‘Business as usual’ in Taiwan’s Silicon Valley amid China threats

By Cathy Rose A. Garcia, Editor-in-Chief

HSINCHU CITY, Taiwan — Clusters of unobtrusive buildings greet you when you enter Hsinchu Science Park (HSP), also known as the heart of Taiwan’s Silicon Valley. Outside these modern buildings, there’s little indication that the world’s most important chips are being manufactured inside.

Taiwan produces around 60% of the semiconductors in the world, and over 90% of the most advanced chips. Most of these advanced semiconductors are manufactured by TSMC (Taiwan Semiconductor Manufacturing Company).

At the TSMC Museum of Innovation here, the company prominently displays the chips it has produced since it was founded in 1987, and how these are used in nearly all aspects of modern life — from home appliances and mobile phones to artificial intelligence (AI) and self-driving vehicles.

TSMC is the world’s largest producer of chips, and a top supplier for Apple and Nvidia. It also accounted for 9% of Taiwan’s gross domestic product (GDP) last year.

This puts TSMC right at the center of the so-called “Silicon Shield.” Experts have long noted that Taiwan’s dominance in semiconductor manufacturing could protect the island from China’s military aggression.

Despite geopolitical tensions, it’s “business as usual” for the over 600 companies that operate in HSP, officials said.

“(But) if there is a big conflict, if there is a war, that will be absolutely a very big problem for global supply chains,” HSP Bureau Associate Researcher Scott Huang told visiting foreign journalists.

China continues to assert its claim over Taiwan, which Beijing views as a breakaway province. It has threatened to annex the self-ruled island, by force if necessary, endangering Taiwan’s population and threatening the world’s most advanced semiconductor factories.

A possible China attack on TSMC’s facilities in Taiwan would severely affect chip supplies in the world, Mr. Huang said.

“Some scholars estimate that if there is a missile that hits TSMC from China, there will be no chip supplies for advanced manufacturing engineers for at least three years. That means nobody will have a new model of iPhone again for three years until those constructions, manufacturing productions, facilities recover,” Mr. Huang said.

Chung-Hua Institution for Economic Research (CIER) President Hsien-ming Lien said there are estimates that an attack on Taiwan would reduce around 6-10% of global GDP.

“It’s an enormous amount of money. It will affect all the top 10 technology companies (in the world), almost every one of them requires the TSMC chip… All your phones have their chips from TSMC. It’s going to be catastrophic,” he said during a separate briefing.

Mr. Lien said this is why Taiwan and other Asian countries are working to prevent this attack from happening.

“It’s a disaster nobody wants to actually see,” he added.

INNOVATION
Despite rising geopolitical tensions, Taiwan continues to focus its efforts on innovation development.

The National Science and Technology Council (NSTC) takes the lead not just in formulating science and technology policy but also in supporting and funding research, developing science parks, and promoting innovation.

NSTC Vice-Minister Chen-kang Su highlighted the unique ecosystem in Taiwan where there is close collaboration among the government, academe, research and industry.

The NSTC works with the Industrial Technology Research Institute (ITRI), the National Institute of Applied Research and with other industries to train professionals as well as to help the academe and research sectors transfer technology to the industry that will turn these technologies into commercial products.

It was ITRI that laid the groundwork for Taiwan’s semiconductor industry and played a key role in the creation of TSMC. TSMC, which was founded by Morris Chang, had received early funding and support from ITRI, the Taiwanese government and private investors.

ITRI had also advocated for a science-based industrial park, which led to the establishment of the HSP, which in turn became the birthplace of TSMC.

Ambassador-at-Large and Digital Transformation Association (DTA) Chairman JR Chen said the science parks and industrial parks are the secret to Taiwan’s economic development.

“All these science parks or industry parks are a vital asset and competitive advantage of Taiwan’s economic development, and this is also the hidden center of global economy because most of the high-tech industries need support from all these science parks or industrial parks,” Mr. Chen told a group of visiting foreign journalists.

