A much more challenging regional environment will test businesses operating across the Asia-Pacific region in the upcoming Year of the Horse.

Tectonic changes to regional trade are under way, and separating out economic and security considerations is becoming close to impossible. The risk of regional conflict is also intensifying, owing to tensions over Taiwan, the South China Sea, and other flashpoints.

The challenges to regional business are real, but they are not insuperable – although executives may need to “unlearn” some lessons of globalisation. Deft handling will decide which companies gain, and which lose, and SVA can advise on how best to respond.

Key risks

The challenges facing business in the Asia-Pacific region include:

• A turn towards “stockade economics”, albeit on a partial basis, and at varying speeds.
• An acceleration in the reshaping of regional manufacturing and supply chains, with unpredictable results for trade.
• Intensification of state competition over resources, such as hydrocarbons, lithium, high-grade sand, and rare earth magnets.
• Growing hostility towards foreign business, and to foreigners in general, in many jurisdictions.
• New regulatory “tripwires”, as the thicket of export controls, tariffs and sanctions expands.
• Increasing incidents of fraud, money laundering and cyber-attack, as supervisory divergence reduces cooperation.
• The prospect of a crisis, or even a larger-scale conflict, arising from tensions over Taiwan, or other regional flashpoints.

Storm clouds ahead

Sino-American relations will continue to “set the weather” in 2026. Unfortunately, bilateral dealings have become deeply distrustful, and increasingly erratic; the outlook is stormy.

As ever, domestic imperatives will drive foreign affairs. US politics seems sure to remain turbulent, with attention shifting towards the November 2026 mid-term elections, and a possible weakening of the presidential administration.

Efforts to reduce US reliance on Chinese suppliers will likely continue, as will measures to revive the American industrial base, thanks to a bipartisan consensus on strategy (if not tactics). Deep questions hang over the US financial system, given giddy share prices; a stock market crash is possible.

The recent US National Security Strategy has provided some clarity on policy. Washington apparently hopes to prioritise the western hemisphere, ahead of its system of allies in Europe and Asia – and with Trump aiming to scale back security obligations. Also discernible is an apparent willingness to agree “spheres of interest” with China and Russia.

Notwithstanding the robust US rhetoric, a prevailing theme is of American weakness. In some ways, the strategy sets out a “retreat from empire”. A fear, then, is that exaggerated perceptions of American frailty encourage Chinese overreach. That would be a mistake, though; the US remains hugely powerful, with teeth as sharp as ever.

The Chinese perspective

For its part, China is looking towards the Chinese Communist Party’s 21^st Party Congress, in 2027. In the interim, Beijing will focus on building up its technological and export industries, with emphasis on artificial intelligence, semiconductors, and electric vehicles.

Yet doubts about the strength of the Chinese economy are rising, in the light of widespread overproduction, an ongoing property market slump, and deflation.

The fast-growing high-technology sector still accounts for much less of GDP (perhaps 13%) than does the flailing property sector (about 20%), and consumers are hesitant to spend. The number of labour disputes, a key indicator that receives little foreign media attention, has also risen sharply.

Some observers see 2027 as a key date. It is then that the CCP will celebrate the 100^th anniversary of the foundation of the People’s Liberation Army’s (“PLA”), and it is by then that officials should comply with leadership goals of a “strategic decisive victory” in relation to Taiwan.

The regional outlook is thus troubling. Deep structural differences, especially (but not only) over Taiwan, are at work, and any lull in tensions is unlikely to prove lasting. Rather, the cancellation of a planned visit by US President Trump to Beijing in April 2026, or a separate diplomatic dispute, could prompt a yet further rise in tensions.

The gathering storm?

Of course, Taiwan is the core, regional security issue. Since 2022, large scale Chinese military exercises in the Taiwan Strait, such as in December 2025, have become routine. Beijing has massively expanded military capacity, and appears able to “quarantine” Taiwan almost at will.

Moreover, how far Trump will go in defending Taiwan is unclear, given his sceptical stance towards Ukraine, his offhand treatment of allies, and the risks to US interests inherent in any descent into regional conflict. Beijing may believe that Washington would prefer to trade Taiwan away in a grand bargain, rather than fight.

Accordingly, China shows little sign of refraining from its “grey zone” measures, as with the cutting of submarine cables near Keelung in January 2025, and could even interdict shipping – perhaps by searching vessels on the basis of domestic Chinese laws in 2026.

Beijing will also maintain increased political pressure on the current Taiwanese government, as illustrated by its response to Vice President Hsiao Bi Khim’s visit to Europe in November 2025, and could take advantage of political divisions within Taiwan to entice groups such as the opposition Kuomintang (“KMT”) into some form of accord.

An invasion would be immensely difficult, and so China does not seem likely to risk as much – at least short of Taipei issuing a declaration of independence. China may instead focus on a policy of “suffocation”, or alternatively could mimic US actions in Venezuela by using subterfuge to decapitate the Taiwanese government.

War, therefore, remains a serious risk. Even a small crisis could see Beijing blockade Taiwan, causing severe disruption to trade, and a blockade could lead in turn to direct confrontation with the US or Japan.

Japan steps forward

Developments in Tokyo will also loom large in 2026. In November 2025, Prime Minister Takaichi publicly announced what has long been known, if not voiced – that Japan could directly intervene in a Taiwan crisis.

