WSJ : U.S. Probes Meeting Between Activision CEO and Option Buyer

U.S. Probes Meeting Between Activision CEO and Option Buyer
Authorities are looking into at least one meeting between CEO Bobby Kotick and one of three traders who made a timely options trade just before merger announcement

Authorities investigating timely trading in Activision Blizzard Inc. ATVI -0.16% securities are looking at at least one meeting between the videogame firm’s chief executive and one of three traders days before they placed a large bet on Activision shares, according to people familiar with the matter.
Activision CEO Bobby Kotick met with Alexander von Furstenberg in the week before Mr. von Furstenberg and media moguls Barry Diller and David Geffen bought options to purchase Activision shares at $40 each on Jan. 14. The options trade, which has generated an unrealized profit of about $59 million, was arranged days before Activision agreed to be acquired for $95 a share by Microsoft Corp. , The Wall Street Journal has reported.
The Justice Department is investigating whether the options trade violated insider-trading laws, the people familiar with the matter said. The Securities and Exchange Commission is separately conducting a civil insider-trading investigation, the people said.
Mr. Diller previously told the Journal in an interview that none of the men had material nonpublic information about the Microsoft-Activision deal. He confirmed they had been contacted by regulators.

“We had zero knowledge of that transaction and it belies credulity to think that if we did we would have proceeded,” Mr. Diller wrote Thursday in an email to the Journal. “It’s equally unlikely to believe Mr. Kotick, a sophisticated professional, in a social breakfast with Mr. von Furstenberg and his wife would have told them of the pending transaction.”
Mr. von Furstenberg disclosed his breakfast meeting with Mr. Kotick to law-enforcement authorities who interviewed him about the trade, according to a person familiar with the matter. Messrs. von Furstenberg and Geffen haven’t responded to the Journal’s requests for comment.
Alex von Furstenberg disclosed his meeting with Mr. Kotick to law-enforcement authorities who interviewed him about the trade, according to a person familiar with the matter.
PHOTO: DREW ANGERER/GETTY IMAGES
Mr. Kotick’s status in the investigation couldn’t be learned. He hasn’t been interviewed by law-enforcement authorities, some of the people said. An Activision spokesman declined to comment. The Justice Department declined to comment. The SEC didn’t immediately respond to a request seeking comment.
The meeting between Messrs. von Furstenberg and Kotick adds to the growing regulatory pressure on Activision and Mr. Kotick personally. The SEC is separately investigating Mr. Kotick and other Activision executives over how they handled workplace misconduct allegations, the Journal has reported, citing documents and people familiar with the investigation. That probe, along with an investigation led by the California Department of Fair Employment and Housing, has escalated since the Microsoft deal was announced. Activision has said it is cooperating with the SEC probe and has called a recent move by the California state agency to subpoena police records “an extraordinary fishing expedition.”
Mr. Kotick and Activision have been under intense scrutiny from employees, investors and regulators since a July lawsuit from the California state agency that alleged a culture of sexual harassment and gender pay disparity. Soon after the Journal reported in November that Mr. Kotick knew of some sexual harassment claims and didn’t report them to Activision’s board of directors, Microsoft reached out about a possible deal, the Journal has reported. Mr. Kotick has said he has been transparent with his board of directors, and Activision has called the Journal’s reporting “misleading.”
On Wednesday, a federal judge approved an $18 million settlement between Activision and the Equal Employment Opportunity Commission, which has been investigating Activision since 2018.
Experts said regulatory investigations are unlikely to derail the deal with Microsoft unless there is a so-called material adverse change that would affect the value of the deal, which is expected to close sometime next year. Mr. Kotick isn’t expected to remain at Microsoft, people familiar with the matter said.
Microsoft is required to pay Activision a breakup fee of about $3 billion after April 18, 2023, if Microsoft walks away from the deal, securities filings show. If Activision abandons the deal, it must pay about $2.3 billion.
Barry Diller has said that none of the men had any material nonpublic information about the Microsoft-Activision deal ahead of the options trade.
PHOTO: NIKKI RITCHER FOR THE WALL STREE

Mr. von Furstenberg arranged the options trade through JPMorgan Chase & Co. for himself and Messrs. Diller and Geffen, according to some of the people familiar with the matter. Mr. Geffen believed Activision was undervalued and would be acquired or taken private, and first contacted Mr. Diller with the idea for the trade, according to Mr. Diller.
“It’s a simple situation and a simple coincidence, which took place over 2 business days,” Mr. Diller wrote in the email. “All the information and records we are giving to the investigators will support that. I did not wait until I was 80 to participate in so obvious a fraud.”

