On Tuesday, Alan Greenspan warned that investors should start worrying more about China, which he notes may be about to launch an invasion of Taiwan, triggering a global economic crisis and a series of major market sell-offs.
The former head of the Federal Reserve noted a Chinese invasion of Taiwan is the most significant “black swan” risk to the financial markets right now.
Black swan events are largely unpredictable events which happen suddenly, such as the 2008 financial crisis or the Russian invasion of Ukraine, which go on to have unexpected and severe effects on markets and other financial asset classes.
Greenspan, who is an economic advisor to Advisors Capital Management, said in a Q&A published on the company’s website, “The black swan event I think markets, and really the world at large, ought to be most worried about is some kind of conflict erupting between China and Taiwan.”
He added, “Xi Jinping has methodically consolidated power and made himself essentially president for life. He has been fairly candid in his intention to eventually bring Taiwan back into the fold, and he may begin to feel his window is closing.”
After securing a third consecutive five-year term as leader of China, President Xi proceeded to elevate political allies with defense backgrounds to key positions, and told the Chinese population to, “prepare to undergo high winds and waves and even for the stormy seas of a major test,” which many Western analysts thought could be a reference to a potential invasion of Taiwan.
Greenspan noted the importance of Taiwan to the global trade in semiconductors would mean such an assault would be guaranteed to rock the global economy.
Taiwan Semiconductor Manufacturing Co., valued at just under $400 billion, is the world’s largest independent chipmaker and the 15th-largest stock by market cap. It has long been speculated that if China were to successfully invade Taiwan, TSMC has an agreement with Western powers to sabotage its manufacturing infrastructure, to prevent its sensitive technologies from falling into the hands of the mainland Chinese government.
Greenspan said, “Taiwan has shown no willingness to acquiesce to Xi’s plans and so the conditions for some type of conflict in the near future are there.”
He added, “The sheer amount of world trade that currently flows through that region, and the number of semiconductors fabricated by Taiwanese firms upon which the technologies we enjoy rely, make any conflict a potential nightmare scenario.”
Greenspan is not alone in his concern over war in Taiwan.
Bridgewater Associates co-CIO Ray Dalio said in November, he felt the US and China were “dangerously close” to a military conflict over the island. In the same month, Hayman Capital Management chief Kyle Bass warned President Xi had installed a “war cabinet” which could be preparation for China invading Taiwan within two years.
