The tensions between China, Taiwan and the USA should not limited to air disputes. Military maneuvers And drill on the high seas. The shadow conflict also takes place on a technological level.
One of the primary reasons for the deepening geopolitical divide between China on the one hand and Taiwan and the USA on the opposite is Dominance over global semiconductor supply chainsThis is because semiconductors – or microchips – does all the pieces from smartphones and residential office software to critical infrastructure and advanced military hardware.
As international demand for advanced microchips is increasing rapidly, not least resulting from the rapid growth of artificial intelligencein addition to its strategic value for the worldwide economy and the progress of individual nations. China today spends a lot Importing microchips in addition to oil imports.
This increasing global dependence on semiconductors represents one other Complexity of the simmering tensions between China and TaiwanToday, Taiwan is the the world's largest and most recent microchip producerand China is the largest semiconductor consumer on this planet.
As Researcher in geopolitics and advanced technologieswe see the competition for control of the microchip supply chains as one among the decisive battles of the twenty first century. Taiwan's experience could serve for instance for the United States, which on September 6, 2024 announced a brand new wave of export controls on semiconductor goods.
The world's chip manufacturer
Taiwan doesn’t have turn into the worldwide semiconductor market leader by probability. The self-governing island has been producing high-quality microchips for a long time, thanks largely to its flexible manufacturing network and world-class pool of engineering talent.
But Taiwan faces a difficult balancing act in maintaining its market dominance in semiconductors, especially with regards to exporting advanced technologies to China. On the one hand, Taiwanese politicians are understandably determined to avoid political entanglements with a rustic that considers the island as its own territory and to retain the island's mental property. In addition, Taiwan wants to forestall microchips from powering the Chinese missiles currently geared toward the capital Taipei.
The path to chip regulation
Until the early Nineties, technology transfer to China prohibited under Taiwanese lawBut the regulations were poorly enforced. As a result, Taiwanese firms often circumvented existing sanctions by routing their investments through what was then British Hong Kong. In fact, the chip industry was a lucrative source of income for the island.
Taiwan’s approach to regulating the flow of technology began to vary in 1993, when President Lee Teng-hui signed the “no rush, be patient“policy. The strict ban was relaxed and replaced by a system through which sophisticated technologies, deals valued at over $50 million, and special critical infrastructure projects were subject to additional oversight.
Developed over a long time, this “outbound investment screening” system includes several controls designed to guard Taiwan's core chip technologies. Taiwanese authorities are actively involved in monitoring and controlling the investment decisions of the island's semiconductor firms that involve China. Officials also strive to be sure that local chipmakers are aligned with Taiwan's strategic interests while minimizing political ties with its neighbor.
During the screening process, Taiwanese firms must submit detailed investment plans to government-appointed auditors for approval. For example, if a Taiwanese semiconductor company resembling the world's largest chip manufacturer TSMCis considering constructing a brand new factory in China, it must first undergo a rigorous approval process.
Change calculations
While the cautious change after all now seems prescient in light of accelerating geopolitical tensions, on the time it was seen as inconsistent with the direction of more open global trade relations with China. The restrictive human rights considerations that had limited Western trade with China were relaxed within the Nineties after intensive Lobbying by US firmsIn 2000, US President Bill Clinton granted China everlasting normal trade relationsand thus paved the best way for his Joining the World Trade Organization a yr later. Trade with China, including within the high-tech sector, exploded after that.
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But Washington’s strategic considerations in trade with China have modified dramatically over the past decade. In 2018, the US described China as strategic competitorwith several Chinese hackers and the federal government itself being named as national security threats. By August 2023, President Joe Biden headed the Ministry of Finance To draft regulations for the event of a foreign investment security program to guard semiconductor, quantum and AI technologies.
A number of months later, the US comprehensive restrictions on trade in advanced chips and chip manufacturing equipment with China. In early 2024, the European Union published a White paper and suggest doing the identical.