Mr. von Furstenberg is Mr. Diller’s stepson, and Messrs. Diller and Geffen are longtime friends. Mr. Kotick is a longtime friend of Messrs. Diller and von Furstenberg, according to people familiar with their relationship.
Activision shares were around $63 at the time of the trade, meaning the options already were profitable to exercise, or “in the money.” Options holders stood to reap more if Activision’s stock price rose.

Mr. von Furstenberg is the founder and chief investment officer of Ranger Global Advisors LLC, a company that manages his family’s fortune, according to his LinkedIn profile and Ranger’s website. The firm manages more than $1 billion, the website says. An officer of Ranger Global Advisors declined to comment.
Call options give a trader the right to buy shares at a specific price by a certain date. The three men have yet to exercise the options, which don’t expire until early next year, the people said.
Traders using options are often looking to profit from a swing in share prices. Because options typically cost less than shares, they can amplify gains when traders bet right, particularly when they purchased options that were “out of the money”—the term for bets that aren’t profitable at the time the options are purchased. Options that are “in the money” at purchase tend to be more expensive and less risky because they can be immediately profitable to exercise.
The traders appear to have spent around $108 million to acquire the right to buy 4.12 million Activision shares, the people said. Those options if exercised today would be worth around $167 million, based on recent trading prices.
The value of the options would rise further if the deal closes at the stated per-share price of $95, which Microsoft has said is expected after midyear, compared with Activision stock’s Wednesday closing price of $80.36. If the men hold the options through a closing at that price, their profit stands to surpass $100 million, the people said.

>>> Obi-Wan Kenobi’s premiere will be two days late, but you’ll get two episodes

Obi-Wan Kenobi’s premiere will be two days late, but you’ll get two episodes at once

Disney’s highly anticipated Obi-Wan Kenobi Disney Plus series will now debut two days later than previously planned, but there will be two episodes available to watch instead of just one. The new schedule means you’ll be able to watch the show starting Friday, May 27th.

The company announced the news on Thursday with a video featuring Obi-Wan Kenobi star Ewan McGregor. Disney first introduced Wednesday debuts with Loki in 2021 (also with a video, though this one featuring star Tom Hiddleston), and that move was apparently successful enough that the company soon moved the release dates for all of its original series to Wednesdays. Despite the shift for Obi-Wan Kenobi’s premiere, subsequent episodes will still debut on Wednesdays, Disney says.

Obi-Wan Kenobi begins 10 years after the events of Star Wars: Revenge of the Sith, in which Anakin Skywalker completed his transformation into Darth Vader. Hayden Christensen is back to reprise his role as Vader, which I cannot wait for — the potential for memes is great. Disney debuted the first teaser for Obi-Wan Kenobi earlier this month, and if you’re a Star Wars prequel trilogy stan like I am, it’s likely to send some nostalgic chills down your spine.

TheVerge : FACEBOOK’S ALGORITHM WAS MISTAKENLY ELEVATING HARMFUL CONTENT FOR THE

FACEBOOK’S ALGORITHM WAS MISTAKENLY ELEVATING HARMFUL CONTENT FOR THE LAST SIX MONTHS
The social network touts downranking as a way to thwart problematic content, but what happens when that system breaks?

A group of Facebook engineers identified a “massive ranking failure” that exposed as much as half of all News Feed views to “integrity risks” over the past six months, according to an internal report on the incident obtained by The Verge.

The engineers first noticed the issue last October, when a sudden surge of misinformation began flowing through the News Feed, notes the report, which was shared inside the company last week. Instead of suppressing dubious posts reviewed by the company’s network of outside fact-checkers, the News Feed was instead giving the posts distribution, spiking views by as much as 30 percent globally. Unable to find the root cause, the engineers watched the surge subside a few weeks later and then flare up repeatedly until the ranking issue was fixed on March 11th.

