Suggested Citation: Collins, Gabriel and Andrew S. Erickson. 2023. Silicon Hegemon: Could China Take Over Taiwan’s Semiconductor Industry without Invading? Report no. 09.27.23. Rice University’s Baker Institute for Public Policy, Houston, Texas. https://doi.org/10.25613/D4ER-0D37.
A Scenario of Concern
Imagine the following hypothetical contingency:
August 1, 2027, 0600 CST, Beijing: Having achieved Xi’s Centennial Military Building Goal, China’s armed forces now offer their Commander-in-Chief a full toolbox of military capabilities regarding Taiwan. Xi insists as never before on changing cross-Strait conditions on his own terms. During this relentless ramp-up over the past several years, progressive intensification of an all-domain pressure campaign heightened fears in Taiwan. Efforts to address them amid increasingly polarized politics have opened up unprecedented vulnerabilities in Taiwan’s economy to PRC ownership and influence.
Beginning May 1, 2024, the PLA began intensive but intermittent live fire “exercises” around Taiwan. Hundreds of munitions have been fired at flying, floating, and subsurface targets offshore from the key avenues of approach to the island. Beijing issued notices to mariners and airmen to avoid the entire periphery of Taiwan. As exercises commenced, Xi personally spoke with the heads of key vendors and customers of Taiwan Semiconductor Manufacturing Company Ltd. (TSMC), United Microelectronics Corp. (UMC), and Powerchip Technology Corp. to assure them that shipments to and from those firms’ fabrication plants[10] as well as coal and gas shipments to power plants supporting the fabs are secure.
Beijing has demanded that aircraft seeking to land in Taiwan first land at the Xiamen Gaoqi International or Quanzhou Jinjiang international airports and that ships first call at PRC ports or anchor in an inspection zone off the coast of Fujian province for inspection. Other vessels and aircraft have been intercepted offshore by PRC “safety escorts” and ordered to exit the area.
Many shippers have avoided sailing into the area following warnings from their London-based insurers, and most air cargo services have halted operations for as long as PRC military activities continue in Taiwan’s vicinity. As food and fuel stockpiles dwindle and unemployment rises, Taiwan faces an internal political crisis, and voices supporting accommodation with Beijing are gaining strength. Meanwhile, the White House has so far refused to have U.S. military assets transit PRC exercise exclusion zones to uphold freedom of navigation.
This morning the heads of China’s National Integrated Circuit Industry Investment Fund and Semiconductor Manufacturing International Corporation called TSMC’s chairman with a private offer: They have a line of credit from China Investment Corporation to purchase a 51% controlling stake in TSMC, whose market capitalization has fallen from $700 billion at the onset of China’s action to $300 billion now. If TSMC and Taipei accept the deal, Beijing has pledged upon its financial closing to defend all future air and sea traffic in and out of the island. Alternatively, it may continue unspecified “exercises” for weeks or months to come.
Such a gambit could tempt Beijing with a favorable risk/reward balance…Full Report
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