In light of the potential risk posed by China’s developing capacity in semiconductor production, Taiwan is being advised to consider diversifying its economy away from its heavy reliance on the semiconductor industry.
Paul Cavey, an economist at East Asia Econ, highlighted the need for political discussions to encourage the growth of other industries during an interview on CNBC’s “Squawk Box Asia.”
Recent data from TrendForce reveals that as of 2023, Taiwan commands a significant 46% share of the global semiconductor foundry capacity, leading the pack ahead of China (26%), South Korea (12%), the U.S. (6%), and Japan (2%). This dominance is largely attributed to Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chip manufacturer boasting major clients such as tech giants Apple and Nvidia.
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Cavey voiced his concerns to CNBC about Taiwan’s overreliance on semiconductor exports, cautioning, “40% of [Taiwan’s] exports are now semiconductors. A lot of those are still going to China. And so if you have a situation where China does develop the capacity to make semiconductors itself, the impact on Taiwan’s economy is going to be very large.”
In 2023, Taiwan exported electronic integrated circuits, or chips, worth over $47 billion to China, according to preliminary trade data. TSMC, a linchpin in Taiwan’s semiconductor industry, revealed that China accounted for 12% of its net revenue in the third quarter of 2023, marking a notable increase from 8% in the corresponding period a year ago.
Cavey noted during the interview that Taiwan’s semiconductor prowess is both a strength and a potential vulnerability, emphasizing the imperative to diversify the economy to mitigate risks associated with industry concentration.
“Achilles heel is something which is the strength of Taiwan,” said Cavey.
Western nations’ efforts to restrain China’s chip technology through export restrictions have compelled China to prioritize domestic firms for chip self-sufficiency, leading to a remarkable 39% surge in revenue for China’s top 10 chip equipment makers in the first half of 2023 compared to the previous year.
The intensifying U.S.-China chip conflict, seen as a geopolitical struggle for technological dominance, poses a substantial threat to the global semiconductor industry, with Paul You, chairman of First Securities Investment Corporation, warning of potential escalation. He predicts that the rising tensions will likely impede the growth of the global semiconductor industry, adding a layer of complexity to Taiwan’s economic outlook.
“I do believe the escalation between U.S. and China, especially like the chip war, will become higher and higher and that will dampen the growth for the global semiconductor [industry],” he said.
Amidst these challenges, Taiwanese firms are taking proactive measures to diversify their production away from China. Tech giant Foxconn, also known as Hon Hai, is at the forefront of this trend, reflecting a broader strategic shift to reduce dependencies on a single market.
The persistence of geopolitical uncertainties sets Taiwan up to the complex task of navigating potential economic impacts while actively exploring avenues for diversification to secure long-term resilience and economic stability.