The Taiwan Question: China-US battle for semiconductor supremacy
In 2019, while Wuhan was under a brutal Covid-19 lockdown, high-speed trains continued ferrying employees of a USD 24 billion plant that had just begun fabricating semiconductors. This is the Yangtze Memory Technologies Corp (YMTC), one of China's flagship enterprises in its quest for making advanced semiconductors independent of American or European technology.
But fabrication is only one part of the semiconductor or chip value chain. Chip-making is a complex business that involves thousands of technologies, intricate precision equipment, an extremely sophisticated process, and a close network between all the stakeholders. It starts with Electronic Design Automation (EDA) software, followed by the actual design, fabrication, and finally packaging and testing. The fabrication process requires equipment of extreme precision, chemicals in their purest forms, and handling at a subatomic level. Thousands of patents, intellectual property rights, equipment, and intricate collaboration are at play in this process. The players mostly come from the US, Japan, Europe, South Korea, Taiwan and, increasingly, China. However, American sanctions have made it difficult for Chinese companies to access the technology needed to fabricate the most advanced chips, which are smaller than 10 nanometres (nm). Beijing has so far been operating in the low-end market – a situation it wants to change.
While YMTC is spearheading fabrication, Shanghai's Advanced Micro-Fabrication Equipment (AMEC) is developing sophisticated etching machines. Tianjin-based Hwatsing Technology is producing cutting-edge chemical-mechanical planarisation equipment. At every segment of the value chain, Beijing is aggressively trying to build its capacity. These are all part of Beijing's 2015 "Made in China" industrial policy to improve high-tech design and production know-how, setting a goal of 70 percent self-sufficiency in semiconductors by 2025. Taiwan, the island at the centre of the current Washington-Beijing impasse, is a crucial piece in this geostrategic race for semiconductor supremacy.
Taiwanese fabrication plants – or fabs, as they are known – dominate the semiconductor fabrication or foundry market, earning over 60 percent of global revenue. For advanced chips, the share is a whopping 92 percent. These are the chips that give technological superiority to the most sophisticated defence and other high-tech electronics. Of these plants, the leading one is Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest foundry that supplies chips to top-notch tech and defence firms. TSMC alone earns over 50 percent of global foundry revenue. Because of Taiwan's geography, all its foundries are on the western coast of the island, about 170km off China's Fujian coast.
Let's try to grasp the meaning of the nanometre metric of chip fabrication. One nanometre is one-billionth of a metre. A human hair is around 75,000nm in diameter. The human red blood cells are 6,000-8,000nm across, and the Ebola virus is about 1,500nm long and 50nm wide. A Sars-CoV-2 virus ranges between 50 and 140nm. An advanced semiconductor can pack complex circuits or transistors just 5nm apart! One square millimetre chip accommodates tens of billions of circuits, making it an electronic powerhouse that runs everything from mobile phones to precision-guided missiles.
The semiconductor fabrication process is mind-boggling. It involves vaporising droplets of molten tin with laser blasts. The resulting plasma emits extreme ultraviolet radiation. Mirrors guide the light to a silicon wafer to draw circuits spanning 5nm or less – the size of just a few atoms. Currently, TSMC and its South Korean rival Samsung are the only fabs capable of manufacturing the most advanced 5nm chips. Both are preparing for 3nm chips that may go to production anytime.
That's why Taiwan is so crucial for both China and the US. Washington's concern is that if Beijing overruns the fabs, it will cut off American companies from the supply of advanced chips that run all its military hardware and power the economy. One thing is certain: Washington will cut off the Taiwanese fabs from the global network if it loses control of them. But that won't solve the problem, because its vulnerability will remain. Without advanced semiconductors, the American economy and defence production will grind to a halt. Its military and technological supremacy will be strained to the limit. For instance, each Javelin missile – which has proven quite useful in Ukraine – requires over 200 semiconductors to make. Washington's strategic competitor is building its military muscle within striking distance from the fabs so crucial for its continued superpower status. Concerned, America is encouraging semiconductor fabrication on its own shores through the recently enacted CHIPS Act.
Beijing is also in a precarious situation. Its voracious economy consumes 60 percent of global semiconductor production, more than 90 percent of which comes from overseas or China-based foreign firms. Most of the world's top semiconductor companies are from the US, followed by Europe, South Korea, Taiwan, and Japan. There is none from China, which is a huge obstacle to its plan to build a "world class" army that will beat any enemy anywhere in the world. This is a strategic black hole Beijing cannot afford to have. Besides, control of a major part of the semiconductor value chain will give it significant bargaining power.
But the big question is, will Taiwan's fabs remain intact in case of a conflict? As it appears now, both sides need these fabs to keep producing chips. However, this status will remain only as long as they can't make chips on their own. Until such time, the foundries may save Taiwan from a military onslaught. But for how long?
Dr Sayeed Ahmed is a consulting engineer and the CEO of Bayside Analytix, a technology-focused strategy and management consulting organisation.