In addition to posts flagged by fact-checkers, the internal investigation found that, during the bug period, Facebook’s systems failed to properly demote nudity, violence, and even Russian state media the social network recently pledged to stop recommending in response to the country’s invasion of Ukraine. The issue was internally designated a level-one SEV, or Severe Engineering Vulnerability — a label reserved for the company’s worst technical crises, like Russia’s ongoing block of Facebook and Instagram.

THE TECHNICAL ISSUE WAS FIRST INTRODUCED IN 2019 BUT DIDN’T CREATE A NOTICEABLE IMPACT UNTIL OCTOBER 2021
Meta spokesperson Joe Osborne confirmed the incident in a statement to The Verge, saying the company “detected inconsistencies in downranking on five separate occasions, which correlated with small, temporary increases to internal metrics.” The internal documents said the technical issue was first introduced in 2019 but didn’t create a noticeable impact until October 2021. “We traced the root cause to a software bug and applied needed fixes,” said Osborne, adding that the bug “has not had any meaningful, long-term impact on our metrics.”

For years, Facebook has touted downranking as a way to improve the quality of the News Feed and has steadily expanded the kinds of content that its automated system acts on. Downranking has been used in response to wars and controversial political stories, sparking concerns of shadow banning and calls for legislation. Despite its increasing importance, Facebook has yet to open up about its impact on what people see and, as this incident shows, what happens when the system goes awry.

In 2018, CEO Mark Zuckerberg explained that downranking fights the impulse people have to inherently engage with “more sensationalist and provocative” content. “Our research suggests that no matter where we draw the lines for what is allowed, as a piece of content gets close to that line, people will engage with it more on average — even when they tell us afterwards they don’t like the content,” he wrote in a Facebook post at the time.

Downranking not only suppresses what Facebook calls “borderline” content that comes close to violating its rules but also content its AI systems suspect as violating but needs further human review. The company published a high-level list of what it demotes last September but hasn’t peeled back how exactly demotion impacts distribution of affected content. Officials have told me they hope to shed more light on how demotions work but have concern that doing so would help adversaries game the system.

In the meantime, Facebook’s leaders regularly brag about how their AI systems are getting better each year at proactively detecting content like hate speech, placing greater importance on the technology as a way to moderate at scale. Last year, Facebook said it would start downranking all political content in the News Feed — part of CEO Mark Zuckerberg’s push to return the Facebook app back to its more lighthearted roots.

I’ve seen no indication that there was malicious intent behind this recent ranking bug that impacted up to half of News Feed views over a period of months, and thankfully, it didn’t break Facebook’s other moderation tools. But the incident shows why more transparency is needed in internet platforms and the algorithms they use, according to Sahar Massachi, a former member of Facebook’s Civic Integrity team.

“In a large complex system like this, bugs are inevitable and understandable,” Massachi, who is now co-founder of the nonprofit Integrity Institute, told The Verge. “But what happens when a powerful social platform has one of these accidental faults? How would we even know? We need real transparency to build a sustainable system of accountability, so we can help them catch these problems quickly.”

(ZH) Putin Signs Decree Ordering Gas Exports To Be Halted If Buyers Don't Pay In

Putin Signs Decree Ordering Gas Exports To Be Halted If Buyers Don't Pay In Rubles

Contrary to expectations that Vladimir Putin was bluffing about collecting rubles in exchange for Russian energy exports, moments ago a decree signed by the Russian president confirmed that that was not the case.
According to Bloomberg, Putin said he had signed a decree demanding payment in rubles for Russian gas supplies, which is set to begin April 1 as previously reported. According to the decree, while Russia will continue to supply gas at set volumes and prices, it will demand that buyers of gas open accounts in Russian banks, and warned that Moscow can halt gas contracts if buyers don't pay in rubles; additionally, new proceedings in EUR or USD could be blocked. Pushing what many viewed as a bluff to the edge, Putin said that active contracts will be halted if demands are not met, and explained that the move is meant to increase settlements in national currencies.
Putin's decree follows an earlier report in the Russian press that Gazprom was studying options of halting gas supplies to Europe amid RUB payment issues. It also follows comments from the Kremlin which suggested that it would look into the idea from lawmakers to ask other nations to pay for a wider range of Russia exports in rubles.
Indicating Russia's operational readiness to follow through with the plan, Interfax adds that Putin has ordered for special accounts for gas payments to be opened at Gazprombank which will sell gas FX on a Moscow exchange.
In kneejerk response to the news, US nat gas prices spiked - perhaps in anticipation that much of US output will now be LNG-ed over to Europe, potentially creating a US shortage in due course...
... while oil also rose from session lows following the latest SPR release jawboning which has yet to be confirmed by the White House.
Finally, now that it appears the ruble will have to be purchased by western powers, the currency has completed its roundtrip to pre-invasion levels.