Of course, the wisdom of such statements is debatable. China’s response has been angry, and has included military deployments, questions posed in the mainland media about Tokyo’s sovereignty over the Ryukyu islands, and efforts to choke off tourists and imports. Even Hong Kong’s Cantopop stars have cancelled tours to Japan.

For now, Tokyo shows few signs of backing down. Rather, Prime Minister Takaichi calls for additional military spending, and has used tensions to bolster her position ahead of elections early in 2026.

Sino-Japanese tensions thus seem likely to rise – and could do so at some clip, should a senior Japanese official visit the controversial Yasukuni Shrine, should terrorist attacks on either state’s citizens occur, or should an incident involving aircraft or shipping in disputed waters slide out of control.

South China Sea

Almost as troubling are developments in the South China Sea.

The temporary fielding of US missiles in the northern Philippines made clear how that issue is now linked to Taiwan, at least in US eyes. Beijing also knows that its neighbours in Southeast Asia are watching developments, and will calibrate their responses in the disputed sea on the basis of Chinese actions. Beijing cannot afford to show weakness.

Worryingly, nearly constant Chinese military, coast guard and auxiliary fishing fleet deployments to areas traversed by US, Philippine and Australian forces pose the risk of a minor incident turning into something much nastier – not least as China’s leadership may doubt that an incident in the South China Sea really would provoke a substantive US military response.

The Korean peninsula

Another flashpoint is on the Korean peninsula.

A change in political direction in Seoul has weakened regional cooperation, especially with Japan. US-South Korean relations are strained, as a result of disputes over trade and immigration.

In the interim, North Korea is upgrading its nuclear and conventional weapons. Its support for Moscow in Ukraine has resulted in stronger capabilities in various spheres, which may in time offer Pyongyang greater autonomy from Chinese sway.

Looking forward, then, Pyongyang could provoke South Korea or Japan with missile launches and other actions – for its own ends, or perhaps at Russian request. Moscow’s support for North Korea thus risks destabilising the peninsula, posing undesired strategic difficulties to Beijing.

Fighting on the borders

Finally, a nasty, if limited, border conflict between Thailand and Cambodia in 2025 has made plain how the regional security system is fraying. At present, a ceasefire is in place, and tensions should ease after the forthcoming Thai elections. Even so, fighting could well flare up again.

The point here is that goodwill is in short supply. Broader Sino-American tensions make it much harder to deal with regional problems, such as “pig butchering” financial scams, the civil war in Myanmar, or any additional tilt towards authoritarianism in Indonesia under Prabowo Subianto.

The economic engine

Needless to say, this uneasy security environment is weighing on the regional economy. Asia has been the most vibrant region in the world for several decades – but that is now at risk.

In particular, US tariffs have had a tectonic, if not immediately visible, impact on economic activity. A reshaping of manufacturing and supply chains is under way, and will continue in 2026, just as appetite for greater government intervention will grow.

Technological changes, epitomised by AI, are also gathering pace, with unpredictable consequences for businesses and consumers.

Sand in the gears

The risks to governments and companies are acute.

Vietnam is deeply exposed to tariffs (notwithstanding its 8% rates of growth, and newly assertive leadership), as is Thailand. Chinese imports and local manufacturing are also hollowing out hitherto vibrant industries in many Southeast Asian states, such as Malaysia.

Tensions only add to regulatory risks. Conflicts between supervisory frameworks have become much harder for companies to navigate, especially as previously mundane activities, such as data management, have become securitised.

Both the US and China have weaponised external sway to advance their interests through sanctions and export controls – if in different ways. The US relies on dominance over international finance, while China controls rare earth magnets and other key products.

The perceived loyalty of a business is also affecting how governments treat commercial deals, as illustrated by the attempted sale in 2025 of port facilities by Hong Kong conglomerate CK Hutchinson.

To add insult to injury, a lack of cooperation between various law enforcement bodies also means that criminals can play a “game of jurisdictions”, adding to the threat of fraud, money laundering, and cyber-attacks.

Outlook for 2026

The Year of the Horse, then, promises rising uncertainty and risks. Key considerations for business will include:

• A turn towards “stockade economics”, albeit on a partial basis, and at varying speeds.
• A reshaping of regional manufacturing and supply chains, with unpredictable results.
• More intense competition over resources, such as hydrocarbons, lithium, high-grade sand, and rare earth magnets.
• Growing hostility towards foreign business, visible in government oversight of trade, controls on investment and ownership, media attacks, administrative opposition, and nationalist protests or boycotts.
• New regulatory tripwires, as export controls and sanctions expand
• Increasing occurrence of frauds, money laundering and cyber-attacks, as broader supervisory divergence erodes cooperation.
• The risk of war, as tensions over Taiwan, the South China Sea and other flashpoints appear to be moving towards a crisis.

Challenges to business are real, but not insuperable – although executives may need to “unlearn” some lessons of globalisation. Deft handling will decide which companies gain, and which lose, and SVA can advise on how best to respond.

SVA

SVA www.stevevickersassociates.com is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA can be of assistance to your organisation in dealing with these complicated issues. If you wish to protect your business from the negative consequences of geopolitical risks, please do not hesitate to contact us.