Insurers take fright as tensions rise in the Taiwan Strait

Source: Splash247
Date: 11th August 2023

With China facing economic headwinds Beijing has deployed a regular tactic to distract – sending its military toward the island of Taiwan, something that is happening on a more regular basis. 

China sent navy ships and a large group of fighter jets toward Taiwan this week. Taiwan’s defense ministry said the Chinese People’s Liberation Army sent 33 warplanes and six navy vessels.

The increasingly tense situation in the Taiwan Strait has seen Lloyd’s of London underwriters raise rates and cut the amount of cover they offer for risks involving Taiwan, according to Reuters.

Insurers were left reeling last year when Russia invaded Ukraine with a vast number of assets – including ships – left stranded and under fire.

Taiwan’s merchant fleet is sizeable with United Nations data suggesting that it has a 2.53% global market share. Its container fleets – led by Evergreen, Yang Ming and Wan Hai – are especially significant. UN data shows containership port calls in Taiwan accounted for 3.34% of the global market share in 2021.

China has been practicing military encirclement strategies around the island it claims is its own.

In the wake of the former US speaker’s visit to Taipei, China’s military carried out a four-day military exercise a year ago at six shipping zones surrounding the island, forcing many ships to take evasive action in the Taiwan Strait. In April this year, China started an inspection campaign for ships transiting the strait, while also putting a brief exclusion zone to the north of the island where it test-fired rockets.

More than $3.4trn worth of goods accounting for 21% of global trade are estimated to pass through the Taiwan Strait each year.

Sabre rattling toward Taiwan and Japan is a common practice by the ruling Chinese Communist Party whenever problems arise at home.

Data from Shipping Strategy shows the troubles facing China today, a nation where more than one in five youths are unemployed and the population has peaked.

Foreign direct investment was at a 25-year low for Q2 and is down nearly 90% year-on-year. Labour costs in China have grown 12 times in 10 years whereby a factory worker now makes per month what they made per year in 2013.

“Perhaps we can expect shriller nationalist, anti-Taiwan and anti-West rhetoric as China presses all the populist buttons to deflect attention from China’s sickly economy,” a recent post from Shipping Strategy stated.

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