China & Taiwan Update, October 9, 2026

US and Taiwanese authorities separately indicted 11 people in two cases for illegally reselling US-manufactured semiconductor chips to the People’s Republic of China (PRC). The PRC seeks to acquire advanced chips for the purpose of modernizing the People’s Liberation Army (PLA) and supporting PRC artificial intelligence (AI) development. Taiwanese prosecutors charged 10 individuals on October 6 with reselling export-controlled semiconductor chips to the PRC from 2017 to at least April 2026.[1] The 10 individuals allegedly forged end-user documents and falsely claimed to represent Taiwan’s National Chung-shan Institute of Science and Technology (NCSIST) to purchase the chips.[2] Taiwanese authorities stated that the PLA sought to acquire the advanced chips for use in missiles and radar systems.[3]

US authorities also arrested Greg Lui, a California resident, on October 1 for reselling servers containing around $300 million worth of export-controlled Nvidia chips designed to support large AI models.[4] Lui allegedly first exported the servers to Singapore and Malaysia to get around US export restrictions before illegally selling them to the PRC.[5] US and Taiwanese authorities have recently prosecuted several cases of semiconductor chip export control violations that have similarly involved smugglers falsifying end-user documents and routing exports through Southeast Asian countries to conceal their intent to sell advanced chips to the PRC.[6]

The PRC likely seeks to acquire advanced US-designed and manufactured semiconductor chips to boost domestic PRC AI development and PLA modernization, but also seeks to avoid becoming dependent on foreign chips.[7] The PLA has prioritized “intelligentization,” which emphasizes integrating AI into PLA kill chains, command and control, and logistics systems to enhance the PLA’s capabilities.[8] PLA writings envision coordinated swarms of AI-enabled unmanned systems as an important element of future warfare, and the PLA is actively working to develop these systems and capabilities.[9] Advanced semiconductor chips are a critical resource for the PLA to develop and field embedded AI systems in military vehicles, drones, and other equipment.[10] The PLA is likely also seeking to use AI to enhance its electronic warfare (EW) capabilities. A PLA-affiliated researcher used Claude to design software for coordinating simulated EW attacks against Taiwanese radar installations, air bases, and other targets between December 2025 and August 2026.[11]

Circumventing US export controls to acquire advanced semiconductor chips can offer additional benefits to the PLA’s military modernization efforts beyond intelligentization. The PLA can also use advanced chips to manufacture high-technology military equipment such as precision munitions and radar systems that do not involve AI.[12]

The PRC is likely trying to make the Philippines’ position on Second Thomas Shoal, a disputed feature in the South China Sea, increasingly untenable. The PRC likely aims to compel the Philippines to abandon its position on the Shoal to assert PRC sovereignty over the area. The Philippine Coast Guard (PCG) completed a medical evacuation of a Philippine Navy serviceman stationed on BRP Sierra Madre on October 8.[13] PCG spokesperson Jay Tarriela stated on October 8 that a China Coast Guard (CCG) vessel interfered with the evacuation, delaying it by several hours and putting the serviceman’s safety at risk.[14] A CCG spokesperson claimed that the CCG aided the operation and accused the Philippines of deliberately distorting the situation.[15] BRP Sierra Madre is a World War II-era warship that the Philippines intentionally grounded in 1999 to use as an outpost on Second Thomas Shoal. The PRC and the Philippines both claim Second Thomas Shoal.[16] The Philippines maintains a small garrison on the vessel and must regularly rotate and resupply it.[17] The PRC regularly interfered with these resupply missions until it concluded a provisional agreement with the Philippines to cease such interference after a violent encounter near the Shoal in June 2024.[18] The PRC harassed Philippine vessels attempting to resupply BRP Sierra Madre on September 24 for the first time since implementing the provisional agreement.[19] The PRC’s interference in both a Philippine resupply mission and a medical evacuation likely indicates that it no longer intends to honor the 2024 agreement.

The PRC likely aims to make it increasingly costly and risky for the Philippines to maintain its position on Second Thomas Shoal. This effort could force the Philippines to abandon the position over time, particularly as BRP Sierra Madre’s structural integrity degrades. Expelling the Philippines from Second Thomas Shoal would be a major symbolic victory for the PRC, as it would demonstrate the PRC’s ability to enforce its sovereignty claim over the feature and the South China Sea more broadly. The PRC would likely pursue similar denial efforts over other contested features in the South China Sea, such as Thitu Island, if its campaign against Second Thomas Shoal succeeds.

