Experts warn of vulnerabilities in US-led efforts to separate from China


Perhaps the most important link to the high-tech supply chain, Taiwan will be a major target for Beijing’s invasion.

New analysis

Over the last three years, more tech companies around the world have been working with the US initiative to separate China from the high-tech supply chain initiated by the Trump administration.

White House at a press conference on February 11th Overview Based on its Indo-Pacific strategy and the efforts of the Trump administration, he emphasized the Biden administration’s core actions on maintaining regional security and rebuilding its global supply chain.

Among the US-led decoupling efforts, Taiwan, the world’s largest chip producer and perhaps the most important link in the high-tech supply chain, has become a major target for Beijing’s invasion.

Taiwan think tanks have identified some vulnerabilities in Taiwan that could enable China to acquire key technologies essential to the US-led high-tech supply chain.

“Four loopholes”

In an interview with the Daiki Genjiho, Taiwanese lawyer and convenor of Taiwan’s think tank, the Economic Democratic Union (EDU), Lai Jung Chan said that Taiwan’s major semiconductor manufacturing process is in the hands of Beijing. We have revealed four possible situations.

Rye called them “four loopholes” and urged the Taiwanese government to pay close attention.

The first loophole involves the transfer of shares. China can control Taiwan’s manufacturing facilities in China by transferring control to the Chinese people and taking over ownership of key technologies.

The second loophole requires Beijing to use foreign capital to invest in Taiwan’s sensitive industries. Companies funded by Hong Kong or overseas China may avoid scrutiny from Taiwan’s Investment Commission.

The third vulnerability is that China is taking advantage of Taiwan’s regulatory loopholes. Past policies issued by the Ministry of Economic Affairs of Taiwan allow Chinese investment in Taiwanese companies as long as the investment ratio does not exceed 33%. Chinese investors do not have a controlling stake, but their position as a major shareholder can be used to obtain sensitive information from Taiwanese companies.

Lai said there are many precedents in the past. For example, in 2012, Chinese manufacturing company Luxshare Precision sought a 30.55% stake in Taiwanese technology company Speed ‚Äč‚ÄčTech Corp. to enable the acquisition of sensitive information from Taiwan’s investment committee. I kept it in. Hard.

The fourth loophole is aimed at the company’s suppliers, not the company. Beijing has the potential to penetrate the global semiconductor supply chain by investing in its equipment and materials suppliers.

For example, the world’s largest contract chip maker, TSMC, exports at least 26 major suppliers to the United States for its next plant in Arizona.

However, among the equipment suppliers that went to the United States, Taiwanese equipment company Hua Yang Precision Machinery has received a large investment from the Chinese company Shenzhen Liande Automation Equipment.

Hua Yang Precision Machinery offers mask inspection systems, a key component of TSMC’s semiconductor manufacturing process.

“We are continuously promoting the sale of Chinese companies to Huayang,” Paul Xiao, general manager of the company, told The Epoch Times. He said China’s stock has now been reduced to 9% and a complete sale from China is the company’s ultimate goal.

However, EDU lawyer Chen Hsu-Cheng pointed out that Terry Chiu, chairman of Hua Yang Precision Machinery, owns more than 466,000 shares of Shenzhen Liande Automation Equipment, indicating a conflict of interest.

The EDU urged Taiwanese authorities to revise relevant laws and regulations as soon as possible to effectively prevent Chinese investors from acquiring sensitive industries and technologies.

“Taiwan is an important link in rebuilding the global supply chain. The security of Taiwan’s tech industry will determine the success or failure of US-led efforts to separate from China,” said Hong Kong columnist Liao Shiming. I told the time report.

In the past, Beijing used Hong Kong’s special position to import sensitive US goods and even military-related technology, Liao said.

However, in July 2020, then US President Donald Trump signed a presidential directive to revoke Hong Kong’s special status. The US move took place when Beijing deliberated on Hong Kong’s National Security Act.

US sanctions significantly impede China’s technological development

In 2015, the Chinese Communist Party (CCP) announced the Made in China 2025 (MIC 2025) initiative. The goal was to end China’s dependence on foreign technology and invest heavily in domestic technology development to transform China into a global powerhouse of high-tech industry within 10 years.

However, the CCP’s quest, especially for semiconductors, is not completely in orbit. In 2016, China imported more chips than oil for the first time. By 2020, chip imports reached $ 380 billion. Also, according to China’s Customs Administration, last year’s chip imports exceeded $ 440 billion, surpassing China’s oil and soybean imports in 2021.