FT : Water companies leak sewage into waters of England and Wales 370,000 times

Water companies leak sewage into waters of England and Wales 370,000 times in 2021
Latest data shows groups released effluent into rivers and the sea at a rate of 1,000 spills a day last year

Water companies in England face a clampdown on dumping raw sewage into rivers and the sea, as the latest official data showed there were more than 370,000 spillages last year.

But campaigners rejected the UK government’s proposals, which also cover Wales, as inadequate. The measures announced on Thursday include plans to cut discharges into bathing waters during the swimming season by 70 per cent by 2035.

The move came as the latest figures published by the Environment Agency showed that the nine largest water and sewage companies reported 372,533 spillages last year, down just under 8 per cent on 2020.

The worst performer was United Utilities, which released sewage into the environment in Manchester and north-west England 81,588 times last year. The company did not immediately respond to a request for comment.

The official data is not a true reflection of the number of spills as the government has since 2009 relied on water companies to monitor their own sewage outflows. Moreover, one reported spill could last several weeks.

Ofwat revealed earlier this month that several water companies had told the industry regulator they “had difficulty in stating whether a wastewater treatment works was operating in line with required standards” as they did not have monitors in place.

Along with a clamp down on spills into bathing waters by 2035, the government said it also proposed eliminating 40 per cent of total discharges — equivalent to 160,000 a year — by 2040 and by 80 per cent by 2050.

“We are the first government to set out our expectation that water companies must take steps to significantly reduce storm overflow. Today, we are setting specific targets to ensure that those storm overflows are used only in exceptional circumstances,” said George Eustice, environment secretary.

The water industry said that if the proposals were implemented it would “represent the single biggest investment in the water environment since the 1990s”, adding: “This level of transformation will require significant new investment over the next decade, building on the £3.1bn of spending between now and 2025.”

But clean-water activists said government was not acting fast enough. Ash Smith, co-founder of the campaign group Windrush Against Sewage Pollution (Wasp), which exposed thousands of illegal sewage spills by water companies, said the proposals were “way too little and will take way too long to deal with a serious environmental and public health crisis”.

Hugo Tagholm, chief executive of Surfers Against Sewage, said: “The level of public outrage on the sewage pollution scandal continues to grow by the day, yet we’re seeing a consultation today that provides us with targets and timeframes decades away.”

Although water companies are allowed to release a certain amount of sewage during heavy rains, evidence from citizen scientists such as Wasp has found that releases also occur during dry periods.

The government’s attempts at tightening up on spills comes as pressure is mounting on the industry, which was privatised more than 30 years ago. Just 16 per cent of coastal waters and rivers meet the minimum good ecological status, according to the Environment Agency.

England and Wales are among the only countries in the world to have fully privatised their water and sewage network, with three listed regional water monopolies and the rest owned by a clutch of private equity, sovereign wealth and infrastructure funds.

Although privatisation was intended to bring investment, this has fallen by almost a fifth in the past 30 years, from £2.9bn a year in the 1990s to £2.4bn now, according to research by the Financial Times.

Over the same time the companies, which were privatised with no debt, have borrowed £53bn, the equivalent of about £2,000 per household, much of which has been used to help pay £72bn in dividends.

