Gp Capt TP Srivastava (R)
Unseen and hitherto unknown Covid-19 bacteria/virus shook the Globe like never before. World still continues to reel from the ill effects of the pandemic. Covid originated in China; so says the latest study published a few days ago.
Notwithstanding place of origin, Cpvid-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 nanometer 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 forefront for not too respectable reasons. Times change.
Most potent weapons and Trillion Dollar economies surrender to the power of a mere ‘three nano meter 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 the microchip industry was to be destroyed.
TSMC of Taiwan and South Korean giant Samsung are the only two entities producing three nanometer chips. Taiwan as the Microchip Manufacturing Hub Taiwan based microchip company TSMC produces nearly 50% of the entire world’s production of microchips of ten nanometer 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 $ 104 billion from Taiwan during last fiscal. Current total exports to China from Taiwan are about $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 slowdown 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 in the world. These are:
*TSMC (Largest Semiconductor Manufacturer in the World)
· ASE Technology.
· LITE-ON Technology
· United Microelectronics
· Nanya Technology
TSMC is the largest microchip manufacturing entity in 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 microchips of four nanometer, while South Korean giant Samsung has already accomplished commercial production of three nanometer chips. TSMC is slated to catch up shortly. Exports by Taiwan mostly consist of Microchips. China being the largest exporter.
Latest data: (as of June, 2022) is China ($104 billion), USA ($55 billion), Hong Kong ($50 billion), Singapore ($25 billion) and Japan ($24 billion), 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 (October 15-21, 2007).
China focused on three extremely ambitious programmes, which were; Development of Space Capability; Development of Home Grown Fighters; 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 nanometer’ 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 for 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 are a norm from time to time. China is no different. China has little room for incompetence and dishonesty. China had allocated nearly $52 billion ($22 billion in 2014 and $30 billion in 2018) to develop indigenous microchip production facilities. Chinese minister of Industry and Information Technology Xiao Yaqing 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, a 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 the 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, smartphones 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 billion 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 a 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
The USA had already initiated action to establish a 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 billion available to US Chip makers over the next five years. The bill is also likely to help companies like Intel and GlobalFoundries compete with Asian processor manufacturers like Taiwan Semiconductor Manufacturing Co 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 chip making, 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 the chip industry would reveal that Chip industry was born in the 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 nanometer chips paved the way for the rise of TSMC in Taiwan and SAMSUNG in South Korea. Currently USA imports nearly 90% of its chip requirement, indigenous production catering to barely 12%. Chip act will provide the much required to the languishing chip industry in USA and reduce dependence on Asian giants, TSMC and SAMSUNG. It will allow flow of funds to the chip making industry.
1. China is unlikely to exercise a military option to annex Taiwan in the 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 affect China.
3. In the event of a hot war between China and Taiwan, the USA, too will be affected but to a lesser extent than China because the USA will be able to receive support from SAMSUNG of South Korea.
4. The 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 the military power of mainland China.
6. Sabre Rattling by China will continue in the form of military exercises close to Taiwan, limited attempts 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 the USA has continued to support Taiwan in all domains. China’s extreme reaction to the impending Pelosi visit has resulted in entirely avoidable confusion/opposition hoping that the USA might back off and cancel the Pelosi visit. With Pelosi’s visit behind us, the 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 nanometer wide chips.
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 the 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 the 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 superpowers might become a norm. Was Pelosi’s visit aimed at Xi’s probable exit? We will know in less than 60 days. Tiny microchips might emerge as the ultimate “peace keeper’’.
Author is an Indian Air Force Veteran.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online.