East Asian chipmakers see high-tech decoupling from China as inevitable

Big players in the semiconductor supply chain in East Asia appear to see decoupling from China in advanced industries involving sensitive technology as inevitable amid concerns about the rapid pace of Beijing’s military modernization.

The United States is taking the lead in building a “Chip 4” alliance with Taiwan, South Korea and Japan to increase economic security in the event of a potential global chip crunch in the event of a Taiwan-China emergency.

Japan — once a leader in the global semiconductor industry but now behind leading chipmakers like Taiwan and South Korea — is focusing on manufacturing and selling 2-nanometer-generation chips at Rapidus Corp, a new consortium of Toyota Motor Corp, Sony Group Corp and six other leading companies.

The issue of supply chain resilience was raised during the Asia-Pacific economic cooperation summit that ended in Bangkok on Saturday after chip shortages, exacerbated by Russia’s invasion of Ukraine, hit auto and other industries hard.

In October, the US Department of Commerce announced a comprehensive list of new export controls targeting China’s chip and supercomputing industries. Analysts say a move is intended to limit Beijing’s ability to buy and manufacture certain high-end chips for military applications.

Although China produces some semiconductors, its foundries are unable to produce the most advanced logic chips. Beijing relies heavily on Taipei for advanced semiconductors needed to modernize its military, as well as software and tools from the United States.

US Commerce Secretary Gina Raimondo said Washington has urged its allies to comply with US export controls to limit China’s access to advanced semiconductor technologies and impose similar restrictions.

Taiwan’s Economy Minister Wang Mei-hua said the restrictions only affect certain chips used in advanced fields such as supercomputing and artificial intelligence, but not the wider world of consumer electronics chips.

Taiwanese firms will comply with US export controls, Wang said.

Mariko Togashi, a research fellow on Japanese security and defense policy at the International Institute for Strategic Studies in London, said in an interview that full detachment from China is unlikely, but selective detachment in certain areas with sensitive technology, something like precision-guided strikes, is , will progress.

Given the size of the Chinese economy, which is deeply embedded in many elements of the global economy, it is difficult for most economies to fully sever ties with China, said Ichiro Inoue, a professor at the Graduate School of Policy Studies at Kwansei Gakuin University in Japan said in a separate interview.

“I believe that the nations concerned are in the process of figuring out how far and in what areas decoupling should go,” Togashi said.

Togashi said it is very costly – and in many cases impossible – to build a fully self-sufficient supply chain, so like-minded nations need to be brought into the circle.

It’s important to define who these like-minded nations are really going to involve in the supply chains, she said.

Such efforts have been made under the Indo-Pacific Economic Framework, a US-led initiative aimed at building resilient supply chains in the Indo-Pacific.

The 14-member IPEF, which also includes Japan, Australia, South Korea and India – but not China – will start formal negotiations in December.

Russia’s invasion of Ukraine and disruptions to the chip supply chain have raised fears about what would happen if China tried to take Taiwan by force.

Tensions across the Taiwan Strait have risen since the Chinese military held massive exercises around the self-governing democratic island – including launching ballistic missiles, five of which fell for the first time in Japan’s exclusive economic zone in the East China Sea – followed a trip by the spokeswoman for the US House of Representatives, Nancy Pelosi, to Taipei in August.

Chinese President Xi Jinping, who secured an unprecedented third five-year term as leader of the ruling Communist Party in October, has not ruled out the use of force to seize control of Taiwan, which Beijing regards as a breakaway province.

In a recent interview with CNBC, Raimondo said, “If you allow yourself to think about a scenario where the United States no longer has access to the chips that are currently being made in Taiwan, that’s a scary scenario.”

Taiwan makes 65 percent of the world’s semiconductors and nearly 90 percent of advanced chips.

These chips are used in almost all modern technologies today, including medical devices and telecommunications equipment, as well as vital infrastructure that keep society functioning.

Meeting on the sidelines of the G20 summit in Indonesia last week, Xi and US President Joe Biden exchanged barbs over the Taiwan issue.

“The war in Ukraine due to the current quagmire and massive Western sanctions would make China think twice about using force against Taiwan,” Inoue said. “But Beijing is apparently waiting for the right moment to take the island by force or other means.”

Amid tensions across the Taiwan Strait, Taiwan President Tsai Ing-wen sent Morris Chang, founder of leading chipmaker Taiwan Semiconductor Manufacturing Co, to the Thai capital for the two-day APEC summit.

Meeting on the sidelines of the summit, Japanese Prime Minister Fumio Kishida and Chang underscored the importance of ensuring peace and stability across the Taiwan Strait.

After a “happy, polite interaction” with Xi, Chang told reporters he congratulated the Chinese leader on the success of the October Communist Party Congress, but that they did not discuss cross-strait tensions.


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