China's President Xi Jinping walks to inspect the honour guard.

Could economic indicators help clarify Chinese leaders’ intentions regarding Taiwan? China would make economic preparations—especially to protect its economy from external vulnerabilities—if Beijing thought conflict over Taiwan was likely, but such preparations would vary with Chinese leaders’ expected timeframe.

Therefore, analysts should separate the question between medium- or long-term indicators (years) and short-term or immediate indicators (months, weeks, or days).

Indeterminate Indicators: Economic Policies to Prepare for Eventual Conflict

Beijing is already taking multiyear steps to insulate the Chinese economy from external vulnerabilities. Technological and material self-sufficiency are primary goals of China’s 14th Five-Year Plan (2021–2025) and achieving a high degree of self-reliance is the “essence” of Xi Jinping’s new development dynamic. These policies include:
•Industrial policies focused on eliminating foreign dependencies across the value chain

•Efforts to identify and mitigate vulnerabilities to U.S. sanctions and organize its bureaucracy for the imposition of countersanctions

•Expedited efforts to reduce China’s dependency on the U.S. dollar for international finance via renminbi internationalization

•Stockpiling of critical supplies, especially commodities and technological inputs that China imports

•Trade policies to foster greater global reliance on Chinese exports and investment policies to tie key foreign firms to the Chinese market

•Mandates for state entities to move away from foreign software

•A shift in Chinese lending and investment away from the United States and its allies, in favor of potentially neutral countries, especially in the developing world

These policies are insufficient to determine if Chinese leaders have specific intentions for a conflict or what their timeline might be. The diagnostic problem is that Beijing has other economic and national security reasons to pursue such policies. Beijing’s optimal strategy for either preparing for war or merely deterring foreign sanctions is to minimize China’s dependency on the world while maximizing the world’s dependency on China. These policies could signal mere contingency planning. Beijing’s actions could be also defensive and in response to fears that the United States will take further economic actions against China.

It is unclear how different Beijing’s economic policies would be if Chinese leaders expected a conflict in, say, five to ten years. Arguably, Chinese policymakers could increase the extent or political urgency of such policies. However, Beijing is already devoting enormous resources toward its industrial policies, and China might be going as fast as it can toward achieving these goals. Perhaps if Chinese leaders expected a conflict, they would be less inclined, for example, to allow state-owned energy companies to sign long-term purchase agreements for liquified natural gas with a U.S. exporter. But then again, would Chinese leaders communicate such intentions to Chinese firms?

Clearer Economic Indicators of Approaching Risk of Conflict

Short-term or immediate indicators are more likely to signal Beijing’s intent to engage in conflict because these indicators would be more abrupt and detectable. However, such indicators could apply to a scenario where the People’s Liberation Army (PLA) were ordered to be ready to execute a war plan even if Chinese leaders had not yet firmly decided. Such indicators could include:
•Imposition of stronger cross-border capital controls, including in response to apparent capital flight from elites

•A freeze on foreign financial assets within China

•Rapid liquidation and repatriation of Chinese assets held abroad, including sales of U.S. bonds

•A surge in stockpiling emergency supplies, such as medicine or key technology inputs

•A suspension of key exports, such as critical minerals, refined petroleum products, or food

•Measures to reduce demand or ration key goods, especially imports like oil and gas

•Prioritization or redirection of key inputs for military production

•Restrictions on outward travel for Chinese elites or high-priority workers

In the leadup to a conflict, the Chinese government would face at least two key constraints when deciding on such policies. First, the measures or orders to execute them could give up Chinese leaders’ intentions, allowing foreign powers time to react. Second, the effectiveness of some measures could be undermined if the actions triggered hoarding, alarmed firms, or spooked financial markets.

Balancing effective emergency measures with these constraints would be difficult. Chinese government policy, including procurement, is decentralized and fragmented and involves many local bureaucracies.

Furthermore, most downstream or final goods are manufactured by private or foreign-invested firms in China, with state-owned enterprises dominant mostly in upstream sectors. The demand for upstream or intermediate inputs like steel or even semiconductors would besubstantially altered in a wartime economy, making planning for future needs especially difficult. Beijing rarely discloses details about the size or replenishment of its strategic reserves of energy, food, and metals, increasing uncertainty about China’s true demand for commodities. Imported goods would be harder to surge unless ordered well in advance because of contractual timelines and foreign competition.

The more complete the measures and the more actors involved, the greater the likelihood of external detection. Beijing might prioritize military secrecy over executing short-term economic preparations and use such measures sparingly before the conflict, sharing preparations with a limited set of officials or firms. Instead, bureaucracies might focus on preparing to execute economic plans and only impose the measures after hostilities had begun.

Therefore, China’s short-term economic actions might not offer conclusive or specific warnings about Beijing’s military intentions. Economic indicators would need to be paired with other signs, such as PLA movements or domestic propaganda, to determine Beijing’s military intentions.

The Russia Example: A Warning

Russia’s economic actions before its February 2022 invasion of Ukraine could offer some insights to how a major economy plans for sanctions and war. Moscow’s financial measures after the 2014 sanctions were designed to harden Russia’s financial system to potential sanctions (“fortress Russia”), including by accumulating international reserves, diversifying away from U.S. dollar assets, and increasing fiscal savings through conservative budgeting. The Russian government attempted to reduce dependencies on foreign hardware and software. In 2018, Moscow announced a program to achieve self-sufficiency in domestic agriculture.

Some of these actions mirror China’s existing medium-term policies. However, Beijing focuses more on technological self-sufficiency and less on strengthening its balance sheet, probably in part because China is less reliant on foreign financing for its large debts than Russia was before the war. But before this year, Russia’s attempts at financial hardening and economic self-sufficiency were treated as defensive.

If observers failed to interpret Moscow’s economic measures as primary indicators of an impending Russian invasion, policymakers should be skeptical that similar warning signs coming from China would be treated as evidence of military intentions. Indeed, Russian economic actions and military preparations, combined with public intelligence warnings from Washington, were insufficient to convince some governments that Moscow intended to invade Ukraine. Even if economic indicators alone are insufficient, hopefully Russia’s aggression will teach allied policymakers to “think the unthinkable,” even if economically irrational.