How We Can Profit from the Horrible Actions China is About to Commit

I have spent the last couple of days analyzing the geopolitical situation of China and Taiwan. In order to profit from a Chinese invasion of Taiwan, we first need to understand their motives. This will help us predict when they will invade. So let’s dive into the facts.

The Origin

It all started with the Chinese civil war. The communists (People's Republic of China, PRC) fought against the nationalists (Republic Of China, ROC). This war which ended in 1949, was won by the communists (PRC) which forced the nationalists (ROC) to flee to Taiwan.

Ever since then, China is declaring that Taiwan is a part of China but in a state of rebellion. Even though the Taiwanese were originally Chinese, they have developed their own culture.

“One China, One Truth, One World, One Dream” Chinese Communist Party

Why

Why does China want to invade this relatively small island? Well, there are 2 main reasons.

Reason 1

The first reason is related to the military. When the communists took over China in 1949, the US developed a first and second island chain of military bases. This is a strategy to prevent China from expanding to the east.

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The United States built strong relations with neighboring countries like Japan, The Philipines, Malaysia, and Indonesia, Singapore. This allowed the US to build military bases across these islands. By establishing a multitude of military bases across the South China Sea, the US was able to create dozens of so-called chokepoints. These chokepoints are narrow passing points between island groups where most of China’s export passes through.

The United States together with its allies can decide to block all imports and export from the pacific ocean, strangling their economy if they should decide to invade Taiwan.

Both Washington and Beijing understand that Taiwan is the most important island in the first island chain, and if conquered, the US’ strategy might fall apart.

The US does have the islands of Wake and Guam in the second island chain, but this is by far more difficult to defend due to the vast length and fewer military bases it contains.

Reason 2

The second reason all has to do with semiconductors. Taiwan houses one of the most important companies in the world, which you most likely have never heard of Taiwan Semiconductor Manufacturing Company (TSMC). This company is responsible for producing 90% of the global chips. Their only 2 competitors, Samsung and Intel are losing the race to produce 3-nanometer chips.

This company is at the forefront of the 21st-century technology revolution, making the essential parts of all computers. These chips are also used in cars, boats, and planes. Whoever is the best friend with Taiwan, will receive the most advanced chips to power the best military equipment.

If China would conquer Taiwan, the US military will fall behind on the latest equipment. The US choice to not intervene in a future invasion of Taiwan would result in postponing the unavoidable war between the 2 superpowers.

When?

These are some metrics to predict when China will invade Taiwan.

Just like every country, Taiwan is an Air Defense Identification Zone (ADIZ). In this zone, all aircraft must be located and identified.

China has been testing Taiwan’s ADIZ by continuously flying military aircraft above it. China is clearly increasing the number of incursions, these are the stats:

2020 → 380 incursions

2021 → 961 incursions

China’s working population distribution is flattening. The peak of the working population was attained in 2017. This means that they will execute their long-term goals now before they won’t be able to in the future. They have already started repression in Xinjiang and Hong Kong.

How?

If China wants to invade Taiwan, it would need to unleash the biggest military operation in history.

It’s widely acknowledged that in order to invade a country, you need 20 soldiers for every 1.000 civilians. With Taiwan’s population of more than 23 million, China would need an estimated 400.000 soldiers to pull off the invasion. To put this into perspective, D-Day, the largest military operation to date, required 156 000 invading soldiers.

The eastern two-thirds of the island is entirely made up of mountains and the eastern coast has a rocky coast which makes it impossible to land.

The western part of the island where the largest part of the population lives has a plane surface. The only problem: the waters in the west are shallow which makes it very difficult for military landing ships to beach.

While invading the island, China has one almost impossible task: invading the island while not damaging or bombing the TSMC factories.

How can we profit from this?

One of the most obvious investments you could make is buying gold. The price of gold increased by about 20% after the Russian invasion of Ukraine. This investment is the least risky but will also give you the smallest return.

If you want to perform a riskier trade, you could try to short Chinese stocks. After the Russian invasion, Russian companies fell as much as 20 to 60% in one day due to the sanctions. If you want to execute this strategy, try choosing companies that make most of their revenue in China. These companies will be hit the most by the sanctions.

Companies like Lockheed Martin which specialize in military equipment will soar. This company alone has risen by 30% due to the Russian Invasion.

Moral

For many of you out there, it might be ethically wrong to profit from the suffering of the Taiwanese. If this invasion happens, it’s likely that entire families will be split apart, their homes will be destroyed, and they will need to adapt to a new country.

But out of everyone's misfortune, you can make a slight fortune. This might sound ethically wrong, but by shorting Chinese stocks, you aren’t making the situation worse in Taiwan, in fact, you could donate the proceeds of your investments to charity.

Final Thoughts

Geopolitical tensions between China, the US, and Taiwan have been growing steadily. Many experts believe that a Chinese invasion of Taiwan is inevitable. Whether you think China will invade this island is your choice, but I know mine.