China Could Seize Taiwan to Fulfill Semiconductor Needs, US Researchers Warn

A Chinese employee wearing a mask and protective suit works on a smart chip production line in Sihong county in China's eastern Jiangsu Province on Feb. 16, 2020. STR/AFP

Thirst for the world’s lead-edging microchips could be a driving force for Beijing wanting to take over self-ruled Taiwan, U.S. researchers warned.

Taiwan is the home to some of the world’s largest and most advanced semiconductor plants, including the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Corporation (TSMC).

“Currently, there is no more important base of IC [Integrated Circuit] capacity and production than Taiwan,” stated U.S.-based research company IC Insights in a statement (pdf).

“China has a huge problem with its inability to produce leading-edge IC devices for its future electronic system needs—a problem that it believes can be solved through reunification with Taiwan by whatever means necessary.”

Earlier this month, Chinese leader Xi Jinping vowed to achieve reunification with the democratic island, for the sake of “preserving its sovereignty,” despite never ruling the country.

Researchers said Beijing has been yearned for the island’s capacity to make the world’s top-level computer chips.

China, being the world’s largest chip importer, sits at the lower end of the semiconductor value chain.

Last year, the United States placed restrictions on exports to China’s telecom giant Huawei and largest indigenous IC foundry SMIC, and “caused China to question how it will be able to compete in the future IC and electronics industries,” said IC Insights.

“Combined, China and Taiwan would hold about 37 percent of global IC capacity, almost three times that of North America,” according to its findings.

Be it washing machines, electronic devices, or fighter jets, millions of products nowadays depend on computer microchips, also known as semiconductors, to power electronics. Smaller chips come with better performance yet require more advanced technologies and equipment to make.

Research by IC Insights finds Taiwan and Korea are the only two countries able to produce chips below 10 nm, or one-hundredth of a micrometer. Led by TSMC, Taiwan by far holds the largest (63 percent) share of the leading-edge technology in the world, as South Korea-based Samsung holds the remaining 37 percent, data show.

The prolonged pandemic-induced global chip shortage has spotlighted the economic and strategic importance of Taiwan in chipmaking.

Workers produce LED chips at a factory in Huaian city in China's eastern Jiangsu Province on June 16, 2020. STR/AFP

The island’s dedicated independent semiconductor foundries are forecast to represent almost 80 percent of the total worldwide pure-play foundry market in 2021, according to IC Insights reports.

Meanwhile, Taiwanese companies hold almost 90 percent of Taiwan’s total IC capacity, researchers found. Taiwan also held the largest share of the capacity of any country or region in the world as of December 2020.

“While the Taiwanese economy would crater if China attempted a military takeover of the island nation, China’s economy would also suffer greatly,” IC Insights said.

“The question is whether China is willing to accept relatively short-term economic pain for the long-term benefit of having the largest amount of the world’s leading-edge IC production capacity under its control for many years to come.”

TSMC recently announced plans on Oct. 14 to open a new factory in Japan in 2024 to meet the long-term appetite for chips.

A logo of TSMC at its headquarters in Hsinchu city, Taiwan on Aug. 31, 2018. Tyrone Siu/Reuters

The director-general of the European Commission’s trade section said on the same day during a virtual forum that the European Union and Taiwan are natural partners with shared values when it comes to semiconductors.

The Taiwanese chip giant also said in 2020 that it will build a $12 billion factory in Arizona, to help the United States to reduce dependence on foreign-based supply chains of key technologies.

TSMC said in June that the construction has started.

Shares of  TSMC rose over 3 percent on Friday after the firm posted a higher-than-expected profit in the third quarter, compared with a 1.3 percent increase in the broader market.