Semiconductor ties between Taiwan and China comes under scrutiny

The development is likely to make a significant dent in China’s ambition to become a global player in the semiconductor industry.

The decision by the United States to cut off U.S. supplies to a Chinese chip-maker underscores growing tensions between the two countries over China’s ambition to become a global player in the computer chip market and the way it is using Taiwan companies to help it achieve this objective.

Following the U.S. move, United Microelectronics Corp (UMC), a Taiwanese chip giant, halted its research and development activities with China state-backed partner Fujian Jinhua Integrated Circuit Co Ltd.

In recent years, Taiwan firms, including UMC, have played a significant role in supplying Beijing with a steady pipeline of chip expertise in exchange for access to its fast-growing chip market.

In 2017, China imported $270 billion worth of semiconductors; the amount is more than its imports of crude oil.

Technology transfers

according to industry experts, in the last few years, Chinese companies have entered into at least ten technology partnerships with Taiwanese firms, luring Taiwanese talent with hefty salaries and generous perks.

“Such companies will need to also take care to ensure no patent or IP infringement is involved as the U.S. has export control means to restrict support of critical technology,” said Randy Abrams, an analyst at Credit Suisse in Taipei.

Among the most valuable tech transfers, for China, would be the ones that strengthen its foundry services and memory chip production. Given the complexity of manufacturing technologies and the intense capital requirement of these two sectors, the expertise from Taiwanese companies have played a significant role, said analysts.

However, the ongoing trade war between the United States and China have highlighted and raised concerns, of technology transfer between China and self-ruled Taiwan, which China considers as its own province.

Beijing has aggressively used “market-distorting subsidies” and “forced technology transfers” to capture traditional and emerging technology industries, said Brent Christensen, director of the United States’ de facto embassy in Taipei, in late September.

He went on to add, “These actions are harming the United States’ economy, Taiwan’s economy, and other economies.”

This is because, Taiwan is one of the largest exporters of IC globally and it could lose a key economic engine to China.

Significantly, Taiwan’s government views the cooperation with its chipmakers with China cautiously and has implemented policies to ensure its advanced technologies are not transferred.

“When businesses go to the mainland to invest in wafer production, they must accept controls including one that requires the manufacturing technology to be a generation behind,” said Taiwan’s economics ministry’s industrial development bureau.

Theft of intellectual property

The issue got highlighted last month following the Trump Administration placing China’s Fujian Jinhua under a list of entities that cannot buy components, software and technology goods from U.S. firms midst allegations of intellectual property theft by U.S.-based Micron Technology.

China’s Fujian Jinhua has denied the allegations.

According to industry experts, as a result of U.S. action, Fujian Jinhua now faces bigger challenges to reach high volume commercial production as was its expectations in 2020.

Last week, the U.S. Justice Department indicted both UMC and Fujian Jinhua with conspiring to steal trade secrets from Micron.

“Taiwanese tech companies need to carefully re-evaluate their positions and supply chain arrangements as the tension between the two super powers escalates,” said Mark Li, an analyst with Bernstein.

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