China escalated tensions with Taiwan by announcing comprehensive military exercises around the self-governing island, following its earlier sanctions against US defence companies over Washington's latest arms sales package. The "Justice Mission-2025" exercises represent Beijing's most significant military response since imposing symbolic sanctions on 20 US defence firms and 10 executives.

Military Exercise Escalation

The Chinese military announced that army, navy, air force, and rocket force units would participate in the drills beginning Monday, designed to "test the actual combat capability of theatre troops in joint operations." The exercises include live-fire training in five designated blocks around Taiwan.

"It is a stern warning against 'Taiwan Independence' separatist forces, and it is a legitimate and necessary action to safeguard China's sovereignty and national unity," stated Senior Colonel Shi Yi. The People's Liberation Army advised that "any irrelevant vessel or aircraft is advised not to enter" the designated drill zones.

Comprehensive Sanctions Package

The military exercises follow China's announcement of sanctions against major US defence contractors and senior executives. The measures include asset freezes and comprehensive business restrictions designed to isolate the targeted entities from Chinese operations.

Major companies affected include:

• Boeing's St. Louis operations
• Northrop Grumman Systems Corporation
• L3Harris Maritime Services
• Anduril Industries
• Vantor (formerly Maxar Intelligence)

The individual sanctions specifically target Palmer Luckey, founder of Anduril Industries, and Vantor Chief Executive Officer Dan Smoot, along with eight other senior executives from the sanctioned firms.

Record Arms Deal Triggers Response

Both the sanctions and military exercises stem from the State Department's approval of an arms sales package worth up to $11.00 billion for Taiwan, marking one of the largest ever US weapons deals for the island. The package covers equipment including missiles, drones and artillery systems.

Historical Context and Escalation Pattern

These represent the first significant PLA drills off Taiwan since operations conducted in April, which tested blockade capabilities and included mock strikes against fictitious targets, including ports and energy infrastructure. Since Taiwanese President Lai Ching-te assumed office in May, Beijing has increased military intimidation of the democracy of 23 million people.

China views Taiwan as a breakaway province that must ultimately be brought under its control, by force if necessary, a position Taipei firmly rejects. China vowed to "take effective and strong measures to safeguard national sovereignty" in response to the US arms authorization, demonstrating an escalating pattern of military and economic responses to US-Taiwan cooperation.

The UBS SDIC Silver Future Fund LOF, China's only pure-play silver investment vehicle, experienced a dramatic 10.00% decline, hitting the lower circuit limit after fund managers warned investors about unsustainable market conditions. The crash came after three consecutive trading sessions of 10.00% upper circuit gains, highlighting the extreme volatility in silver-linked investments.

Silver Market Surge Drives Fund Premium

The fund's dramatic movements coincide with silver's exceptional performance in global markets. Silver prices crossed the $72.00 per ounce mark, driving year-to-date gains past 150.00% and positioning the precious metal for its strongest annual performance since 1979.

Fund Management Implements Risk Controls

In response to the excessive premium buildup, UBS SDIC Fund management has implemented several protective measures:

• Tightening subscription rules for new investors
• Limiting class C share subscriptions to ₹100.00 from the previous ₹500.00 limit

Class C shares represent the easier method for investors seeking short-term gains in the fund.

Premium Risk Warnings Issued

The fund's management has issued multiple warnings about the substantial premium the fund trades at compared to its underlying assets. Key points include:

• The fund's underlying holdings consist of silver contracts traded on the Shanghai Futures Exchange
• At the start of the month, the fund's premium over these underlying assets stood at 7.00%
• The premium expanded dramatically to 62.00%, creating significant risk exposure

Market Implications and Risk Assessment

The fund managers have explicitly warned investors that the high premium over the underlying asset value poses substantial risks for steep losses should silver futures prices reverse. Notable observations include:

• The 220.00% year-to-date performance of the China Silver Fund significantly outpaced the 128.00% rise in Shanghai-traded silver futures
• The dramatic circuit-to-circuit movement from upper limits to lower limits demonstrates heightened volatility risks
• The fund's recent 10.00% fall in the lower circuit after three days of gains underscores the fund manager's warning about the unsustainable premium

This volatility comes amid silver's remarkable 150.00% yearly surge, highlighting the potential risks in the volatile silver market.