Breakingviews

Huang Ya-Qi, an engineer who took classes and conducts her research at the Taiwan Semiconductor Research Institute (TSRI) poses for a photo inside a cleanroom in Hsinchu, Taiwan, February 11, 2022. Picture taken February 11, 2022. REUTERS/Ann Wang

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HONG KONG, Aug 17 (Reuters Breakingviews) – As the Chinese navy postures off its coast, Taiwan is beefing up its semiconductor defences. Officials may force Foxconn, formally known as Hon Hai Precision (2317.TW), to unwind an $800 million deal with a Chinese chipmaker. At the same time Taipei is moving to protect its top engineers from mainland corporate poachers.

The world’s largest contract electronics maker raised eyebrows in July when it revealed it owned 20% of China’s erstwhile chip champion Tsinghua Unigroup via a mainland subsidiary. Taiwan’s investment commission, which reviews large deals into China, was irate, and authorities were considering fining it up to T$25 million, or just $836,000, for failing to secure necessary approvals, according to Reuters.

The dramatic escalation of tensions with Beijing after U.S. House of Representatives Speaker Nancy Pelosi visited Taipei in August has probably doomed the deal. The People’s Republic, which claims sovereignty over Taiwan, slapped a series of bans on agricultural exports in addition to conducting unprecedented military drills off the island. Now, Taiwan’s security officials want Foxconn to walk away from the investment, the Financial Times reported last week. Foxconn says the tie-up has been misunderstood and promises to follow the law.

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Nevertheless, the intervention underscores growing local unease over China’s push to build up its own technological capabilities to insulate itself from U.S. sanctions. Talented workers in Taiwan’s vital $127 billon chip industry, home to $454 billion global champion Taiwan Semiconductor Manufacturing (TSMC) (2330.TW), have been frequently hired away by Chinese companies over the years. A 2019 study revealed some 3,000 chip engineers, or 10% of the island’s total supply, have been poached by Chinese firms since 2015. Shanghai-based Semiconductor Manufacturing International (SMIC) (0981.HK) has snapped up former TSMC executives including Liang Mong Song, who is now SMIC’s co-chief executive.

The government has stepped up efforts to stem the outflow. On top of strict investment curbs, Taiwanese companies are banned from offshoring advanced chipmaking to the mainland. In May, authorities raided nearly a dozen mainland firms operating on the island for hiring local workers without approval, following last year’s ban on recruiting advertisements for jobs in China. Taipei is also tightening up its Trade Secrets Act.

Moreover, public opinion in Taiwan, particularly among the youth, has hardened against China, and Beijing’s zero-Covid policies have made recruitment even harder. It may be dwarfed by the $17 trilion economy next door, but tiny Taiwan’s technology sector seems unintimidated so far.

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CONTEXT NEWS

Taiwan’s national security officials want Hon Hai Precision, also known as Foxconn, to unwind an $800 million investment in troubled Chinese chipmaker Tsinghua Unigroup, the Financial Times reported on Aug. 10, citing sources.

Foxconn Chairman Liu Yong-way said on a post-earnings call on Aug. 10 that the company will follow the law and if authorities did not approve the investment, it had a back-up plan. He did not elaborate.

Taipei prohibits companies from building their most advanced foundries in China to ensure they do not offshore their best technology.

Separately, Taiwan authorities raided 10 Chinese companies suspected of illegally poaching chip engineers and other tech talent in May. “The illegal poaching of Taiwan’s high-tech talent by Chinese companies has badly impacted our international competitiveness and endangered our national security,” the Investigation Bureau said in a statement at the time.

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Editing by Pete Sweeney and Thomas Shum

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Robyn Mak

Thomson Reuters

Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York where she focused on US-Iran relations, US-Myanmar relations and sustainability issues in Asia. She has also worked as a researcher at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.

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