Taiwan Can't Block China's Advanced Chip Access Alone

Crafted over decades, this“outbound investment screening” system features multiple checks intended to safeguard Taiwan's core chip technologies. Taiwanese authorities are actively involved in monitoring and overseeing investment decisions involving China made by the island's semiconductor companies.

Officials are also keen to ensure that local chipmakers are aligned with Taiwan's strategic interests, while minimizing political ties with its neighbor.

During the screening process, Taiwanese companies are required to submit detailed investment plans to government-appointed reviewers for approval. For example, when a Taiwanese semiconductor firm, such as the world's largest chip manufacturer TSMC , considers establishing a new facility in China, it must first undertake a rigorous approval process.

While the cautious policy shift appears prescient today given rising geopolitical tensions, at the time it was considered out of step with the direction of more open global trade relations with China.

The restrictive human rights considerations that had curbed Western trade with China were eased in the 1990s after intensive lobbying by US corporations . In 2000, US President Bill Clinton granted China permanent normal trade relations , paving the way for its accession to the World Trade Organization a year later.

Trade with China, including of advanced technologies, exploded thereafter.

But Washington's strategic calculations over trade with China have shifted dramatically over the past decade.

In 2018, the US singled out China as a strategic competitor , designating several Chinese hackers and the government itself as national security threats. By August 2023, President Joe Biden directed the Treasury Department to draft regulations to develop an outbound investment security program to safeguard semiconductor, quantum and AI technologies.

A few months later, the US issued sweeping restrictions on the trade of advanced chips and chipmaking equipment with China. In early 2024, the European Union released a white paper proposing to do the same.

Of course, Taiwan has its own specific political concerns when it comes to China. Given Beijing's long-standing ambition to, as Chinese leaders put it,“reunify” Taiwan with the mainland, local officials are particularly aware how doing business with China might have unpredictable and damaging political ramifications.

The Taiwanese National Security Bureau has long warned that Beijing is using business to covertly advance its political ambition, including by leveraging Taiwanese capital to build influence and proxies within Taiwan.

And in late 2023, Taiwan's National Science and Technology Council announced a list of over 20 core technologies it wanted to prevent Beijing from acquiring, including know-how and raw material to make chips smaller than 14 nanometers.

Taiwanese authorities and businesses have built on the outbound screening system in order to push back against Chinese influence. In recent years, additional principles to protect Taiwan's semiconductor dominance have been introduced, including requiring Taiwanese investors to retain a controlling interest in all Chinese subsidiaries.

Nonetheless, Taiwan's outbound investment screening system is facing multiple tests. While it is designed to curb the transfer of advanced Taiwanese technologies to China, it also has to oversee financial investments from Taiwan into China's surging chipmaking sector.

In 2022, for example, 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.

Owing to Foxconn's failure to submit a required preapproval application to the outbound investment screening authorities, the Taiwanese government imposed a fine on the company , which eventually withdrew its investment.

China's growing chip industry is also expanding its local supply chain, raising questions about whether Taiwan should expand restrictions on other suppliers linked to semiconductor manufacturers.

After the US introduced export controls on China in late 2023, the Chinese firm Huawei aggressively expanded its chip production network by leveraging its affiliates and Taiwanese suppliers.

Four Taiwanese semiconductor firms that had previously been approved for outbound investment were subsequently accused of aiding Huawei in building China's domestic chip supply chain.

With access to Taiwanese semiconductors increasingly restricted, China has aggressively pursued greater technological autonomy . It has done so by reducing its reliance on imports of advanced equipment and materials from US, Japan, the Netherlands and Taiwan.

There are legitimate concerns in the West that tightening international export restrictions on microchips and relevant suppliers could inadvertently strengthen China's determination to accelerate the development of its domestic semiconductor production.

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Official data appears to corroborate this view; China's overall imports of microchips in 2023 were below 2017 levels. Exports of Taiwanese chips to China dropped by 18% in 2023.

Meanwhile, China's National Bureau of Statistics reported that overall domestic chip production grew by 40% in the first quarter of 2024. Its share of global capacity to produce logic chips at 10-22 nanometers could rise from 6% to 19% by 2032.

China is doubling down on its indigenous chip-making capacity. Image: X Screengrab

But these data points do not necessarily mean that China is close to technological autonomy. Most of the increases in domestic chip production involve“mature” chips for household appliances and electric vehicles, rather than the most advanced chips required to accelerate AI computing power.

Meanwhile, China is still dependent on Taiwan for its semiconductors. The decrease in overall chip imports could be a result of international export restrictions on the most cutting-edge semiconductors needed for high-end smartphones and other AI-driven, high-performance computing products.

Coordinating international efforts

Restricting China's access to the global superconductor supply chain is challenging. While doing so makes China reliant on Taiwanese chips – and as such may serve as a temporary protective shield against invasion – it could also exacerbate Beijing's insecurities, pushing President Xi Jinping to hasten efforts to become technologically self-sufficient in advanced chips manufacturing.

At the same time, outright bans on these chips hasn't prevented China from producing a range of semiconductors using foreign capital and technology.

To address this challenge, Taiwan's screening mechanisms not only need to remain nimble and vigilant – they need to be supported by a coordinated international approach. Only then will it be possible to slow the progress of authoritarian regimes in the AI race.

Min-Yen Chiang is a PhD student in political science , Georgia State University and Robert Muggah is a lecturer at Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio)

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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