Tensions grow between Australia/China over Taiwan territory

China’s government has been seeking to isolate Taiwan, which it claims as its own territory. It has stepped up military harassment of the island by flying fighter jets toward Taiwan, with a particularly large number of flights last week.

Chinese President Xi Jinping this weekend has promised once again to realise “peaceful reunification” with the self-ruled territory. In doing so, China has emboldened its stance on Taiwan and this raises the angst in markets over China's relations on an international basis, drawing in the alliance between the UK, Australia and the US. 

The UK, US and Australia recently announced a historic security pact in the Asia-Pacific, in what's seen as an effort to counter China's expansion in the region and threat to take over Taiwan.  The Middle Kingdom has criticised this pact describing it as "extremely irresponsible".

Taiwan's president and foreign minister both raised warnings last week of a hypothetical Chinese invasion of their island. The officials issued warnings of a possible war with China after Beijing flew a record number of military planes into Taiwan's "Air Defense Identification Zone" last weekend.

"If Taiwan were to fall, the consequences would be catastrophic for regional peace and the democratic alliance system," wrote President Tsai Ying-wen in Foreign Affairs. "It would signal that in today's global contest of values, authoritarianism has the upper hand over democracy."

On Sunday, Taiwan's president, Tsai Ing-wen, said in response that her nation will continue to boost its defences ''to ensure that nobody can force'' the territory to ''accept the path China has laid out for us''.

However, Xi did not directly mention the use of force after a week of tensions with the Chinese-claimed island that has sparked international concern.

Market implications

What goes down in the Asia Pacific can indirectly impact the value of the Australian dollar, a currency of a nation that relies heavily on its trade partnership with China and stability in the region. 

The former Prime Minister Tony Abbott has accused China of being a bully and expressed enthusiastic support for Taiwan while visiting the democratically ruled island on Friday.

“Nothing is more pressing right now than solidarity with Taiwan,” Abbott said at a conference organized by a think tank backed by Taiwan’s government. However, the Australian government has said his visit to Taiwan is unofficial. Meanwhile, his remarks have angered the Chinese. 

China's embassy in Australia said former Prime Minister Tony Abbott was a "pitiful" politician on Saturday after he denounced Chinese pressure against Taiwan during a visit to the island.

"Tony Abbott is a failed and pitiful politician. His recent despicable and insane performance in Taiwan fully exposed his hideous anti-China features. This will only further discredit him," it said in a brief statement on its website.

Meanwhile, Taiwan says it is an independent country and will defend itself if China attacks. The US, UK and Australia, Aukus, meanwhile, is an alliance that potentially the most significant security arrangement between the three nations since World War Two with a focus on military capability seeking to counter China's aggressive moves in the Indo-Pacific.