Taiwan looks to ‘silicon shield’ to help deter war with China

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As China’s menacing of Taiwan escalates, the self-governed island is looking to what President Tsai Ing-wen calls its “silicon shield,” the Asian territory’s indispensable role in making cutting-edge microchips, to help deter a full-scale attack by Beijing.

About 90 per cent of the world’s advanced semiconductor manufacturing capacity is located in Taiwan and a sizable portion comes from fabrication plants throughout Hsinchu Science Park, where tea plantations once stood. About 60 kilometres southwest of the capital in Taipei, it’s the Silicon Valley of Taiwan and a mecca for foreign politicians who visit the island to show support.

Both China and the West rely heavily on Taiwan for these fingernail-sized chips, found at the heart of modern technology from smartphones to cars to medical devices. This affords Taiwan protection from attack, Taipei hopes, because China can’t risk destroying advanced semiconductor production – and the West can’t allow it.

As Taiwan seeks to enlist foreign democracies to stand with it against Chinese aggression, it’s waging a PR campaign to draw broader attention to how an invasion would cost the West dearly by severely disrupting the supply of advanced semiconductors. Foreign parliamentarians are invited to tour Hsinchu Science Park.

U.S. House of Representatives Speaker Nancy Pelosi underlined this point during her August visit to Taiwan, a trip that triggered aggressive military exercises by China which encircled the island with warships for days.

Beijing’s authoritarian rulers consider Taiwan a breakaway province even though the Chinese Communist Party, which seized power on the mainland more than 70 years ago, has never governed the island. Beijing has not ruled out the use of force to bring Taiwan under its control.

During her visit, Ms. Pelosi reportedly talked with Hsinchu Park’s most famous businessman, Mark Liu, chair of Taiwan Semiconductor Manufacturing Company TSM-N. It’s the most valuable company in Asia with a market capitalization worth hundreds of billions of dollars. TSMC’s clients include Apple and Qualcomm.

Mr. Liu heightened international concern recently about the fate of Taiwan’s semiconductor industry were the island to fall to China, telling CNN in a rare interview that TSMC would be lost if Beijing seizes the island. An invasion would render every “TSMC factory non-operable,” he said, and create “great economic turmoil.”

He predicted a potential invader “would think twice” and said each of his company’s sophisticated facilities “depends on the real-time connection with the outside world,” and materials and spare parts and software from Europe and Japan and the United States. That supply chain would dry up under Chinese rule, he said.

Mr. Liu underlined his point by saying: “Nobody can control TSMC by force.”

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Even as allies move to shift advanced semiconductor production to other countries, as the U.S. is doing with a US$12-billion TSMC plant in Arizona, Taiwan is taking steps to preserve its crucial role in the industry, announcing investments this month to help next-generation semiconductor technology and to expand or construct more industrial parks such as Hsinchu.

On Friday, Taiwan’s Ministry of Foreign Affairs arranged for foreign journalists to tour the science park, where workers in head-to-toe protective suits churn out advanced chips at top manufacturers including United Microelectronics Corporation and Macronix International.

The message, intended or not, was that keeping Taiwan stable matters.

“Taiwan is the centre of the world today because of semiconductors,” Macronix chairman and CEO Miin Wu told reporters at company headquarters. “If Taiwan semiconductors are in trouble, that means there will be an impact on the world .... take my word for it.”

Richard Cronin, a fellow with the Washington-based Stimson Center, warns the hit to the global economy from the disruption of a Chinese attack on Taiwan would “make the supply chain impact of the COVID pandemic seem like a mere hiccup in comparison.”

He said Chinese semiconductor companies can only produce about 6 per cent of chips needed to supply Beijing’s world-leading consumer electronics industry. China depends on Taiwan alone to make up 70 per cent of the deficit. TSMC also fabricates, under contract, 92 per cent of the most advanced chips designed by U.S. semiconductor companies, he said.

Not everyone puts faith in the shield theory.

Bernard Loo, a senior fellow with the Military Studies Programme at the S. Rajaratnam School of International Studies in Singapore, said he doesn’t think a “silicon shield” exists.

He said Beijing would likely invade Taiwan should the island ever formally declare independence from China, regardless of the economic cost. “China has always made it clear that the ‘red line’ is a Taiwanese declaration of independence; consequently, anything other than a military invasion of the island in the event of the red line being crossed will constitute an irreparable loss of credibility for China, silicon shield or no silicon shield.”

Taiwan’s semiconductor riches are attractive, but “there is ample evidence of China undertaking policies that are not exactly conducive to the country’s economic outlook,” Mr. Loo said, pointing to Beijing’s “continued insistence on a zero-COVID policy, and the impact that the continued lockdowns have had on the Chinese economy.”

With a report from Daniel Ceng in Hsinchu