Hollowing Out Taiwan

Translating the Chinese Communist Party’s perspective on semiconductors

Chip Capitols’ off-week deep-dive into Chinese media pulls out a gem of an article from late last year.

The commentary below from the People’s Daily argues vehemently that US subsidies from the CHIPS and Science Act are stripping Taiwan of its technological edge, engineering talent, and endangering its national security. Chock-full of fiery idioms, this piece lays out the Chinese Communist Party (CCP)’s view that Taiwan’s leadership is leading its semiconductor industry into decline.

To that end, it also sets the stage for next week’s Chip Capitols article comparing Taiwan’s and the US’s semiconductor incentive programs. That piece will look at the measures Taiwan has taken to bolster its domestic chip industry and the policy tools underlying that strategy.

This article was particularly time-consuming for me to translate as it feautures an especially dense array of idioms and references. I explain many of these in [bold brackets] below. Before reading ahead, I also want to offer some brief context on Taiwan’s domestic politics and chip industry.

Domestic Politics

Taiwan’s domestic political scene is generally bifurcated into the center-left, green-colored Democratic Progressive Party (DPP, 民主进步党) and the center-right, blue-colored Guomindang/Nationalist Party (GMD, 中国国民党).

Current Taiwanese President Tsai Ing-wen (蔡英文) is the leader of the DPP and has been her party’s loud advocate for self-rule and military preparation to stave off Beijing’s advances. The CCP and Mainland Chinese media revile her for this thinly veiled pro-independence posture.

The Guomindang, in contrast, has historically supported closer ties with Beijing, though it also support Taiwanese self-rule. For Taiwan’s upcoming presidential election in 2024, leaders from Washington to Beijing are looking closely to see what approach Taiwan’s next leader takes toward the Mainland.

Chip Industry Dynamics

The Taiwanese government has long provided substantial subsidies to its domestic chip manufacturing industry:

• It is about 30% cheaper to build and operate an advanced logic chip fab in Taiwan than in the US.

• 40% – 70% of this difference is due to government subsidies.

• The US CHIPS and Science Act was designed in part to close the subsidy gap between the US and East Asian regions (including Mainland China and Taiwan).

As a result of years of entrepreneurial grit, government support, and talent development, Taiwan is the indispensible manufacturing core of the global semiconductor industry:

• Memory: Taiwan produces 44% of memory chips globally.

• Logic: Taiwan produces 92% of the most advanced logic chips globally and 30% – 50% of less advanced logic chips.

The article I translated below appeared in the People’s Daily 人民日报, the CCP’s official newspaper. Chip Capitols will be back next week with a very exciting collaboration article. We will take a deep dive into how policy mechanics differ between how the US and Taiwan direct public funds to their semiconductor industries. Advanced manufacturing tax credits, R&D tax credits, direct R&D grants… We will dive into it all.

[Any mistakes in translation are my own. Bold, bracketed texts are annotations provided for clarity. The original Chinese text is below.]

TSMC went to the US to build a factory, piquing public concern on the island——"The Democratic Progressive Party and the US join hands to hollow out Taiwan"

Reporter Wang Ping

People's Daily Overseas Edition

4^th Edition, December 23, 2022

　　TSMC, a leading integrated circuit company from the Taiwan Area, recently held a relocation ceremony [移机典礼] at its new factory in Arizona, USA. The first batch of equipment was shipped from Taiwan to the new factory. Prior to this, hundreds of TSMC technical talents [engineers] had already flown to the US on chartered flights. TSMC’s big move to the US, which was praised by White House officials as “one of the largest foreign direct investments in US history”, is causing Taiwanese society to worry that “TSMC [Taiwan Semiconductor Manufacturing Company, 台积电] has become ASMC [American Semiconductor Manufacturing Company, 美积电]” and that “Taiwan is being hollowed out.”

Bullying and Inducement [A Chinese idiom comparable to a “carrots and stick” approach.]

At the relocation ceremony, US President Biden proclaimed "the return of American manufacturing" and that "TSMC will help the US win the 21^st century economic competition.” [Translating the Chinese quote to English; this is not President Biden’s original English wording.] Morris Chang [张忠谋], the founder of TSMC, said in a speech that "globalization and free trade are nearly dead, and they are unlikely to be brought back to life." His statement is thought-provoking.