>>> US Research Calls

Research Calls

  • Upgrades:
    • APA Corp. (APA) upgraded to Buy from Neutral at Mizuho; tgt $56
    • Baker Hughes (BKR) upgraded to Overweight from Equal Weight at Wells Fargo; tgt raised to $43
    • Cameco (CCJ) upgraded to Outperform from Market Perform at BMO Capital Markets
    • CDW (CDW) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $214
    • Core & Main (CNM) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $34
    • Five Below (FIVE) upgraded to Buy from Neutral at Citigroup; tgt raised to $205
    • Millicom International Cellular (TIGO) upgraded to Overweight from Neutral at JP Morgan
    • Vector Grp (VGR) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $16
  • Downgrades:
    • Advanced Micro (AMD) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $115
    • Akebia Therapeutics (AKBA) downgraded to Neutral from Buy at Mizuho; tgt lowered to $2
    • Akebia Therapeutics (AKBA) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $2
    • BNY Mellon (BK) downgraded to Peer Perform from Outperform at Wolfe Research; tgt $55
    • Dell (DELL) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $60
    • HP (HPQ) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt lowered to $31
    • Hub Group (HUBG) downgraded to Equal-Weight from Overweight at Stephens; tgt lowered to $93
    • Liberty Oilfield Services (LBRT) downgraded to Equal Weight from Overweight at Wells Fargo; tgt raised to $15
    • Navient (NAVI) downgraded to Neutral from Buy at Compass Point; tgt $18
    • PulteGroup (PHM) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $49
    • PVH (PVH) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $89
    • Sociedad Quimica y Minera (SQM) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt raised to $70
    • State Street (STT) downgraded to Peer Perform from Outperform at Wolfe Research; tgt $101
    • Taylor Morrison Home (TMHC) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $33
    • Trean Insurance Group (TIG) downgraded to In-line from Outperform at Evercore ISI; tgt lowered to $5.50
  • Others:
    • Adicet Bio (ACET) initiated with an Outperform at SMBC Nikko; tgt $28
    • Affimed Therapeutics (AFMD) initiated with an Overweight at Piper Sandler; tgt $7
    • BRC Inc. (BRCC) initiated with a Hold at Deutsche Bank; tgt $19
    • Codexis (CDXS) assumed with an Overweight at Piper Sandler; tgt $35
    • Coinbase Global (COIN) initiated with a Sell at US Tiger; tgt $135
    • Dassault Systemes (DASTY) initiated with an Underperform at Credit Suisse
    • ESS Inc. (GWH) initiated with a Hold at Deutsche Bank; tgt $7
    • Euronet (EEFT) initiated with a Buy at UBS; tgt $163
    • Huntsman (HUN) resumed with a Buy at BofA Securities; tgt $46
    • Ionis Pharma (IONS) assumed with an Overweight at Piper Sandler; tgt $54
    • Morphic (MORF) initiated with a Buy at Canaccord Genuity; tgt $68
    • NeoGames (NGMS) initiated with a Buy at Jefferies; tgt $20
    • Pearson Plc (PSO) resumed with a Neutral at BofA Securities
    • Qualtrics (XM) resumed with a Buy at BofA Securities; tgt $40
    • SAP SE (SAP) initiated with an Outperform at Credit Suisse
    • Snowflake (SNOW) initiated with a Neutral at Atlantic Equities; tgt $240
    • Travere Therapeutics (TVTX) initiated with an Overweight at Piper Sandler; tgt $42
    • Ventyx Biosciences (VTYX) initiated with a Buy at Canaccord Genuity; tgt $30
    • Warby Parker (WRBY) initiated with a Hold at Stifel; tgt $36
    • Western Union (WU) initiated with a Neutral at UBS; tgt $19

>>> US Gapping up


Gapping up
In reaction to earnings/guidance:

  • FLEX +4.3%

Other news:

