Ms Nancy Pelosi's visit will be remembered for bringing into focus the power of tiny microchip, which has emerged as the most powerful 'peace keeper'. Political fall out is at best incidental.
Military action against Taiwan will, almost certainly result in partial/total destruction of chip making entities. Should this happen the entire world, USA and China in particular, will step back by more than few decades.
Other than Taiwan, only other nation that produces sub five nano metre chips is SAMSUNG of South Korea. However its share of chip market is a mere fraction when compared with TSMC of Taiwan, which controls more than 50% share.
Tiny microchip industry might be the best guarantee of Taiwan's existence as an independent nation state.
My views on the tiny microchip, the ultimate peace keeper are given below :
Unseen and hitherto unknown COVID 19 bacteria/virus shook the Globe like never before. World still continues to reel from the ill effects of pandemic with mask having become more important than the lipstick on women's lips. COVID originated in China; so says the latest study published a few days ago. Notwithstanding place of origin, COVID 19 onslaught shattered the myth around western health care system. India came up trumps. Not only it manufactured billions of doses but successfully administered more than TWO BILLION doses in a record time.
It appears that microscopic entities have decided to govern global affairs. One such entity is microchip. „Brain‟ of all modern high tech equipment is controlled flawlessly only because of a few nano metre thick microchip, which has been programmed to control the equipment. It may be termed as travesty of fate because in respect of both microscopic entities, the COVID 19 Virus and Microchip, China remains at fore front for not too respectable reasons.
Times change. Most potent weapons and Trillion Dollar economies surrender to the power of a mere THREE NANO METRE MICROCHIP. Sounds outlandish! But today in 2022 it is nothing but the truth. The insignificant entity unseen by human eyes, the microchip not only controls virtually everything we own/operate but also threatens total black out if Microchip industry was to be destroyed. TSMC of Taiwan and South Korean giant SAMSUNG are the only two entities producing three nanometre chips.
Taiwan as the Microchip Manufacturing Hub
Taiwan based microchip company TSMC produces nearly 50% of entire world production of microchip of ten nano meter and below size. Yet again it might sound as an irony but the fact is that nearly 50% of all microchips produced by TSMC are imported to China.
As per records in Chinese media and Taiwan government, China imported microchips worth USD 104 Billion from Taiwan during last fiscal. Current total exports to China from Taiwan are about USD 120 Billion. Which implies that nearly 90% of total exports from Taiwan to China are microchips. Can China afford to take actions against Taiwan, which may lead to a military intervention
Destruction of TSMC, either by China's weapons or „self destruct‟ option, if exercised by Taiwan, will result in global slow down of production of high end technology equipment viz high speed trains, satellites, launch vehicles, modern cars and even latest mobile phones.
As on date Taiwan has 10 largest microchip industries of the world. These are;
- TSMC (Largest Semiconductor Manufacturer in the World)
2. ASE Technology.
3. AU Optronics.
5. LITE-ON Technology.
6. United Microelectronics.
7. Nanya Technology.
9. TSMC is the largest microchip manufacturing entity of the world. It is the world's most valuable semiconductor company, the world's largest dedicated independent semiconductor foundry, and one of Taiwan's largest companies, with its headquarters and main operations located in the Hsinchu Science Park in Hsinchu. TSMC currently mass produces microchip of four nano metre, while South Korean giant SAMSUNG has already accomplished commercial production of three nano metre chip. TSMC is slated to catch up shortly.
10. Exports by Taiwan mostly comprise of Microchips. China being the largest exporter. Latest data (as of June, 2022) is China ($104 B), USA ($55 B), Hong Kong ($50 B), Singapore ($25 B) and Japan ($24 B). during last fiscal.
Microchip Exports from Taiwan: China’s Achilles Heel
China's industrial revolution took wings in 1997. In the next ten years i.e. by 2007 China had already emerged as the most rapidly advancing economy of the world. This was recorded during the 17th National Congress of Communist Party of China held in Beijing (15-21 October, 2007).