Before the ceremony, TSMC announced that it would increase its originally planned investment of 12 billion USD to 40 billion USD to build two factories in Phoenix, Arizona. It also announced plans to start production of 4nm and 3nm chips in 2024 and 2026, respectively. This is TSMC’s largest foreign investment since its founding, and the process of making it happen has been chock full of sticks [bullying], carrots [inducements], and the reluctant relinquishment of control.

The US announced in 2020 that TSMC would move to set up a factory in the US. In 2021, the US Department of Commerce forced TSMC to hand over customer information, as well as inventory and order information. In August of this year [this article was written in 2022], the US passed the CHIPS and Science Act of 2022, promising to provide subsidies for TSMC.

TSMC has always had reservations about setting up factories in the US. Morris Chang has repeatedly stated in public that the cost of making chips in the US is high, as well as that the US lacks chip manufacturing talents and has no supply chain advantages. In April of this year, Zhang Zhongmou also stated in a speech in the US that the cost of manufacturing chips in the US is 50% more expensive than that in Taiwan. To put it bluntly, Taiwan only moved to invest and establish a factory in the US at the urging of the US government. [The People’s Daily seems to be suggesting that Chang said this last comment, though the source of this insinuation is unclear.]

Obviously, TSMC’s move to the US has nothing to do with “globalization and free trade.” This investment, which violates [free] market rules, will not only bring no benefit to TSMC. It will also cause employment, foreign exchange income, tax revenue, and talent currently located in Taiwan to flow to the US. TSMC went to the US to build a factory; however, put bluntly, this is a case of helpless submission to political pressure.

Relying on Others to Breath [A Chinese idiom meaning complete reliance on others.]

From the US military's proposal to "destroy TSMC" to "as a deterrant threat" to Mainland China to TSMC's repeated announcements to expand advanced manufacturing processes in the US, it is obvious what the US actually cares about with regard to TSMC. [Stating that the US military proposed to “destroy TSMC” (炸毁台积电) is a wild mischaracterization. The United States Army War College Press published a paper in 2021 by two civilian professors of international relations, neither of whom have served in the US military. Their paper suggests the US and Taiwanese governments could threaten targeted destruction of TSMC facilities to deter a Chinese invasion. This paper is not US government policy.] Public opinion on the island is worried that the transformation of TSMC into ASMC [American Semiconductor Manufacturing Company, 美积电] will hollow out Taiwan's industry. Allegations that “the Democratic Progressive Party sold off TSMC” resound endlessly.

On December 21, 2022, a Taiwanese engineer wrote to Taiwan’s China Times, saying that moving TSMC’s advanced manufacturing processes to the US will bring eight notable harms to Taiwan. These include huge capital outflows, brain drain, the relocation of related supply chain manufacturers, the risking of TSMC business secrets, damage to Taiwan's security posture, etc. "The United States' clever seizure of TSMC, no matter what rhetorical polish one applies, is a generational, astronomical hollowing out of assets."

Yin Qiming, the former head of Taiwan's Council for Economic Planning and Development, said in a document that the US regards advanced semiconductors as critical to a strategic agenda for its economy and security. The US forced TSMC to set up a factory for the US’ own economic security. In contrast, Taiwan moved its most important industrial pillar to the US, handing over Taiwan’s supply chain. Excuse me, who is betraying the security of Taiwan?

On the island’s well-known social media platform PTT, netizens exclaimed: "Building one more fab in the US means building one less fab in Taiwan," and "TSMC is going to be moved away without leaving even a door behind."

According to Taiwan media reports, on November 1, nearly 300 TSMC employees and their families took a chartered flight to Phoenix. In the coming months, there will be another six chartered flights, sending a total of over 1,000 engineers and their families to the US one after another. Taiwan current affairs commentator Chen Fengxin commented on this, saying that these people are the island’s top engineers. He says that citizens “feel very intensely” about charatering the island’s top talents out to the US. Taiwan's talent pool is being "hollowed out". Fears abound that it will cause the island’s talent pool to "slowly lose blood."