Illegal Semiconductor Resales to the PRC: US and Taiwanese authorities have indicted multiple individuals for illegally reselling US-manufactured semiconductors to the People’s Republic of China (PRC); in some cases routing chips through Southeast Asia to get around US export restrictions. The PRC likely seeks to acquire US semiconductors to further PRC artificial intelligence (AI) development and People’s Liberation Army (PLA) modernization.

South China Sea Disputes: The PRC interfered with a Philippine medical evacuation at Second Thomas Shoal. The PRC is likely no longer abiding by a 2024 provisional agreement with the Philippines to allow resupply missions to the shoal and is trying to make Philippine positions in the South China Sea increasingly untenable.

Cross-Strait Relations

The German government blocked PRC state-owned China Ocean Shipping Company (COSCO)’s planned acquisition of a German logistics firm on national security grounds. The PRC could use investment in overseas logistics firms to collect intelligence on sensitive logistics sites and build economic leverage over other countries. Germany’s economic ministry on October 7 blocked COSCO’s acquisition of an 80 percent in Zippel, a company that offers inland logistics transport primarily from the ports of Hamburg and Bremerhaven.[20] Germany’s Foreign Office and Ministry of Defense also warned against the deal, citing security concerns. A confidential memo seen by German media stated that Zippel plays a crucial role in providing logistical support to the German Armed Forces and NATO.[21] The memo warned that “elements of the European transport infrastructure influenced by China would not be available, or at least not without limitations, in the event of conflict or crisis.”[22] COSCO is the PRC’s largest maritime shipping company, operating over 450 container ships at hundreds of ports worldwide.[23] COSCO acquired a minority ⁠stake in a Hamburg container terminal in 2023.[24]

The PRC could be investing in foreign logistics firms in part to collect data on and possibly interfere with sensitive military logistics. Anonymous US officials recently told Reuters that some COSCO ships carried specialized surveillance equipment to intercept other countries’ military communications, including the United States.[25] COSCO and PRC officials denied the claims. Beijing could also leverage such investments to punish states for acting against PRC interests. COSCO suspended its operations at Panama’s Balboa port in March, possibly in retaliation for Panama canceling Hong Kong firm CK Hutchison’s contract to operate the port.[26]

The PRC is increasing its ability to counter virtual private networks (VPNs) and other edge devices, which enhances PRC hacking capabilities and Chinese Communist Party (CCP) censorship within the PRC. The Netherlands Defense Intelligence and Security Service and the Netherlands General Intelligence and Security Service published a report on October 7 forecasting that PRC cyber-attacks on vulnerable edge devices (firewalls, VPN gateways, portals, etc.) will increase in the coming years.[27] The report stated that PRC hackers are known to exploit vulnerabilities in such devices and that AI is making the hackers more efficient.[28] The PRC Embassy in the Netherlands denied the report, calling the claims “groundless accusations.”[29] The PRC has also reduced VPN reliability domestically by improving its ability to detect and block VPN traffic, as evident in an April 2026 crackdown on unauthorized domestic VPN use.[30]

VPNs mask users’ internet protocol (IP) addresses to hide their internet traffic and allow them to access blocked content. Beijing’s crackdown on VPNs reinforces CCP control over the domestic information space, as individuals in the PRC rely on VPNs to access blocked websites such as Google and . The Dutch report illustrates how PRC hackers can conduct offensive cyber operations by exploiting edge device vulnerabilities to access targets’ networks.

[1] dot com/News/front/archives/2026/10/07/2003865523; dot tw/news/asoc/202610060176.aspx; dot com/news/amp/story/7321/9797940 [2] dot com/News/front/archives/2026/10/07/2003865523; dot tw/news/asoc/202610060176.aspx; dot com/news/amp/story/7321/9797940 [3] dot tw/news/asoc/202610060176.aspx; dot com/news/amp/story/7321/9797940 [4] [5] [6] [7] [8] [9] [10] [11] [12] dot tw/news/asoc/202610060176.aspx; dot com/news/amp/story/7321/9797940 [13] [14] [15] dot cn/page/202610/1371874.shtml [16] [17] [18] [19] [20] [21] [22] [23] dot com/ / / /profile [24] [25] [26] [27] [28] [29] dot dcn/page/202610/1371808.shtml [30]