In addition, Liao believes that the official CCP figures for imports could be seriously underreported, probably due to chip smuggling. He quoted the discrepancy in the export and import index figures released by Hong Kong Customs and China Customs. Hong Kong’s figures will exceed China’s figures by more than $ 300 billion in 2021.

Liao explained that Hong Kong has no import and export tariffs, so brokers do not need to hide their destinations for trade in distribution centers. However, imports of semiconductors from China are subject to tariffs, so importers may resort to other means such as smuggling to maintain profit margins.

Shenzhen, for example, has become the largest chip procurement market in China in recent years. Many small private companies in Shenzhen’s Zhongling Electronics market have relied on tip trading to achieve super profits over the last two years, many from Hong Kong.

“However, [chip] Smuggling does not save China’s tech industry. “

According to the South China Morning Post, a think tank at Beijing University in Beijing has released a report concluding that China is more likely to suffer from technology separation from the United States (SCMP).

In a 7,600-character report released by the school’s International Institute for Strategic Studies on January 30, China’s loss due to technology separation was a US loss, citing many key reasons, including China’s high-level bottlenecks. It turns out that it is likely to be larger than. Technology development and chip manufacturing technology.

On January 11, China’s largest semiconductor foundry, Semiconductor Manufacturing International Corp (SMIC), announced its financial results for the fourth quarter of 2021. It casts a shadow over the development of SMIC’s advanced technology nodes, but says that the operation of mature technology is hardly hindered. SCMP report.

US sanctions have banned SMIC from importing state-of-the-art chip manufacturing tools. This has hampered the development of chips below the 10 nm node, a technology commonly used in modern smartphones, making the company an automotive and industrial application.

China is striving to break the blockade of the United States

In July 2021, China’s state-owned Tsinghua Unigroup, a former national champion of semiconductor manufacturing, went into default and entered a court-mediated restructuring. The conglomerate, which once made a leap to lead China’s semiconductor industry by engaging in a series of acquisitions, is now bankrupt and in need of relief.

According to the Financial Times, in December Tsinghua Unigroup announced that a consortium led by Beijing Jianguang Asset Management (JAC Capital) and Wise Road Capital will be a strategic investor to rescue Beijing-based semiconductor developers. .. The consortium will acquire all its subsidiaries, including Yangtze Memory, China’s largest memory chip maker, and other major chip design companies.

The two Chinese funds will further strengthen their acquisitions of semiconductor-related companies and establish a domestic supply chain covering chip design, manufacturing, packaging and testing, and raw materials.

In the same month, Wise Road Capital acquired four factories in China belonging to the ASE Group, the world’s largest chip packaging and testing company headquartered in Taiwan. Reuters report.

Wise Road Capital in early November announcement Acquisition of ePAK, the world’s fourth largest semiconductor carrier supplier.

However, in December, the bid for Wise Road Capital to acquire Magna Chip, the world’s second-largest manufacturer of OLED driver chips in South Korea, was canceled due to US intervention. SCMP report.

China’s aggressive M & A strategy does not seem to work in the semiconductor industry and often requires bankruptcy or relief. In contrast, Taiwan’s robust semiconductor manufacturing lines have been built through decades of research and development, rather than taking shortcuts.

U.S. strengthens efforts to separate from China

February 11th White House Briefing Introduced The Indo-Pacific Economic Framework (IPEF) outlines the United States’ key priorities for working with allies and partners to compete more effectively with China in technology competition.

This strategy addresses China’s much more proactive and proactive action in the Indo-Pacific region and the importance of establishing a high-tech supply chain without China.

From May 14, 2019 to April 8, 2021, the U.S. Department of Commerce added 336 Chinese entities, including individuals, to the entity list, according to the China Globalization Center, a Chinese think tank, for sensitive information. Restricted acquisition. US-related technology. The sanctions list includes many key technology companies such as Huawei, SMIC, and state-owned supercomputing centers across China.

In addition, February 7, US Department of Commerce Added Thirty-three Chinese companies were added to the “Unconfirmed List” and banned from purchasing certain US products because the parties could not verify that they were reliable recipients of US products.

The US-led decoupling effort continues to grow, with more allies and partners participating in it. Among them, Taiwan is arguably one of the most important players.

It is not yet clear who will take the lead in the war of containment and penetration surrounding tech.

James Wu contributed to this report.

The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.

Ann Chan

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Ann Chan is a writer of The Epoch Times, focusing on topics related to China. She started writing her Chinese version in 2014.

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