Ultimately, I think the vast vast majority of people on this forum want this to be solved peacefully. Based on what we have seen, it is likely that current us political class will try to push china further on this Taiwan issue. So in the near term, the best case scenario is for kmt to get back in power. I think there wont be any major issues as long as kmt is in power. I think the Russians probably wouldn't have attacked Ukraine if the Ukrainian elected a pro Russia president. While China's response to the pelosi visit was strong, it certainly did not cross any line. So with right engagement and pressure, maybe we can get the more favorable scenario of kmt winning the next election. Now, in the event that dpp wins again, I think china will need to be very careful and examine closely what the red lines are. There will undoubtedly be additional provocations like the recent pelosi visit. But if you are china, then you really don't want to get in any conflict until you achieve certain economic and technological goals.
What do I mean by that? Well, there is the very obvious current weakness in chip sector. Based on the recent optimistic rumors out of china, we think they can achieve fully domestic 7 nm line by end of next year. Which would be an extremely strong step toward independence in this very important sector. Having full supply chain all the way up to 7 nm process would allow them to supply everything from low end of the market to industrial chips to chips for computers and lower end smartphones. The only thing it doesn't cover is highest end smartphone chips. China has far and away the most number of fabs under construction and some of them are going to be advanced. By 2025, China will likely be able to capture most of domestic demand. The Chinese supply chain will also become legitimate players in the international market who are looking for competition to TSMC, Samsung, ASML, Lam and AMAT. This will have large geopoltical implications. And if they can have EUV in production after that, they will have completely succeeded in taking over this industry. It seems to me there is probably a 6 to 7 year process in this.
As discussed in other threads, they have already taken over the NEV industry. Based on all that i have seen in the past 3 months, Chinese battery makers have cornered the market in terms of foreign automaker production. Domestic automakers like BYD are likely to become even larger players in export market. Over time, I will also expect that they take over in areas like autonomous driving, Lidar, electric motor, power chips and MCUs. After all, BYD is already doing that with Toyota cars. It would be hard for foreign automakers without using the cheaper Chinese suppliers. I think they are probably 3 years away from total control of the market.
In renewables, they already lead the world in hydro and solar technology. Their onshore and offshore wind turbine technology will continue to get more competitive over time and likely to reach much higher market share in international market. They are even likely to become the dominant player in nuclear reactors with the Hualong-1 and other projects in the pipeline. Even considering security concerns from certain Western countries, China will likely make significant progress in the likely Nuclear renaissance we are going to have. It would be hard for China not to be dominant when they are the only one building nuclear plants. Aside from that, China's advantages in battery technology will also likely transfer to energy storage. Even in hydrogen fuel cell, they are making significant process and likely to be a leading player going forward. The next 5 years are likely when China will reach even greater control in the 0-carbon future. As long as Western countries continue to debate fossil fuels vs clean energy usage, they will not be able to put in the same policies needed.
Aside from this, China is making great progress in Bio tech, AI, Quantum computing, Robotics and all the supply chains. With the Europeans killing their own industries with these high energy prices, it's just a matter of time before more factories shut down and they rely on Chinese imports for high energy reliant fields. The likely outcome is that China will move up the value chain and offshore the lower cost industries to countries that are part of the BRI. I feel like this will be a transfer of wealth from Western economies to developing world.
The other part of this is the effect of BRI. As I discussed here
China's infrastructure projects and strategic implications, BRI is a great project with the end goal of having most of the world's production and trading go through China. US political types keep freaking out about deep sea ports that China is taking over. When in reality, the goal is economical and industrial. It is about making the transportation from rest of the world to China as efficient and reliable as possible. All the infrastructure projects are aimed to increase connectivity to China. This allows China to be an integral supplier of trade between any two parties. We are still a few years away from the completion of many BRI projects. For example, having a completely connected rail/pipeline network in Central Asia will be huge to the region and to China. Completing all the deep sea ports in Africa and South America would allow much easier trading between China and these countries. Completing rail from China to Singapore would allow China to be the middle of all commerce in Asia. All commerce would either pass through sea lanes that China control or through railways that China built. And as part of BRI and increased commerce, CNH will slowly become a more important world currency. It will also make CIPS, UnionPay and Chinese banks a larger part of the international financial system. The Russia/Ukraine conflict has certainly sped up this portion. Eventually, any party that wants to evade Western sanctions will be able to get everything they need by using CNH, CIPS, UnionPay and interact with Chinese banks. That to me seems to be a reasonable end goal here. This is something that will likely take many years to play out.
As you can see, it is really not in China's interest to get in a large conflict when it can achieve most of its objectives slowly through industrialization, trading and infrastructure projects. Assuming we get through the end of this decade peacefully, China will likely have much increased leverage over Taiwan and other Asian countries. Taiwan's position will be a lot weaker if TSMC loses large portion of its market share to Chinese fabs.