Being Spit on and Letting the Spittle Dry on Its Own [Chinese idiom meaning meekly submitting to humiliation]

DPP authorities who love talking about "love and protect Taiwan" and constantly question the "exodus" of technical talent to the Mainland are nonetheless optimistic about the US carrying off with Taiwan’s “Sacred Mountain of Protection” [护台神山], TSMC. According to Taiwan media reports, as Tsai Ing-wen met with "American guests" in September and December this year, she repeatedly declared that Taiwan and the US would "join hands to produce ‘Democracy Chips’ and make a sustainable supply chain."

Responding to public opinion representatives' questions about Taiwan's semiconductor brain drain, Wang Meihua, head of Taiwan's Ministry of Economic Affairs, said in an understatement that the international distribution of Taiwan companies is "a very normal phenomenon." "Routine operations," "normal phenomena," "similar situations in the past," ... Such rhetoric has become the lockedstep answer of DPP authorities when questioned. Netizens on the island have asked, “are such statements pretences for apathy or true indifference?”

DPP authorities and the Green Camp media have forcefully argued that the “de-Taiwanization” [去台化] of semiconductors “is invalid hype.” To that point, Taiwan's China Times published a short commentary entitled “TSMC Has Been Snatched Away.” It says that the whole world knows the importance of semiconductors. The US, Japan, and Europe formerly [these regions still rely on Taiwan for advanced chip manufacturing] relied on Taiwan to produce their own cutting-edge semiconductors. This is not "de-Taiwanization." So, what is “de-Taiwanization?” DPP authorities are obedient and cooperative. [They are] simply “helping count money after a sale.”

In response to vows by DPP authorities that “TSMC’s most advanced manufacturing process will certainly remain in Taiwan,” Zhao Shaokang [赵少康], a senior media personality on the island, posted on social media that the US’s cutting-edge manufacturing processes are only one or two years behind Taiwan's. [Such a short gap] is tantamount to completing a test in Taiwan first, then moving [the results] to the US for replication, making Taiwan a pilot factory for others. TSMC move to set up a factory in the represents the DPP joining hands with the US to hollow out Taiwan. However, the DPP still looks triumphant. What on earth is it happy about? “Tsai Ing-wen exchanged Taiwan's advantage-holding industries for the US’s support. This is the biggest problem.”

　　Taiwan media commented: The US wanted to swallow TSMC, but Democratic Progressive Party authorities not only did not resist, but instead threw TSMC out as in The Warlords. [I believe this is in reference to the 2007 Chinese movie, The Warlords. The story recounts rivalries on various sides of the Taiping Rebellion, highlighting acts of corruption and betrayal by generals and government officials. Perhaps it suggests allowing the US to attain TSMC is comparable to shooting one’s own star general? More cultured people, please inform me!] According to Taiwan media, the US sells expired armaments and tainted pork to Taiwan, but the DPP authorities deliver TSMC’s most advanced 3nm process. “Flattering America Sales Platform.” [媚美卖台, a play on words using the Chinese words for America美 and Taiwan台.] Nothing can exceed this!

台积电赴美设厂引岛内舆论忧虑——“民进党跟美国联手掏空台湾”

本报记者 王 平

人民日报海外版

2022年12月23日   第 04 版

　　台湾地区集成电路龙头企业台积电日前在美国亚利桑那州的新厂举行移机典礼，首批设备从台湾运至新厂。此前，数百名台积电技术人才已乘坐包机飞往美国。台积电大动作赴美，这一令白宫官员盛赞的“美国史上规模最大外来直接投资之一”，给台湾社会带来的却是“台积电变美积电”“台湾被掏空”的强烈不安。

威逼利诱

当天的移机典礼上，美国总统拜登当场宣布“美国制造业回归”“台积电将帮助美国赢得21世纪的经济竞争”。台积电创办人张忠谋则发言称“全球化和自由贸易几乎已死，不大可能起死回生”，表态令人寻味。

仪式之前，台积电宣布将原本计划的120亿美元投资额提高至400亿美元，在亚利桑那州凤凰城建造两座工厂，计划分别于2024年和2026年投产生产4纳米和3纳米芯片。这是台积电创办以来最大的对外投资，其发生过程充满威逼利诱和无奈就范的味道。

美国2020年就宣布台积电将赴美国设厂。2021年，美国商务部强制要求台积电交出客户资讯、库存及订单信息。今年8月，美国通过《2022年芯片和科技法案》，许诺为台积电提供补贴。

