Taiwan and China-The Micro Chip war
The continued tensions between China and Taiwan are frequently in the headlines, which brings up the topic of "chips," also known as "the new oil." According to China, Taiwan is part of its territory and must be reunited with Beijing, even if that means using force. However, a recent sequence of trips to Taiwan by international politicians, including then-US House Speaker Nancy Pelosi and other European Union leaders, triggered displays of military power on both sides. China was also seen imposing number of restrictions on Taiwan such as suspension of Taiwanese citrus fruits and fish. In such a situation, many people have begun to question whether China may also target Taiwanese chips. To understand this, the current article will first define "chips," and the following section will explain why China cannot directly target Taiwan's chips for a variety of reasons.
The new oil: chips
According to the Congressional Research Service, a microchip, also known as an integrated circuit, micro-electronic chip, or computer chip, is a small electronic device made up of billions of components that stores, moves, and processes data (Service, 2021). They are now used in a variety of industries such as manufacturing, finance, healthcare, telecommunications, home appliances, and security. Therefore, one may imagine how their shortage could destabilize nearly all of the important economic sectors.
Why can't China afford to target chips from Taiwan?
China's economy is not only the world's second largest, but it is also the fastest growing. The global market for cutting-edge digital technologies is most active there. With more than 900 million internet users and a thriving consumer economy, the China-Britain Business Council claims that China is experiencing rapid and widespread deployment of emerging technologies, such as 5G, cutting-edge AI, IoT, and blockchain-based technology. CBBC estimates that the value of its digital economy is 30% of its GDP (Council, n.d.).
Though these achievements are worth celebrating for China, in recent years, it has also faced some challenges. One such challenge is their reliance on imports for certain essential raw materials, such as chips (almost 90%). As per the reports, China still struggles to meet demand despite producing 15% of the world's chip output as it consumes more than three quarter of the global chip output. Along with production problems, recent events have further exacerbated China's chip shortage.
The main reason for the growing chip shortage is that the pandemic has increased the use of electronics, resulting in increased demand for chips. Additionally, the United States has placed restrictions on the export of chips created using U.S. technology in an effort to cut off China's supply of crucial technology that it may have been using for advanced computer and weapon development. Furthermore, the ongoing trade dispute between the United States and China led Chinese businesses to hoard supplies of chips, which further triggered the shortage.
The shortage issue has worsened severalfold in the last two years. This impact is clearly noticeable in China's automobile industry. For example, in 2021, the chip scarcity forced manufacturers to build 7 million fewer vehicles, which in turn increased costs for new and used vehicles in China by 8% and 40%, respectively (Why does Taiwan make all the chips?, 2022).
The aforementioned reasons explain why there is a chip shortage in China and why it is critical for China to maintain a steady supply of them. But how would targeting Taiwan exacerbate the shortage? The answer lies in the fact that China imports chips mostly from three countries: South Korea, Taiwan, and the United States. Since the US and China are already embroiled in a trade war, as we have already mentioned, we cannot expect that the US will support China's efforts to overtake the US. As a result, China is left with only two options: Taiwan or South Korea. However, despite the fact that South Korea exports some chips to China, the latter is largely dependent on Taiwan for its advanced chips. Further, Taiwan continues to outpace China and other nations that make chips. In contrast to China, which could only build 7-nm chips in 2020, TSMC has already produced 3-nm chips and intends to produce 2-nm devices by 2025. This shows that Chinese companies are currently unable to manufacture these cutting-edge semiconductors in such small sizes.
Aside from this, an ample supply of chips from Taiwan is critical for China's ambitions, such as gaining a competitive advantage over the United States in global technology competition, supporting economic growth, and shifting to higher-value output to ensure the legitimacy of President Xi Jinping's third term.
Could China target Taiwanese semiconductors directly or indirectly in the future?
Though China has not attempted to directly target Taiwanese chips, it has attempted to undermine Taiwan's chip superiority indirectly. For instance, China suspended exporting natural sand to Taiwan in August 2022. Given that quartz sand, a type of natural sand, is an essential raw material for chip manufacture, many people have wondered whether this will have an impact on Taiwan's chip manufacturing industry or not. Taiwan presently consumes about 90 million metric tonnes of natural sand annually, of which a third is imported from the Chinese mainland, according to the China Daily (Zhihua, 2022). This means that Taiwan's chip manufacturing will undoubtedly be impacted if China decides to stop providing natural sand.
However, the possibilities of direct targeting are slim because the suspension would disrupt the entire supply chain, and the entire global economy would face the burden of a disrupted chip supply chain. As a result, analysts believe that China would not take such a risk, which is why China's dependence on Taiwan for chips is often referred to as the "island's silicon shield" against a Chinese attack (JAZEERA, 2022).
What steps is China taking to minimise its reliance on foreign chips?
China, which is steadily expanding its influence in almost every sphere of life, aspires to take the lead in chip production as well. According to Chinese President Xi Jinping, the country's greatest hidden danger is its reliance on foreign technology. He has therefore promised to improve its self-sufficiency in order to eliminate this threat (Jazeera, 2022). For instance, China issued "Guidelines to Promote National Integrated Circuit Industry Development" in 2014. According to these guidelines, China wishes to meet 70% of its semiconductor demand domestically by 2025. China announced a new, more ambitious goal in 2019: pledging to satisfy 80% of its domestic semiconductor demand via domestic production by 2030. Further, under the "Made in China" initiative, China has also pledged to invest $1.4 trillion between 2020 and 2025 in high-tech industries, including semiconductors.
References
1. Council, C.-B. B. (n.d.). Retrieved from China-Britain Business Council : https://www.cbbc.org/services/our-sector-expertise/tech-innovation
2. Jazeera, A. (2022, August 04). Why China is not sanctioning Taiwan’s key chip industry. Retrieved from Al Jazeera : https://www.aljazeera.com/economy/2022/8/4/why-china-is-not-sanctioning-taiwans-crucial-tech-industry
3. JAZEERA, A. (2022, August 04). Why China is not sanctioning Taiwan’s key chip industry. Retrieved from AL JAZEERA: https://www.aljazeera.com/economy/2022/8/4/why-china-is-not-sanctioning-taiwans-crucial-tech-industry
4. Service, C. R. (2021, April 20). China’s New Semiconductor Policies: issues for Congress. Retrieved from Congressional Research Service : https://crsreports.congress.gov/product/pdf/R/R46767
5. Why does Taiwan make all the chips? (2022, August 08). Retrieved from Compound Semiconductor news : https://www.csfusion.org/semiconductor/why-does-taiwan-make-all-the-chips/
6. Zhihua, L. (2022, August 03). Taiwan's chip manufacturing industry to be affected by Chinese mainland's export suspension. Retrieved from China Daily : https://global.chinadaily.com.cn/a/202208/03/WS62e9e98ca310fd2b29e7009f.html
Pic Courtsey-Michael Parulava at unsplash.com
(The views expressed are those of the author and do not represent views of CESCUBE.)