NSTC’s Mr. Su said at a briefing that there are over 1,150 companies located in science parks, which cover 5,194 hectares around Taiwan. In 2024, these science parks generated over $148 billion in revenues.

HSP’s Mr. Huang showed a photo of the science park when it was established in 1980, where there was only one building surrounded by “nothing, only rice fields.”

“We started from making PCs (personal computers), desktop, notebooks to semiconductors in the 1990s… With electronics, semiconductors and chipmaking, Taiwan firms really had a remarkable performance in the global market. For the advanced semiconductor sector, Taiwan enterprises really shine in the world, with over 95% (of the market),” he said.

HSP is home to the headquarters of TSMC and Mediatek, as well as over 620 companies in six industries, namely integrated circuits, optoelectronics, biotechnology, machineries, PC and telecommunications. The park itself now covers 1,467 hectares, employs around 178,000 and generates over $47 billion in revenue a year.

Meanwhile, NTSC is looking to expand Taiwan’s international cooperation in priority areas such as semiconductors, AI, security and surveillance, next-generation communications, and military.

“In addition to working with allied countries on industrial supply chains, we can also work with them to introduce new applications of these technologies. Areas of collaboration could be working with these countries to introduce new technology in AI and semiconductors to build local industries,” Mr. Su said.

Other policy focus areas include net-zero technology, quantum technology, space technology, precision medicine, and robotics.

NSTC currently has 18 science and technology liaison offices in 14 countries, including the US, Japan, Vietnam and India.

RISKS
Rising geopolitical risks such as the US-China trade war, Russia-Ukraine war and US tariffs are forcing Taiwan’s supply chains to undergo restructuring, according to DTA’s Mr. Chen.

“For the DTA, we still advocate that digital transformation (is needed) for all industries in Taiwan. This is still the foundation of resilience and advanced capabilities to tackle the issue of geopolitical risks,” he said.

Mr. Chen said companies can use AI to have real-time visibility and transparency or manage risks in the supply chain.

“Global diversification is very important. Right now, I think you cannot really have only one source of manufacturing or logistics,” he said.

“Though the main technology is from Taiwan, we’d like to collaborate with like-minded countries to work together to provide high-tech products for the world.”

For instance, TSMC has been expanding beyond Taiwan as it sees the need to diversify manufacturing and reduce supply chain risks amid these risks. It has already invested in semiconductor fabrication plants in Arizona in the US, and Kumamoto in Japan.

Mr. Chen also suggested that Taiwan firms continue to expand to other countries in Southeast Asia, South Asia or Eastern Europe.

“We need to develop domestic supply and critical components here in Taiwan but also we need to form alliances with like-minded countries to share research and development and other resources so that will make a resilient foundation for the high-tech industry,” he said.

‘DEMOCRATIC SUPPLY CHAIN’
Taiwan President Lai Ching-te had earlier called on semiconductor companies to stop buying from and selling to China and to only work with supply chains with companies from democratic countries.

“The so-called pure democratic supply chain is still a very challenging goal,” CIER Taiwan ASEAN Studies Center director Kristy Hsu said at a separate briefing.

She noted that China controls more than 90% of the critical minerals needed for making chips, so it would not be possible to establish a democratic supply chain without the participation of non-democratic countries like China and Vietnam.

However, as China has become increasingly aggressive in recent years, Ms. Hsu noted some like-minded countries have been forging supply chains among themselves to ensure they would not be too dependent on China.

Taiwan has also been trying to diversify or de-risk its economic dependence on China, she added.

“Taiwanese companies used to invest hugely in China and right now they are already diversifying their supply chain. So back in 2010, out of every $100 that we invested overseas, $85 went to China. But in the past two years, China accounted for only less than 10% of our overseas investment,” Ms. Hsu said.

DTA’s Mr. Chen said Taiwanese firms have moved production of high-tech products from China to other countries not just due to political reasons and cost.

“After the new geopolitical order, they can’t think just about cost but also resilience and security of the product… Most Taiwanese high-tech companies not only stress cost effectiveness but trust worthiness,” he added.