said, “The US would support Taiwan in a conflict which outraged the PRC.”
- It is widely believed that the PRC is building up the PLA (Peoples Liberation Army) and the PLAN (Peoples Liberation Army Navy) to invade Taiwan.
- The PRC took over Hong Kong in 2019 instead of the 2047 official target date for the transition per the PRC promise to Brittian.
- Investors need to watch signals, actions, and non-actions from the Bidden administration to see how macro-economic and geopolitical affecting policies will be implemented.
A US Marine Shell Game
As a defense to the deployment of PLA medium-range ballistic missiles and PLAN, the US is now positioning both Marine forces with anti-ship missile battalions and the new vertical takeoff F-35Bs to small islands in the Indo-pacific various islands.
- The US Marine forces will move randomly to islands as a shell game to make it harder for the PLA/PLAN to strike all US assets in the region in one attack successfully.
- The US and other countries are making new surface and underwater drones as fast as they can.
- Stealth, firepower, and speed are the order of the day.
All militaries will be laying sea mines which may affect sea-going commerce if tensions escalate.
- Cargo ships have no defense against a mine.
- Once a few ships sink, most sea commerce will cease.
PRC Act I and Act II
Act I – Investors need to include in their calculus that Taiwan may fall to the PRC and the South China Sea may get an ongoing blockade from the PLAN. If there is not a shooting war, this seems to be inevitable.
- Will China put so much pressure on Taiwan that it gives up and the PRC takes over like Hong Kong?
- Will China invade Taiwan with a hot war?
- Will the International Community come to the rescue of Taiwan and force a further stalemate?
- As an investor, how can you profit from each of these outcomes?
Act II – After Taiwan, the PRC will surely next focus on the Strait of Malacca.
- The Strat of Malacca is a 1.7-mile-wide passage that nearly all of China’s oil traverses.
- This also a vital trade passage for India.
- If the PRC/PLA/PLAN tries to invade and capture this passage, it is believed that India, Australia, the US, and the rest of the world will retaliate with full force.
- The Chinese mainland’s supply distance and the near proximity to India will make this more problematic for the PRC to succeed.
- Therefore, this is unlikely, but investors need to be aware and look for opportunities and ways to hedge if any of these possibilities happen.
Investors need to help companies meet changing demand.
- Unfortunately, these possible geopolitical changes are real.
- You may not be able to affect these outcomes; however, change is opportunity.
- In all economies, investors need to plan to take advantage of any opportunities.