FOCUS: East Asian chipmakers see high-tech decoupling from China inevitable

FOCUS: East Asian chipmakers see high-tech decoupling from China inevitable

Major players in the East Asian semiconductor supply chain appear to consider it inevitable for them to decouple from China in high-tech industries involving sensitive technologies, given concerns over the rapid pace of Beijing’s military modernization.

The United States is taking the lead in building a “Chip 4” alliance with Taiwan, South Korea, and Japan for increased economic security in the face of a possible global chip crisis in the event of an eventuality between Taiwan and China.

Japan – once a leader in the global semiconductor industry, but now lagging behind major chip producers like Taiwan and South Korea – plans to manufacture and sell 2-nanometer generation chips at Rapidus Corp., a new consortium involving Toyota Motor Corp., Sony Group Corp. .and six other leading companies.

The issue of supply chain resilience was addressed at the Asia-Pacific Economic Cooperation Summit which ended in Bangkok on Saturday, after chip shortages exacerbated by Russia’s invasion of Ukraine hit hard affected the automotive industry and other industries.

In October, the U.S. Commerce Department announced a sweeping list of new export controls targeting China’s chip and supercomputing industries, a move analysts say is aimed at restricting Beijing’s ability to buy and manufacture some high-end chips used in military applications.

Although China manufactures some semiconductors, its foundries are not capable of making the most advanced logic chips. Beijing relies heavily on Taipei for advanced semiconductors needed to modernize its military, as well as software and tools from the United States.

US Commerce Secretary Gina Raimondo said Washington has called on allies to comply with US export controls to restrict China’s access to advanced semiconductor technologies and impose similar restrictions.

Taiwanese Economy Minister Wang Mei-hua said the restrictions only affect specific chips used in advanced areas such as supercomputing and artificial intelligence, but not the broader world of chips for technology. consumer electronics.

Taiwanese companies will abide by U.S. export controls, Wang said.

Mariko Togashi, research fellow on Japanese security and defense policy at the International Institute for Strategic Studies in London, said in an interview that full decoupling with China is unlikely, but selective decoupling in some areas involving sensitive technologies, something like precision strike guidance, will progress.

Given the size of the Chinese economy, which is deeply embedded in many parts of the global economy, it is difficult for most economies to completely sever ties with China, Ichiro Inoue, a professor at the Graduate School of Policy Studies from Kwansei Gakuin University in Japan, said in a separate interview.

“I think the nations involved are currently determining how far and in what areas decoupling should continue,” Togashi said.

Togashi said it’s very expensive — and impossible in many cases — to build a completely self-sustaining supply chain, so like-minded nations need to be included in the circle.

Photo taken from a Kyodo News helicopter on April 5, 2022 shows a site in Kumamoto prefecture, southwest Japan, of a chip factory to be built by a subsidiary of Taiwan Semiconductor Manufacturing Co. (Kyodo)

Defining who these like-minded nations really are to include in supply chains is key, she said.

Such efforts are underway under the Indo-Pacific Economic Framework, a US-led initiative that aims to build resilient supply chains in the Indo-Pacific.

The 14-member IPEF, which also includes Japan, Australia, South Korea and India – but not China – will begin formal negotiations in December.

Russia’s invasion of Ukraine and disruptions to the chip supply chain have sparked fears about what would happen if China tries to take Taiwan by force.

Tensions across the strait have risen since China’s military staged massive drills around the self-governing democratic island – including the launch of ballistic missiles, five of which fell in Japan’s exclusive economic zone for the first time in the East China Sea – following a trip to Taipei by US House of Representatives Speaker Nancy Pelosi in August.

Chinese President Xi Jinping, who won an unprecedented third five-year term as head of the ruling Communist Party in October, has not ruled out the use of force to place Taiwan, which Beijing considers a renegade province, under his control.

In a recent interview with CNBC, Raimondo said, “If you allow yourself to think of a scenario where the United States no longer has access to chips currently made in Taiwan, that’s a scary scenario.”

Taiwan manufactures 65% of the world’s semiconductors and nearly 90% of advanced chips.

These chips are used in nearly all modern technology today, including medical devices and telecommunications equipment, as well as the vital infrastructure that keeps society functioning.

Meeting on the sidelines of last week’s G20 summit in Indonesia, Xi and US President Joe Biden exchanged snide remarks on the Taiwan issue.

“The war in Ukraine, due to the current quagmire and large-scale sanctions from the West, would make China think twice before using force in Taiwan,” Inoue said. “But Beijing is apparently waiting for the right moment to take the island by force or other means.”

Amid cross-Strait tensions, Taiwanese President Tsai Ing-wen sent Morris Chang, founder of leading chipmaker Taiwan Semiconductor Manufacturing Co., to the two-day APEC summit in the Thai capital.

During a meeting on the sidelines of the summit, Japanese Prime Ministers Fumio Kishida and Chang stressed the importance of ensuring peace and stability in the Taiwan Strait.

After having “a happy and polite interaction” with Xi, Chang told reporters that he congratulated the Chinese leader on the success of the Communist Party Congress in October, but that they did not discuss inter- strait.

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