China focused on three extremely ambitious programmes, which were;
- Development of Space Capability
2. Development of Home Grown Fighters
3. Development of High Speed Rail
China succeeded in all three domains. China's accomplishment in all three spheres is commendable. However the „BRAIN‟ of all these systems required microchips. China's microchip industry did not/could not cope with the requirement of producing sub TEN NANO METRE microchips, primarily because TSMC of Taiwan was already manufacturing such chips at commercial scale. Hence instead of developing advanced microchip technology at home China decided to import microchips from Taiwan. Perhaps a fatal error of judgement. In fact as it emerges it was not a bad business decision by China; it was a self inflicting strategic disaster. China's dependence on microchip supplies from Taiwan is perhaps the most important reason of China's failure to annex Taiwan militarily, as it claims.
‘Semi-conductor’ Purges in China
In single party dominated nations/dictatorship, purges of high ranking officials is a norm from time to time. China is no different. China has little room for incompetence and dishonesty. China had allocated nearly $52 B ($22 B in 2014 and $30 B in 2018) to develop indigenous microchip production facility. Chinese minister of Industry and Information Technology Xiao Yaquing has already been placed under detention on 28th July, 2022. Incidentally he is the first serving minister, who has been removed and detained in Xi regime. His failing is the inability to establish a home grown semiconductor industry and reduce/eliminate dependence on Taiwan. Apart from Xiao few other prominent personalities under investigation are Lu Jun, who was custodian of the fund, his deputy Yang Zhengfang, Zhao Weiguo, a billionaire semiconductor boss and Ding Wenwu, the President.
All of them are being investigated for incompetence and corruption. A Chinese political expert Victor Shih points out that in China one can get away with corruption as long as one delivers. Semiconductor programme fell dramatically short of assigned Government target of around 40% domestic production of semiconductors. They achieved a meager 6%.
Taiwan is the world's largest exporter of computer chips, supplying about half of the global demand for assembling cars, home appliances, smart phones and other electronics. China, its largest trade partner, purchases tens of billions of dollars worth of chips each year from Taiwan, including some super advanced processors that China can't find elsewhere. During fiscal 2021 Taiwan exported nearly $104 B worth of chips.
Aftermath of Nancy Pelosi’s Visit
Without doubt Ms Pelosi's less than 24 hour visit to Taiwan had all the trappings of a James Bond movie with her aircraft being escorted by 20 fighters. China's public also went into tizzy sending their views, mostly anti US and Taiwan, on Weibo. As a reaction China's commerce ministry suspended exports of natural sand to Taiwan. Natural sand is a key component for semiconductor production. Although Taiwan sources most of its sand imports from China, the impact of the trade ban will be “limited,” because sand imports account for less than 1 percent of domestic demand, said Taiwan's Ministry of Economic Affairs.
What might seriously affect chip production is a war between Taiwan and mainland China, said Mark Liu, chairman of the Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest semiconductor contract manufacturer supplying tech giants like Apple.
The Chip War
USA had already initiated action to establish chip manufacturing industry of the same class as TSMC to avoid/reduce dependence on Taiwan. POTUS Biden is slated to sign the CHIPS and SCIENCE ACT of 2022 into law on 9th August, 2022. This law will make nearly $53 B available to US Chip makers over next five years. The bill is also likely to help companies like Intel and Global Foundries compete with Asian processor manufacturers like Taiwan Semiconductor Manufacturing Co. (TSMC) in Taiwan, Samsung in South Korea and Semiconductor Manufacturing International Corporation (SMIC) in China.
The bill is designed to help tech companies in the US cut the enormous expense of chip manufacturing to help ensure a supply of the electronic brains that are critical to cars, computers, weapons systems, dishwashers, toys and just about any other product today that uses electricity. The extent of the US reliance on those processors became clear over the last two years when a global chip shortage halted shipments of many of those products, harming businesses and forcing automakers to shut down car plants.
China, America's top geopolitical rival and the world's manufacturing leader, has spent lavishly on a program to build its own native semiconductor industry. And many are concerned that the world's top chipmaker, TSMC, is headquartered on an island that China claims as its own territory, a concern that's grown after Russia invaded Ukraine despite international objections.