  • CLVS +43% (Rubraca significantly improves progression-free survival in first-line maintenance treatment in women with ovarian cancer regardless of their biomarker status in phase 3 athena-mono trial)
  • DARE +22.4% (Organon and Daré Bioscience have entered into an agreement whereby Organon will license global rights to XACIATO)
  • KULR +7.8% (secured a battery safety contract with NASA to test its lithium-ion cells going into future battery packs designed for the Artemis Program)
  • VIPS +7.5% (authorizes $1 bln share repurchase program over the next 24-month period)
  • MYNZ +6.8% (completes successful pre-submission process with the FDA for ColoAlert's Pivotal Clinical Trial)
  • PRG +6% (to move to S&P Small Cap 600 from S&P MidCap 400)
  • OEC +4.9% (to raise rubber carbon black prices in Europe)
  • WB +4% (approves share repurchase of up to $500 mln ADS)
  • CORT +3.4% (presents results from Phase 2 study of relacorilant plus nab-paclitaxel)
  • HII +2.7% (REMUS 300 selected as US Navy's next generation small UUV program of record)
  • KC +2.5% (announces $100 million share repurchase program plan)
  • AUTL +1.7% (EMA has granted obe-cel Autolus' leading CAR T clinical candidate Orphan Medical Product Designation for treatment of acute lymphoblastic leukemia)
  • DDOG +1.6% (partners with MSFT for the Azure Cloud Adoption Framework)
  • CYRX +1.4% (announces New Prague facility's return to full production)
  • ONEW +1.2% (approves $50 mln share repurchase program)

Analyst comments:

  • CNM +2.8% (upgraded to Overweight from Equal Weight at Barclays)
  • FIVE +2.4% (upgraded to Buy from Neutral at Citigroup)
  • CDW +1.9% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • CCJ +0.8% (upgraded to Outperform from Market Perform at BMO Capital Markets)

>>> US Gapping down


Gapping down
In reaction to earnings/guidance:

  • PATH -14.6%, EXFY -9.4%, MASI -9.3%, PHR -6.1%, SHCR -5.5%, TPX -4.4%, FTK -3.8%, WBA -1.5%, BRZE -1.4%

Select Chinese ADRs showing early weakness:

  • IQ -10.9% HCM -5% JD -2.6% BIDU -2.2% BABA -1.5% LI -0.7%

Other news:

  • YNDX -21.3% (Yango Deli unit exploring strategic shifts in the UK and France according to Bloomberg)
  • FRGI -7.4% (to be removed from S&P SmallCap 600)
  • AMLX -6.2% (FDA advisory committee votes 6-4 for "no" on effectiveness of AMX0035 for the treatment of ALS)
  • MDV -5.5% (files for $200 mln mixed securities shelf offering)
  • BOLT -2.5% (files for $250 mln mixed securities shelf offering)
  • HESM -2.5% (prices secondary offering of 8.9 mln shares of Class A stock at $29.50 per share)
  • FFIE -1.4% (provides update on status of filings and investigation)

Analyst comments:

  • HPQ -4% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
  • DELL -3.3% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • AMD -2.3% (downgraded to Equal Weight from Overweight at Barclays)
  • HUBG -0.9% (downgraded to Equal-Weight from Overweight at Stephens)

WSJ : China-Taiwan Tensions: What’s Behind the Divide

China-Taiwan Tensions: What’s Behind the Divide
Beijing is flexing its military power in response to growing U.S. support for the island; here’s a primer on the frictions

Russia’s invasion of Ukraine has drawn parallels with Taiwan, a global flashpoint far to the east with the potential for an even more destructive conflict.

Taiwan, a self-ruled island of 24 million people roughly 100 miles off China’s southeastern coast, is a vibrant democracy that, like Ukraine, has lived for years under the cloud of conflict with a vastly more powerful authoritarian neighbor. The war in Ukraine has rattled many in Taiwan, renewing interest in preparing to resist an invasion by China, which regards the island as a renegade province and has vowed to take control of it—if necessary, by force. Russia’s offensive likewise is offering lessons that China’s military, the People’s Liberation Army, can take on board should it decide to launch an assault across the Taiwan Strait.

For all the similarities between Ukraine and Taiwan, there are important differences. At the top of the list are the parties involved: A conflict over Taiwan is likely to include direct U.S. involvement. There is no indication war over Taiwan is imminent, but if one broke out, it could pit the world’s two largest militaries against each other, with the world’s two largest economies hanging in the balance.

Here’s a look at the past and present of tensions between China and the U.S. over Taiwan, and what it could mean for the future of the balance of power, in Asia and beyond.

What’s the latest on the China-Taiwan tension?
Tensions have been rising since then-President Donald Trump made it U.S. policy to tighten ties with Taiwan. That has continued under President Joe Biden, with the U.S. sending weapons, special military training units and delegations of former officials in a show of support for Taiwanese President Tsai Ing-wen, whom Beijing sees as dangerously pro-independence.

