Is China preparing to invade Taiwan?

As of mid-January 2026, the question of whether China is preparing for a "high-intensity contingency" regarding Taiwan has shifted from theory to a series of high-stakes economic manoeuvres. Beyond military drills, analysts are focusing on "sanction-proofing" measures aimed at insulating the Chinese mainland from global retaliation. By early January, Beijing’s systematic disposal of U.S. Treasury securities—often at a significant loss—signalled a move to reduce exposure to the U.S. dollar. This liquidation suggests a strategy to secure capital before potential asset freezes, prioritising national security over traditional investment returns.

Complementing this financial decoupling is an unprecedented hoarding of strategic commodities, particularly in the energy sector. Throughout December 2025, China’s crude oil imports reached record levels, with much of the supply diverted directly into onshore strategic reserves rather than domestic industrial use. By integrating discounted oil from partners like Russia and Venezuela, Beijing is securing its energy "oxygen." Observers suggest these reserves are designed to mitigate the effects of a potential naval blockade or severe trade disruptions that would follow an escalation in the Taiwan Strait. China’s sanction-proofing—from cutting dollar exposure to stockpiling oil and tightening exports of metals, magnets and steel—can lift global risk premia and input costs. For India, that means higher inflation risk, pressure on current account and INR, and margin squeeze for oil-, metal- and import-dependent sectors, keeping equities volatile.

The industrial sector is reflecting this shift through a "silver squeeze" and tightened control over critical minerals. China moved to a stricter export-control framework for silver, tightening the conditions under which firms can export the metal. Furthermore, China has begun choking off exports of rare earth magnets to select markets in response to regional diplomatic friction. With China controlling roughly 94% of global magnet production, these moves are being interpreted as the "weaponisation of interdependence," potentially impacting everything from electric vehicles to advanced defence sensors.

Base metals have also been pulled into this strategic orbit. Copper prices surged in late 2025 and early 2026, breaking USD 12,000 per tonne in late December and moving close to USD 13,000 per tonne in early January. In steel, China will require export licences for roughly 300 steel products from January 2026, a move aimed at regulating shipments amid rising exports and trade frictions.

Taipei entered 2026 with a record defence budget exceeding 3 per cent of GDP, marking its most significant military spending commitment in over a decade. A key focus of this outlay is the development of the “T-Dome”, a multi-layered air and missile defence architecture designed to counter saturation attacks involving ballistic missiles, cruise missiles and drones. As the United States moves toward its November 2026 midterm elections, regional risk dynamics are becoming more compressed. China’s expanding military posture, combined with tighter state control over strategic materials and continued crude oil stockpiling, points to a phase of heightened regional volatility. With both sides shifting from long-term capability building toward near-term readiness, the margin for error across the Taiwan Strait has narrowed materially.

Ultimately, these actions remain subject to multiple interpretations, and a direct conflict is far from a foregone conclusion. While some view the dumping of U.S. debt and the accumulation of metal reserves as a prelude to invasion, others argue they are defensive measures intended to deter external economic pressure and ensure domestic stability. Beijing’s focus on self-sufficiency in energy and minerals could be an attempt to strengthen its bargaining position without resorting to force. In this complex environment, the manoeuvres serve as a reminder that economic security and military deterrence are now inextricably linked, as both global powers seek to manage risks while avoiding an outright breakdown in stability.

Disclaimer: The article is for informational purposes only and not investment advice.