SVA Update – Strategic Risk in Asia in 2024 - A Spring Update

Strategic Risks in Asia in 2024
A Spring Update

SVA issued a brief at the start of the year outlining the risks facing businesses in the Asia-Pacific region in 2024.

Our assessment then was that an uneasy equilibrium was in place, but that rising strategic tensions in the Taiwan Straits or South China Sea could yet cause serious damage to businesses operating across the region.

As of May 2024, signs have emerged of worsening strategic and economic tensions that may yet undermine the frail “détente” in place between China and the US. That détente had (temporarily) arrested a steep deterioration in bilateral ties.

Looking forward, though, companies across the region should prepare for more challenging conditions, and be cognizant that risks could worsen severely and suddenly in the event of a Taiwan or South China Sea crisis.

A change in tone

A willingness to talk since a November 2023 meeting between Chinese Communist Party (“CCP”) General Secretary Xi Jinping and US President Joe Biden had forestalled a further decline in relations between China and the US. Now, though, this “détente” appears to be fraying.

In early April 2024, US Secretary of the Treasury Janet Yellen hinted at the prospect of sanctions on a Chinese bank should it facilitate trade in restricted goods to Russia; and US Secretary of State Anthony Blinken on 27 April 2024 called for an end to China’s perceived technical support for Moscow in its conflict in Ukraine.

These comments highlighted how appetite in the US for cooperation with China is waning, in the context of stark differences over the war in Ukraine, broader strategic tensions in Asia, and growing trade frictions.

Strategic shifts

Of equal note was a trilateral meeting in mid-April 2024 between Japanese Prime Minister Fumio Kishida, Philippine President Ferdinand Marcos and US President Joe Biden in Washington, which drew attention to the prospect of closer coordination amongst US allies in the face of the challenge from China.

Discussions also moved forward between Tokyo and Manila on a Reciprocal Access Agreement (“RAA”), which would permit the deployment of Japanese Self-Defence Forces (“SDF”) units in the Philippines. Other reports suggested that the US had deployed missiles to northern Luzon, in easy reach of southern Taiwan.

A joint US-Philippine military exercise, which started on 22 April 2024, also occurred outside Philippine territorial waters, in areas claimed by the People’s Republic of China (“PRC”), and involved the Philippine Coast Guard and other forces, such as the French Navy, for the first time.

These moves all came in the context of tensions over Taiwan ahead of the inauguration of President-elect William Lai Ching-te (賴清德) on 20 May 2024, and of frequent naval and coast guard near-misses around Philippines-controlled features in the South China Sea.

These measures mark a clear shift away from the bilateral “hub and spoke” system of security guarantees provided by the US (known sometimes as the San Francisco system after the 1951 treaty between the US and Japan), towards a more complex “lattice” of arrangements amongst US security clients themselves.

The new Domino effect

As such, what these developments make clear is that a regional theatre of contest is coming into being – stretching from the East China Sea, through the Taiwan Straits, and well into the South China Sea.

Such a shift is sure to anger China. Indeed, Beijing may fear that US and Japanese support for the Philippines will in time encourage Vietnam or other disputants in the South China Sea to push back, resulting in a “domino effect” that erodes China’s regional clout.

Beijing may thus see some form of overt response as necessary to reassert its standing. Events in one place could thus easily provoke a response elsewhere, meaning that tensions seem likely to rise in the coming months.

Economic pressures

Frictions over the economy are also rising. China’s property crisis has shown no signs of improving in recent months, in part owing to erratic policy shifts between efforts to improve the economy and a generally dominant “stockade mentality” that prioritises national security.

Separate actions are adding to the strains. Beijing in March 2024 announced an economic strategy based on New Productive Forces, which seeks to champion high-technology sectors such as electric vehicles (“EVs”), lithium batteries, advanced semi-conductors, artificial intelligence, and quantum computing.

The problem, though, is that Beijing’s developmental success and perceived reliance on subsidies is angering the US and the European Union (“EU”), China’s two biggest trading partners. Both Brussels and Washington see China’s stance as mercantilist.

Both have raised fears of Chinese overcapacity flooding their markets with cheap goods, to the detriment of local producers. Now, both are discussing tariffs, or other limits to imports; the EU even raided a Chinese company in late April 2024.

Trade restrictions thus seem likely in the months ahead. Worse, any new measures will build on current controls aimed at high-technology sectors – resulting in a “ratchet” effect of further pressure on business. Indeed, the regulatory challenges companies must navigate are becoming ever more complex – and, in cases where a conflict of laws exists, sometimes even insuperable.

Business risks

All told, then, the levels of risk facing business seem likely to rise. Companies may hope for a continuation of the uneasy status quo, but such wishes seem likely to prove unrealised. After all, it is only the fraying US-China détente that is forestalling the emergence of much more intense strategic tensions.

