01/13/2022, 12.01
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Taiwan’s ‘silicon shield’ for independence from Beijing

by Emanuele Scimia

The island is the world's largest producer of the precious components used for key civil and military technologies. Both China and the USA depend on Taiwanese production. A Chinese invasion would endanger the global tech supply chain. But experts warn "microchip policy" cannot exclude the outbreak of a conflict.

Rome (AsiaNews) - With the pandemic and the related increase in demand for technological items, Taiwan has expanded its production of microchips.

TrendForce reports that in 2021 the global market for valuable electronic components rose to nearly 79 billion euros. Sixty-four percent of that is attributable to Taiwanese sales; 92 percent if more advanced chips are considered: Many observers read this as an insurance policy for Taipei's survival as a de facto independent state from Communist China.

Taiwan Semiconductor Manufacturing Company Ltd (Tsmc) produces 90% of the microchips (or semiconductors) used worldwide. It is the 11th largest company in the world by market capitalization. It invested €26 billion in 2021, nearly double Taipei's budget for its own defence.

Taiwan's exports to China came in at 110 billion euros in 2021, a growth of almost 23% from the previous year. The increase in sales of electronic components was 23.3%. Data from U.S. Congress reveals that 60% of global demand for semiconductors in 2020 came from China. More than 90% of the microchips used by the Asian giant is imported or produced on Chinese territory by foreign companies (including Tsmc). As Reuters reports, in the first three months of 2021 half of Taiwanese exports to China were microchips.

Beijing wants to strengthen its own microchip industry in an effort to reduce dependence on Taiwan: the data on technology purchases from Taipei reveal that these efforts have so far failed. Analysts point out that the Chinese microchip industry lags about ten years behind Taiwan’s, and the gap can only continue to widen.

Currently Taiwanese capabilities to produce chips at less than 10 nanometers, used in various civilian and military technologies, especially in artificial intelligence, remain unmatched. That said, usually the components are developed and designed by US labs.

Tsmc has already started pilot production of 3-nanometer semiconductors and research to make 2-nanometer ones. Taiwanese authorities also report that local and foreign companies plan to invest 94 billion euros in the domestic chip industry by 2025.

China's delays in developing domestic production, combined with US sanctions against Chinese hi-tech companies, lead Taiwanese authorities to believe that Beijing's imports of microchips will continue to grow. Another factor contributing to this trend is the demand for semiconductors from foreign companies present in China.

The flip side of the coin is that Taipei will not be able to realize one of its main objectives: to emancipate itself from the Chinese market and diversify its commercial partners. For the time being, the island has reduced its share of investment in mainland China: in the first 11 months of 2021 it amounted to 4.2 billion euros, an annual drop of 14.5%.

China considers Taiwan a "rebel province", and has never ruled out reconquering it by force. The island has been de facto independent from Beijing since 1949; at that time Chiang Kai-shek's nationalists found refuge there after losing the civil war on the mainland to the Communists, making it the heir to the Republic of China founded in 1912 (which in turn had ended the two-thousand-year-old Chinese empire).

Initially a one-party dictatorship (Chiang's Kuomintang), in the late 1980s and mid-1990s Taiwan became a vibrant democracy, as well as a very dynamic market economy. In the eyes of the Chinese leadership, Taiwanese President Tsai Ing-wen is a dangerous secessionist. Tsai does not recognize the "one China principle," according to which there is only one China and it is represented by the government in Beijing.

Like the Chinese, the U.S. depends on Taiwanese microchips, making the island indispensable to both competing powers. In 2021, the shortage of semiconductors - due to the high demand for technology products generated by the pandemic - has created problems for the production of many goods, such as cars: a warning of what could happen to the global tech supply chain if Taiwanese production were to stop due to a conflict.

The U.S. has official diplomatic ties with Beijing, but without accepting the Chinese position that Taiwan is part of China. Through the Taiwan Relations Act, the U.S. has promised to defend Taipei, primarily with military supplies.

Adopted in 1979 after the formal diplomatic recognition of Communist China, the measure does not specify the actual nature of the U.S. commitment: This "strategic ambiguity" produces continuous tensions with the Chinese government.

In case of conflict, the scenarios are as gloomy for Washington as they are for Beijing. Should China take back the island the U.S. could lose its supply of microchips. Even if the invasion were to succeed, China would risk finding the Tsmc plants destroyed by the fighting.

This is why the Taiwanese speak of their "silicon shield" against a Chinese coup and as a guarantee of US support. However experts, especially in the USA, warn that economic interdependence is rarely enough to prevent a war.



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