How did enemy Taiwan become a chip bastion, while China kept on wringing its hands? Now war like situation between the two

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A war-like situation has arisen between Taiwan and China. China has started military exercises encircling Taiwan from five sides. Responding to this, Taiwan has put its three armies on high alert. Chinese activities are being monitored. Both have given their respective arguments. China considers Taiwan as its biggest enemy, China claims itself superior to Taiwan in every aspect, but there is one sector in which China is still lagging behind.

In the last two decades, the semiconductor i.e. chip industry has become the most important strategic industry in the world. Smartphones, laptops, cars, missile systems, 5G networks, Artificial Intelligence, everything resides in the chip. In this race for microchip power, Taiwan has left behind a powerful country like China. Now the question is, how did China, which was ahead in every sector, lag behind Taiwan in chip making? What are the 5 big reasons for this?

1- Ahead in high-tech technology

Taiwan’s biggest strength is its flagship company Taiwan Semiconductor Manufacturing Company (TSMC). This is the world’s largest foundry, which does not make branded products itself, but makes chips for big companies like Apple, Qualcomm, Nvidia, AMD. The main reasons for Taiwan’s technological advancement are as follows-

  • At the forefront of the nanometer race: TSMC created the world’s first and most reliable mass production on cutting edge process nodes. China’s big company Semiconductor Manufacturing International Corporation (SMIC) is still lagging behind the Taiwanese company.

  • High Quality and Production: Not only the small nanometer technology, but the chip productivity i.e. the percentage rate of good chips is also very high at TSMC. This trust attracts customers to Taiwan, while China is still facing challenges in this matter.
  • Deep Tech Ecosystem: Taiwan has invested continuously in research and development (R&D) for decades, supporting engineering talent and building deep collaboration between universities, research institutes and industry. Due to this, it continued to develop new generation chip technology, while it is still difficult for China to reduce this gap.

2- Specialized Industrial Structure

A large part of Taiwan’s economy is related to high-tech manufacturing, of which semiconductors are the central pillar. In contrast, China’s economy is very large and diverse. From steel to textile, e-commerce to infrastructure. Taiwan focuses on the foundry model. That means they only make chips and do not sell designs. With this, they can work with every design company in the world (Fables firms) and achieve maximum scale.

Chip packaging, testing, material suppliers, machine maintenance, everything was strengthened locally in Taiwan. This ecosystem advantage is still considered more mature than that of China. In the initial phase, Taiwan’s government provided facilities like tax incentives, cheap credit, land and infrastructure specifically designed for the semiconductor industry. China also invested heavily, but it was scattered across many sectors. Taiwan invested in a relatively limited but concentrated manner.

Taiwan Technology

Chip packaging, testing, material suppliers, machine maintenance, everything was strengthened locally in Taiwan.

3- Global trust, transparency and intellectual property protection

In the chip industry, not only technology but also trust and transparency play a big role. America, Japan, European countries, South Korea etc. all consider Taiwan as a reliable partner. There are many reasons behind this confidence. The system of intellectual property (IP) protection in Taiwan is relatively strong. Foreign companies feel that there is less chance of their chip design being stolen or copied.

China has often been accused of intellectual property infringement, copying or forced technology transfer, which is why many Western companies are cautious about sharing sensitive technology with China. Taiwan is a democratic society, with relatively high levels of corporate governance, media oversight and legal transparency.

Due to the larger role of the state in China and the perception of government interference, some companies believe that business risks are higher, especially when it comes to such a sensitive industry. Brands like Apple, Nvidia, AMD, Qualcomm have been dependent on TSMC and other Taiwanese suppliers for decades. These long contracts and stable relationships make it difficult for China to replace quickly.

4- Policies of American and Western countries

In the last few years, America and its allied countries have imposed strict restrictions on China on semiconductor technology. Taiwan got direct and big benefit from this. America imposed strict restrictions on the sale of advanced chip making machines, especially EUV (Extreme Ultraviolet) lithography machines, to China. At the same time, TSMC and Taiwan continued to receive such technology and machines regularly, which widened their technological gap.

Xi Jinping

Xi Jinping

America feels that if China becomes completely self-reliant in chip technology, then it can have the upper hand on both military and economic fronts. Therefore, it sees Taiwan as a partner, which is powerful in technology, but politically weak and dependent on America for security. Taiwanese companies get more opportunities to do research, form joint ventures and invest with America, Japan, Netherlands, South Korea etc. Due to the restrictions and political suspicion imposed on China, it becomes limited in many top tier technology networks.

5- Why did this edge become the field of conflict?

This chip advantage of Taiwan is now causing a security crisis in the Asia Pacific region. China considers Taiwan as its part, while Taiwan sees itself as a separate democratic entity. The main reasons behind the creation of war-like conditions are as follows. Just as control over oil was a symbol of political power in the 20th century, similarly control over chips is becoming the key to strategic power in the 21st century. Taiwan produces the majority of the world’s most advanced logic chips. If China gets control over Taiwan, it can also get this chip power. This thing worries America and its allies very much.

In recent years, China has increased large-scale military exercises around Taiwan. Fighter jets and warships reach very close to Taiwan’s air defense zone and maritime border. Its message is clear, an attempt to bend Taiwan politically by applying pressure, and at the same time a warning to the world including America. Because of this, discussion of a war-like situation has become common among media and analysts.

Presently war like situation between China and Taiwan

If war breaks out, industries around the world will be in trouble.

If war breaks out in the Taiwan Strait or high tensions disrupt shipping routes, the world’s chip supply would be severely affected. This will have a big impact on everything from automobiles to smartphones, cloud servers to defense industry. That is why many countries are now trying to reduce excessive dependence on Taiwan and China.

China has set a big target of self-reliance in chips under schemes like Made in China 2025. Despite billions of dollars in subsidies and funding, achieving technological advances like Taiwan’s has not been easy. Due to this, strategic impatience is also seen increasing, that is, either move forward quickly yourself, or bring the person you depend on into your political circle.

Taiwan did not use the magic wand

Taiwan did not adopt any magical shortcut to leave China behind in chip manufacturing. Its success is the result of decades of consistent policy, a deep focus on technology, high-quality manufacturing, global trust and US-Western support. On the other hand, it is still a difficult and lengthy process for China to become largely self-reliant in the semiconductor sector, especially when it is layered with export controls, technology restrictions and political mistrust. Due to this imbalance, a small Taiwan has become the nerve center of the world’s most advanced chip supply.

It is giving rise to new geopolitical conflicts in the Asia Pacific region. The discussion of a war-like situation is related to the fear that if this balance ever breaks due to war or military conflict, its impact will not be limited to Taiwan or China only, but will shake the entire global economy and technological future.

That is why today countries around the world, on the one hand, are dependent on Taiwan’s technological strength, and on the other hand, they also appeal to maintain stability between China and Taiwan. Because this chip war is actually a war for the global balance of power in the coming decades.

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