Taiwan firms trapped in worsening Sino-U.S. Cold War

August 15, 2022 08:39
Photo: Reuters

The military exercises of the People’s Liberation Army were a dress rehearsal for an air and sea blockade of Taiwan. Relations between the two sides have fallen to their lowest level since 1949.

Trapped in the middle are thousands of Taiwan companies who sell goods to the mainland and the U.S., the island’s two biggest export markets. They are struggling to retain access to both markets, as the Cold War between the two countries intensifies.

The biggest potential victim is Taiwan Semiconductor Manufacturing Company (TSMC). It is the world’s largest producer of semiconductors, with an annual capacity equal to more than13 million silicon wafers last year, most of them made in Taiwan. China accounts for 10 per cent of its sales and U.S. 65 per cent. It is Asia’s most valuable tech stock, ahead of China’s Tencent. At over US$440 billion, it ranks as the world’s 11th largest company by market cap.

Mark Liu, its chairman, met Nancy Pelosi, Speaker of the U.S. House of Representatives, during her packed schedule in Taiwan last week.

“The war brings no winners; everyone’s a loser,” Liu told CNN last week. The Ukraine war had created enormous damage for both Kyiv and Moscow and plunged the West in a likely recession, and an interruption of supply would create economic turmoil on either side, Liu said.

His meeting with Pelosi probably covered the 5-nanometre plant TMSC is building in Phoenix, Arizona; it is due to start production in 2024. It will be eligible for U.S. government funding under the Chips and Science Act President Joe Biden signed last week. It will spend US$52 billion in subsidies to support production of semi-conductors in the U.S, and aims to increase the global proportion of semi-conductors produced at home from the current two to 10 per cent.

In addition, in March, the U.S. government proposed “Chip Four”, an alliance of Japan, South Korea, Taiwan and the U.S. in the semiconductor supply chain to exclude China. Taiwan and Japan are willing to join, but South Korea has not yet expressed its position.

The nightmare for TSMC and other Taiwan hi-tech companies is that they will be forced to choose between selling to China or the U.S., but not both.

The economies of Taiwan and the mainland are mutually dependent. In 2021, Taiwan’s exports to the mainland and Hong Kong reached a record US$188.9 billion, mainly due to demand for computer chips.

Last year, the mainland imported US$432.55 billion worth of integrated circuits, of which 36 per cent came from Taiwan, according to the China Chamber of Commerce for Import and Export of Machinery.

Zhong Xinlong, a senior consultant at the Beijing-based China Centre for Information Industry Development Consultancy, said that the mainland was too big a market for any chip company to ignore.

“Washington uses heavy subsidies as bait to force chip companies to choose sides. But the move is not likely to produce the results it intends,” he said.

Aside from commercial considerations, the military manouevres greatly angered Taiwan people, including leaders of the chip industry. Liu said that a Chinese invasion would render the TSMC factories inoperable, with its sophisticated manufacturing sensitive to every disruption.

“Nobody can control TSMC by force. People in Taiwan have earned their democratic system. They want to choose their way of life,” he said.

Robert Tsao, founder of United Microelectronics Corp (UMC), a contract chipmaker, described the PLA’s military drills as “unbearable insolence”.

At a news conference on August 5, Tsao announced a donation of NT$3 billion (HK$800 million) to national defence. “I am disgusted with the lies and violence of the Chinese Communists. I hope this donation will awaken Taiwan people not to take dirt money nor fear death and to rise up to fight for their freedom, democracy and human rights.”

In a statement to mainland media, UMC said that Tsao had retired from the firm more than 10 years ago. “He has nothing to do with UMC,” it said.

Beijing has offered Taiwan the same “one country, two systems” formula used in Hong Kong. But the loss of democracy and freedoms and increasing mainland control here make it increasingly unattractive to Taiwan people.

What Liu and the other business leaders want is a continuation of the status quo in place since their government ended martial law in July 1987 – no independence, no reunification and no war.

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A Hong Kong-based writer, teacher and speaker.