Of course, Taiwan has its own specific political concerns with regards to China. Given Beijing's long-standing ambition to “reunify” Taiwan with the mainland, as Chinese leaders put it, local officials are particularly aware that doing business with China could have unpredictable and damaging political repercussions.
The Taiwanese National Security Office has long warned that Beijing is using the economy to secretly advance its political ambitions, including by utilizing Taiwanese capital to construct influence and proxies inside Taiwan. And at the tip of 2023, Taiwan's National Science and Technology Council announced a listing of over 20 core technologies The aim was to forestall Beijing from acquiring the know-how and raw materials for producing chips smaller than 14 nanometers.
New challenges for Taiwan’s regulation
Taiwanese authorities and firms have expanded the exit control system to curb Chinese influence. In recent years Further principles To protect Taiwanese dominance within the semiconductor sector, measures were introduced, including requiring Taiwanese investors to retain a majority stake in all Chinese subsidiaries.
Nevertheless, Taiwan's foreign investment control system is facing quite a few scrutinies. It is designed to curb the transfer of sophisticated Taiwanese technologies to China, while it must also monitor Taiwanese financial investments in China's booming chip manufacturing sector.
In 2022, for instance, the Taiwanese technology group Foxconn announced an investment in Tsinghua Unigroup through its Chinese subsidiary. Tsinghua Unigroup is backed by China's National Integrated Circuit Industry Investment Fund and controlled by a Beijing-based private equity firm. Because Foxconn did not submit the required pre-approval application to the authorities answerable for foreign investment, the Taiwanese government imposed a positive on the corporatewhich eventually withdrew its investment.
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China's growing chip industry can also be expanding its local supply chain, raising questions on whether Taiwan should extend restrictions on other suppliers linked to semiconductor manufacturers. After the U.S. imposed export controls on China in late 2023, China's Huawei aggressively expanded its chip production network by leveraging its subsidiaries and Taiwanese suppliers. Four Taiwanese semiconductor firms that had previously been approved for foreign investment, were subsequently charged To support Huawei in constructing the domestic chip supply chain in China.
Confronting China's ambitions
As access to Taiwanese semiconductors becomes increasingly restricted, China is aggressively pursuing larger technological autonomyThis was achieved by reducing dependence on imports of sophisticated equipment and materials from the United States, Japan, the Netherlands and Taiwan.
There are legitimate concerns within the West that tightening international export restrictions on microchips and related suppliers could inadvertently strengthen China's determination to speed up the expansion of its domestic semiconductor production.
Official data seem to verify this view; China’s total imports of microchips in 2023 were below Level 2017. Exports of Taiwanese chips to China decreased by 18% in 2023.
Meanwhile, China’s National Bureau of Statistics reported that total domestic chip production grew by 40% in the primary quarter of 2024. Its share of the worldwide capability for manufacturing 10-22 nanometer logic chips could increase from 6% to 19% until 2032.
But these data don’t necessarily mean that China is near technological autonomy. Most increases in domestic chip production are for “mature” chips for home appliances and electric vehicles, reasonably than the cutting-edge chips needed to speed up AI computing power.
China, meanwhile, still relies on Taiwan for its semiconductors. The decline in overall chip imports may very well be resulting from international export restrictions on essentially the most advanced semiconductors needed for high-end smartphones and other AI-driven high-performance computing products.
Coordination of international efforts
Restricting China's access to the worldwide superconductor supply chain is a challenge. While this makes China depending on Taiwanese chips – and will function a brief shield against invasion – it could also increase Beijing's insecurities and prompt President Xi Jinping to speed up his efforts to turn into technologically self-sufficient within the production of advanced chips. At the identical time, banning these chips outright has not prevented China from Manufacturing a variety of semiconductors using foreign capital and technology.
To meet this challenge, Taiwan's control mechanisms must not only remain flexible and vigilant – they have to even be supported by coordinated international motion. Only then will it’s possible to slow the advance of authoritarian regimes within the AI race.
