China’s rise may weigh on Taiwan in near future

The Investment Commission of the Ministry of Economic Affairs yesterday gave the green light to Taiwan Semiconductor Manufacturing Co.’s (TSMC) investment plan in China.

The move made by the Taiwanese blue-chip company points to China’s growing influence in the industry.

China is on the rise and Taiwan is advised not to look away. Instead, it should brace for the inevitable red tide. Moreover, China has turned its attention to Taiwanese companies as potential acquisition targets. The state-owned Tsinghua Unigroup made a series of acquisitions recently in Taiwan’s Powertech Technology Inc, Siliconware Precision Industries Co and ChipMos Technologies Ltd. Approximately 25 per cent stake has been bought in each company.

The Chinese technology conglomerate has even set its sights on Taiwan’s leading integrated circuit designer MediaTek Inc.

Also, in the Hsinchu Science and Industrial Park, where over 520 technology firms established their headquarters, “how to find Chinese buyers” has become a popular talking point, according to local media.

The phenomenon will probably be frowned upon by a lot of people in Taiwan. China is still considered an “enemy” by many. It is not easy to dissolve the cross-strait animosity that has existed for over half a century. Yet China’s growing geopolitical power has attracted business partners from countries around the world, and multinational firms have set up beachheads in China.

Given popular sentiment in Taiwan, things are a bit complicated. While the nation craves China’s sizeable market, it hesitates from moving too close to the Middle Kingdom.

The Economics Ministry has reviewed TSMC’s investment plan with great caution. In the press release issued on Wednesday, the ministry listed the conditions that justify investment.

It is a wholly owned investment by TSMC, which will maintain its technology lead by “one generation”, the government said.

Also, the investment will further TSMC’s global market share, while increasing investment in Taiwan by NT$860 billion (US$25.80 billion) and creating 2,500-3,000 new jobs annually. The world’s largest contract chip-maker has made landing in China, indicating that closer ties with Taiwan’s No 1 enemy may be unavoidable.

China’s upward trajectory is likely to continue. About 20 years ago, Taiwan’s economy was half the size of China’s; today, it is a mere 5 per cent.

Taiwan’s GDP currently lags behind that of five Chinese provinces, but some predict the ranking may slide further in the future. A Chinese author recently wrote online that Taiwan’s resistance to the idea of “unification with China” has its roots in China’s economic status. That is, it is still considered a poor country, since its per capita GPD in any one province performs no better than that of Taiwan.

However, the day may come when the per capita GDP in all of the coastal provinces surpasses Taiwan’s, given China’s current rate of growth. It will be a psychological blow to many Taiwanese. 

When residents on the island see that the people of mainland China are more affluent, they will be more open to the idea of unification, the author said.

Indeed, China has completed the process of connecting all the dots in local supply chains. It has obtained the capital and technology that is crucial in the electronics industry. With the inflow of foreign capital, China has targeted other foreign businesses upstream along the supply chain.

With the panel industry gradually losing its edge over the years, the semiconductor industry has been perceived as one of Taiwan’s last core strengths. As TSMC seeks manufacturing investment in China, it points to a trend that Taiwan cannot neglect.