In that context, at the least businesses should plan for government policies that are less supportive of growth of cross-border supply chains, more sceptical towards foreign investment, and more demanding of efforts to “de-risk” and “re-shore” manufacturing activity. Increasingly, it seems that separate, and opposing, geopolitical blocs are emerging.

Moreover, boards should note that even a minor rise in tensions could lead to measures that seriously impinge on commercial activity – while a major Taiwan Straits or South China Sea crisis could result in abrupt and wrenching changes to business conditions.

What to do

SVA has much experience of advising companies on how to handle strategic risks. Key steps that boards might take include:

Companies should carry out independent strategic appraisals, so as to gain a firm understanding of any threats and vulnerabilities. Such assessments should consider geopolitical risks, of high- and low- order, alongside commercial and more workaday concerns, and ask what structural or operational changes to make in response. SVA are specialists in these areas.

Companies might consider whether to sever key operations in certain locales from global structures, with attention to corporate vehicles, finance, treasury, IT, data management, and other areas of operations. A “modular” structure could protect group interests as the paths of jurisdictions diverge. Flexibility and careful attention to detail are critical in implementation, though.

Businesses should re-examine supply chains. The COVID pandemic provided some sense of how to deal with stoppages, but companies need now to examine any reliance on key inputs, especially those from China. Such assessments should consider how to adjust or diversify supply chains, whether moving elsewhere will reduce dependencies, and what and where the key logistics chokepoints might prove to be. Shipping will be a key consideration, as the bulk of tensions in Asia are maritime in nature; the interdiction of shipping around Taiwan is possible in the event of even a small-scale crisis.

Companies should carefully assess trade-related risks, but should act cautiously in “de-risking”. Acting impetuously may prove harmful, and a full understanding of the risks of leaving, and the risks lurking in any new destination, is essential. There is no point in jumping from the frying pan into the fire.

Legal departments should examine existing contracts and insurance policies, to ensure that they take account of actions that might hitherto have been ignored, or have deliberately been carved out, but which are now genuine risks. Many insurance policies distinguish between war risk, political violence, and terrorism, for instance.

Boards should examine the structure and status of crisis management departments. A traditional reliance on a press relations lead may no longer be appropriate. Rather, fusion with security departments, supply chain teams, IT and others may make more sense. Moreover, crisis management teams need to have access to senior decision makers. SVA staff serve on such teams, and provide advice in emergency and simulated situations.

Companies should assess whether their communications systems would retain integrity in any crisis. The adoption of coordinated planning and the training of teams across separate business units may ensure that communications breakdowns do not disrupt business operations unduly, and may minimise any loosening of ties between business units over a longer period of autonomous operation.

Human resources departments should consider how to handle local teams with diplomacy and dexterity, mindful of the divisive context, the worsening outlook, and the need to ensure staff look beyond immediate loyalties. In certain cases, local staff may come under pressure not to work for companies from particular jurisdictions, and citizenship may be a concern when posting executives overseas.

Boards will need to act to ensure that existing compliance regimes are fit for purpose, and should bolster them if in doubt. Such regimes should be sculpted to cope with somewhat conflicting demands from various jurisdictions. Independent advice is appropriate in such circumstances.

Companies should reappraise prior due diligence work. Decisions may have been made in a time of easy money, market optimism, and under a now outdated perspective, whereby investments were seen as apolitical. Boards will need to take particular note of accounts or clients brought in through acquisitions, as relying on others’ prior assessments would be risky.

Regulatory risks will require much closer attention, as investors can no longer assume supervisors will act in accord with principles previously seen as generally accepted. Risks may also manifest themselves in a range of unexpected areas, such as data management, outbound investment, or accounting standards, and also informally through protests or boycotts.

Executives should pay careful attention to sanctions issues. Reliance on a “list-based approach” may not provide adequate protection. Rather, companies will need to appraise risks on a sectoral or geographical basis, or on the basis of the technology in question, and perhaps ringfence issues accordingly. Moreover, companies should treat sanctions as liable to change; a long-term partner could become a liability at short notice.

Companies should ensure that press statements take account of local sensitivities, and as a rule should refrain from commenting on controversial issues, or matters beyond their immediate operational concerns. Heightened sensitivities mean that a clumsy communication from head office could easily result in damage to a local business, including by provoking protests or boycotts.

Ultimately, acting decisively is crucial. Once concerns are identified, companies should undertake a thorough appraisal, report findings in full, and take the measures necessary to protect interests quickly. Those who bury their heads in the sand will only leave problems to fester.


SVA ( 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 has three core lines of business, which are: Business Intelligence and Political Risk; Corporate Investigations; and Special Risk.

SVA also has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations.

SVA is based in Hong Kong, Singapore, and London and operates globally.