If China invades Taiwan by force, a short, localized conflict would still cause up to $10 trillion (KRW 14 quadrillion) in economic losses and could shake social stability in China, according to a report by a US think tank. The report also assesses that if the invasion expands into a large international war, more than 100,000 fatalities would occur for both the Chinese military and Taiwan.

The US think tank the German Marshall Fund on the 5th (local time) released a report co-authored by six researchers, including Asia director Bonnie Glaser, titled ‘If China Attacks Taiwan: the impact on China of ’small-scale conflict‘ and ’large-scale war‘ scenarios’.

The report analyzes how an invasion of Taiwan would affect four areaseconomy, military, social stability, and international relationsand forecasts outcomes if the invasion remains a small-scale regional conflict versus if it escalates into a large-scale war.

The report judges that a war over Taiwan could trigger a crisis worth trillions of dollars. With exports making up more than 20% of the Chinese economy, even limited military action would impose costs between 2 and 10 trillion dollars. If the conflict becomes prolonged, it assesses that China would lose its growth engine due to supply-chain relocation and the flight of foreign capital.

On the military side, the report predicts that if a large-scale war breaks out between China and Taiwan, the People's Liberation Army would suffer about 100,000 casualties and, after months of fierce fighting, withdraw. Taiwan would incur roughly 100,000 casualties in total, about half of them civilians. Casualties for US and Japanese forces, which are expected to join the war, are projected to reach the thousands.

The report concludes that the reason a large war would end in a Chinese withdrawal is that the economic and military losses from an invasion would threaten social stability and could shake the legitimacy of the Communist Party.

It assesses that if military operations fail and the war drags on, sensitivity would rise over fallen soldiers from one-child families, and public discontent over economic hardship would increase. It also analyzes that ethnic tensions could erupt in minority regions and that discontent with the system could flood online platforms.

The report judges that Chinese authorities “can manage short, localized conflicts, but a protracted war that harms the mainland could paralyze the security system and impair the Party's ability to maintain order”.

At the level of international politics, it assesses that if China actually invades Taiwan, foreign countries would respond by expelling Chinese diplomats, severing diplomatic relations, and recognizing Taiwan's independence. It adds that defections would occur from Chinese-led international organizations such as the Shanghai Cooperation Organization (SCO), BRICS, and the Belt and Road Initiative, dealing a major blow to China's global influence.

The so-called ‘2027 Taiwan invasion’ scenario gained traction at the end of 2022 when Chinese President Xi Jinping secured a third term, based on the assumption that he would seek unification with Taiwan within his term, using force if necessary to justify the third term.

On this invasion narrative, the report points out that previous analyses focused only on shortcomings in US efforts to defend Taiwan, while failing to analyze the costs China would face if an actual conflict broke out.

Glaser told Nikkei Asia, “China needs its economy to rest on a sound footing, its military to keep growing, and social stability to be maintained, and China should maintain good relations with countries around the world,” adding, “If the world turns its back on China and stops trade or investment with China, his ’China Dream‘ would become a disaster“.