China's Taiwan air incursions, practice for the real thing?

China's continued incursions into Taiwan's air defence zone could be a rehearsal for an eventual invasion of the island, US Defense Secretary Lloyd Austin says.

markets are going to bring this risk towards the fore this week on the back of these headlines because any move by China to invade Taiwan would have “terrible consequences,” as U.S. Secretary of State Antony Blinken said last Friday.

Blinken, speaking at the Reuters Next conference, said China had been trying to change the status quo over self-ruled Taiwan, which Beijing claims as its territory, and that the United States is “resolutely committed” to making sure the island has the means to defend itself.

“But here again, I hope that China’s leaders think very carefully about this and about not precipitating a crisis that would have, I think, terrible consequences for lots of people, and one that’s in no one’s interest, starting with China,” Blinken said.

he added that the US has ''been very clear and consistently clear, over many years that we are committed to making sure that Taiwan has the means to defend itself and ... we will continue to make good on that commitment.”

The Global Times wrote in response, ''Austin said on Saturday that "China is not 10 feet tall," while "America is a Pacific power." Frankly, China may not be that tall and strong, especially when it is in the deep Pacific Ocean, Indian Ocean, or the Caribbean Sea. But we are going to measure who is "taller" in the Taiwan Straits, where we are sure to show the US that in some parts of the world where it is not supposed to be, the US really is a dwarf.''

Market implications

The is a risky business for markets. Investors will try to second guess the next moves from either China or the US in what has been coined by various commentators as a second cold war in relation to heightened 21st century political and military tensions between the United States and China.

However, until the first trigger is about to be pulled, markets will watch wait and see.