而台积电方面原本一直对赴美设厂持保留意见。张忠谋多次在公开场合中表示在美国造芯片成本高昂，且美国缺乏芯片制造业人才，供应链方面也没有优势。今年4月，张忠谋在美演讲时还表示，在美国制造芯片成本比台湾要贵50%，直言台积电是在美国政府敦促下才赴美投资设厂。

显然，台积电赴美跟“全球化和自由贸易”无关，这一逆市场规律而动的投资不仅不会给台积电带来利多，还将造成原应留在台湾的就业机会、外汇收入、税收、人才等流向美国。台积电赴美设厂，说穿了是某种政治压力下的无奈之举。

仰人鼻息

从美国军方提出“炸毁台积电”以“吓阻”中国大陆，到台积电一再宣布在美加码先进制程，美国对台积电安的什么心，可谓路人皆知。岛内舆论担忧，台积电变“美积电”将让台湾产业面临被掏空的困境，“民进党成功卖掉台积电”的质疑声不绝于耳。

一名台湾工程师12月21日投书台湾《中国时报》表示，台积电先进制程赴美将给台湾带来8个显著伤害，包括巨额资金流出、人才流失、相关供应链厂商外移、台积电商业机密不保、台湾安全地位受损等，“美国巧夺台积电，无论说辞如何润饰，都是一个世代的、天文数字的资产掏空”。

台湾地区经济主管部门前负责人尹启铭发文表示，美国将先进半导体视为攸关经济与安全的策略性项目。为了自身经济安全，美国迫使台积电前往设厂；相对地，台湾地区把最重要的产业支柱移往美国，交出台湾的供应链，请问是谁在出卖台湾地区的安全？

岛内知名社交媒体PTT上，网民直呼“在美国多盖一座晶圆厂，就是在台湾少盖一座晶圆厂”“台积电是要被搬到连门都没有了”……

据台湾媒体报道，11月1日，近300名台积电员工及家属搭包机前往凤凰城。未来数月还有6架包机，将总计逾千名工程师及其家人陆续送至美国。台湾时事评论员陈凤馨就此评论，这批人是岛内最顶尖的工程师，包机将岛内顶尖人才送往美国让民众“感受特别强烈”，台湾人才正在被“掏空”，未来恐将造成岛内人才“慢性失血”。

唾面自干

最爱将“爱台、保台”挂在嘴上，动辄质疑技术人才“外流”到大陆的民进党当局，面对“护台神山”台积电被美国“端走”，却是一副乐观其成的嘴脸。据台湾媒体报道，蔡英文今年9月和12月与“美国客人”见面时多次宣称，台湾要与美国“携手产制‘民主芯片’，打造永续供应链”。

在回应民意代表关于台湾半导体人才外流等质询时，台经济事务主管部门负责人王美花轻描淡写地说，台企国际布局“是很正常现象”。“常规操作”“正常现象”“过去也有类似情况”……类似的说辞成为民进党当局面对质疑时的统一答案。岛内网友质问，这样的表态是假装不在意还是压根不在乎？

民进党当局和绿营媒体强辩称，半导体“‘去台化’系无效炒作”。台湾《中国时报》就此发表短评《台积电被抢走了》表示，全世界都知道半导体重要性。美日欧把原先倚赖台湾生产的尖端半导体拿去本国生产，这不叫“去台化”，什么才是“去台化”？民进党当局百依百顺、配合行事，简直是“被卖了还帮忙数钞票”。

　　针对民进党当局信誓旦旦称“台积电最先进制程一定留在台湾”，岛内资深媒体人赵少康在社交媒体上发文表示，美国先进制程只比台湾晚一两年，等于是先在台湾测试完后再搬到美国去复制，台湾变成别人的先期试验厂。台积电赴美设厂，就是民进党跟美国联手掏空台湾。然而民进党还一副得意洋洋的样子，到底在高兴什么？“蔡英文拿台湾优势产业换取美国的支持，这才是最大的问题。”

　　台媒评论道，美国想吞下台积电，民进党当局不仅不反抗，反而拿台积电当“投名状”。有台媒盘点，美国售台的是过期军火和瘦肉精猪肉，民进党当局送上门的却是台积电最先进的3纳米制程，“媚美卖台”，莫此为甚！