Although the CHIPS Act is designed to boost US chipmaking, TSMC remains important to US manufacturing. Taiwan's central role in geopolitics was on display this week as House Speaker Nancy Pelosi visited the island, including a TSMC meeting, according to The Washington Post. China objected to the visit and began five days of live-fire military drills in areas near the country.
A review of chip industry would reveal that Chip industry was born in USA but companies like IBM and AMD went out of business due to poor planning and foresight. INTEL became the largest US chip maker but even it failed to keep pace. Incapability of US companies to produce sub ten nano metre chips paved the way for rise of TSMC in Taiwan and SAMSUNG in South Korea. Currently USA imports nearly 90% of its chip requirement, indigeneous production catering to barely 12%.
Chip act will provide the much required to languishing chip industry in USA and reduce dependence on Asian giants, TSMC and SAMSUNG. It will allow flow of funds to chip making industry.
1. China is unlikely to exercise military option to annex Taiwan in near future. Any military conflict will almost certainly result in damage/destruction of Taiwan‟s chip making industry, TSMC in particular.
2. Stoppage/reduction of chip making capability of Taiwan will adversely effect China.
3. In the event of a hot war between China and Taiwan, USA, too will be affected but to a lesser extent than China because USA will be able to receive support from SAMSUNG of South Korea.
4. US chip industry is at least five years away from meeting even 50% of its chip requirement.
5. Chip making industry of Taiwan, by default, has become the proverbial impregnable shield against military power of main land China. 6. Sabre Rattling by China will continue in form of military exercise close to Taiwan, limited attempt to block Taiwan Strait.
Nancy Pelosi's visit to Taiwan will almost certainly eclipse the famous visit by POTUS Ronald Reagan 1971 visit to Beijing. „One China‟ policy became an accepted reality. Although USA has continued to support Taiwan in all domains. China's extreme reaction to impending Pelosi visit has resulted in entirely avoidable confusion/opposition hoping that USA might back off and cancel Pelosi visit. With Pelosi's visit behind us, survival of Xi is in question. China faces an awkward situation. It cannot resort to taking the military option against Taiwan in spite of being a near super power. Ferocity of Megaton nuclear weapons has been dwarfed by the power contained in a few nano metre wide chip. Non availability of most modern chips will bring to a grinding halt the development /production of everything that the world has got used to be it weapons or space launch vehicles.
In order to survive President Xi has little option but to resort to sabre rattling as is currently happening not only around Taiwan but also in proximity of Japan. Nancy Pelosi's visit has placed Chinese leadership in a quandary. Increased naval activity in South China Sea and Taiwan Strait will witness more than few Carrier Battle Groups in these waters. However in order to cool the frayed tempers, USA is adopting few superficial measures viz postponing ICBM test etc. Xi's policy of crisis manufacturing, a Chinese speciality, has failed. His vision to declare China as a super power in the forthcoming CPC meeting in October has been shattered.
Political power of China has been dwarfed by the microchip. China's failure to develop chip manufacturing capability to support its blooming technological prowess from space station, hypersonic missiles to modern weapons might be Xi's worst crisis.
Dominance of Taiwan's technological entity TSMC has given the „island nation‟ an entirely new and powerful geo-strategic identity. Neither China nor USA would dare to see TSMC and other chip manufacturing establishments in Taiwan destroyed by senseless war. Both nations will suffer the consequences. An outstanding example of strategic irony, wherein a barely 100 mile long island nation is controlling both super powers. Heightened tension between super powers might become a norm. Was Pelosi visit aimed at Xi's probable exit? We will know in less than 60 days. Tiny microchip might emerge as the ultimate „peace keeper‟.
Group Captain TP Srivastava (Retd) A DSSC alumnus, Gp Capt Srivastava is a military luminary who has written extensively on international relations, strategic affairs & Defence Procurement Procedures for leading strategic journals
(Views expressed are the author's own and do not reflect the editorial stance of Mission Victory India)