The friction has heated up over the past year, with the People’s Liberation Army sending fighter jets, bombers and spy planes on hundreds of sorties near Taiwan—often in response to the presence nearby of U.S. aircraft-carrier strike groups.

The temperature climbed higher after Russia invaded in Ukraine. Days after Russian President Vladimir Putin announced the “special military operation,” the U.S. sent the Navy destroyer USS Ralph Johnson on a course through the Taiwan Strait. President Biden followed up a few days later by sending a delegation of former military officials, including retired Adm. Mike Mullen, former chairman of the Joint Chiefs of Staff, on a two-day visit to Taipei.

In response, China’s Foreign Ministry has issued a series of angry responses, denying any similarity between Ukraine and Taiwan and dismissing U.S. displays of support for Taiwan as “futile.”

What is Taiwan’s relationship with mainland China?
Taiwan was controlled by Japan for half a century until the end of World War II, when it became a part of the Republic of China, ruled by Chiang Kai-shek’s Nationalist Party, also known as the Kuomintang.

Though the mainland was taken over by Mao Zedong’s Communist forces in China’s civil war, the island remained under Kuomintang control after the war ended in 1949. Tensions often spiked in the following decades. China shelled offshore islands held by Taiwan in the 1950s, and the Kuomintang for many years harbored ambitions of recovering the mainland from the Communists.

Taiwanese increasingly view mainland China as a foreign place. In the early 1990s, fewer than 20% of people on the island identified themselves as exclusively Taiwanese, with most seeing themselves as at least partly Chinese. By 2021, only a third identified themselves as both Chinese and Taiwanese, with most of the rest describing themselves as exclusively Taiwanese.

Although Mandarin is the dominant language in both places, Chinese pressure has helped fuel Taiwanese interest in the island’s local languages.

How has Taiwan responded to the tensions with China?
For years, defense analysts have questioned Taiwan’s dedication and approach in preparing for a potential Chinese invasion. Taiwanese soldiers and reservists have themselves expressed concerns about training and readiness.

In response, Taiwan’s government established an agency to revamp reserve forces. The Taiwanese military has purchased more of the type of mobile weaponry that American analysts say it will need to repel Chinese forces. It has also staged exercises it hopes will deter Beijing from contemplating an invasion.

More recently, Taiwanese military officials have said that the war in Ukraine has spurred them to further improve combat-readiness training, though they declined to provide details.

Can China invade Taiwan?
Defense and political analysts generally agree that China’s military, which dwarfs Taiwan’s, could invade and eventually take control, especially if the U.S. and other powers don’t intervene. Last year, Taiwan’s defense minister warned lawmakers that by 2025 the PLA would be capable of launching a full-scale attack on Taiwan “with minimal losses.”

A successful invasion would be a challenge, however. The PLA would have to cross choppy seas and land significant forces on Taiwan’s heavily fortified western shore. China’s military is well-equipped but untested, having not fought a war since a border skirmish with Vietnam in 1979. And even if the other countries don’t get involved, the war in Ukraine provides a template for advanced democracies to cooperate on crippling sanctions against a major power that launches an unpopular war.

Is there an equivalent of NATO for the Asia-Pacific region?
There is no formal military alliance among Pacific states akin to the North Atlantic Treaty Organization. Even if there were, Taiwan would likely be shut out, as it has diplomatic recognition from only a small number of small states. The U.S. and most other countries long ago switched recognition to Beijing, which has exerted pressure on international bodies like the World Health Organization and World Trade Organization to deny Taiwan full membership.

Recently, the U.S. has strengthened informal alliances that might come into play were China to invade Taiwan. The Biden administration has revived a grouping that combines the U.S., Japan, Australia and India—known as the Quad—with the aim of countering China’s influence and deterring a potential conflict in the region.

Last year the U.S., Australia and the U.K. launched the Aukus security partnership, which focuses primarily on providing nuclear-powered submarines to Australia—a move that military analysts see as an effort to take advantage of China’s relative weakness in undersea combat.

China has blasted both efforts as a U.S.-led attempt to revive a “Cold-War mentality.”