What would happen to TSMC if China gains control of Taiwan?

[kvas]

I have been reading some articles about China / Taiwan situation it dawned on me that the probability of China taking over Taiwan in the next decade or two is not as low as I thought before. In the near term the military scenario seems the only one possible, but later even peaceful re-unification might be on the cards if China gets their way (e.g. if Taiwan doesn't see any way out of re-unification they might prefer the peaceful option and China would prefer that too because 中国人不打中国人).

This raises the question of what would happen to TSMC if the takeover happened. Would the company still exist? Would their position as the king of semiconductor manufacturing suffer? Would they still work with the clients in the West? Would the existing shareholders (including via ADRs) remain shareholders of the now Chinese TSMC? How would this impact Samsung and Intel and other foundries?

Any thoughts?

 

[tonyget]

SMIC has lots of Western clients as of now, I don't see why TSMC under China control cannot continue to server its Western clients. That is under the assumption that TSMC employees choose to stay. But if they don't want to work for China, and choose to leave Taiwan for the US, then the US will be the biggest beneficiary. Remember that the most valuable asset TSMC possess are talents not physical property, any company can buy the same machines as TSMC but not every company can become TSMC.

 

[kvas]

SMIC has lots of Western clients as of now, I don't see why TSMC under China control cannot continue to server its Western clients. That is under the assumption that TSMC employees choose to stay. But if they don't want to work for China, and choose to leave Taiwan for the US, then the US will be the biggest beneficiary. Remember that the most valuable asset TSMC possess are talents not physical property, any company can buy the same machines as TSMC but not every company can become TSMC.

I agree about talent but actually it's even worse than that because not anyone can buy the same machines. For example SMIC can't buy the same machines because of export restrictions that even touch ASML (despite it not being in the US) and TSMC might hit the same wall if it was to become Chinese. I imagine everyone would be quite pissed at China at that point and export restrictions might even be tightened.

 

[Lorien]

this possibility has always been overblown by Westerners. most probable outcome is it won't happen and both sides continue the status quo indefinitely.

if you like your doomsday scenario though, China would almost certainly take out Taiwan's power grid during an invasion and global chip supply chain would be severely disrupted.

after the war it's anybody's guess. China could lock down TSMC and hoard all the leading edge tech for itself. Western countries would try to retaliate through sanctions but that will hurt themselves equally due to global reliance on Chinese trade and manufacturing.

 

[Daniel Nenni]

My opinion, TSMC would cease to exist for a dozen different reasons which is why I don't believe it will happen. It really is a matter of life and death, semiconductors are now a matter of life and death. Thankfully this semiconductor shortage has made this point on a higher level so it will not be as much of a surprise if it happens.

China will produce 20% of the world's semiconductor components By 2024

China will produce 20% of the world's semiconductor components By 2024. Currently, Chinese manufacturers provide no more than 6%.

www.gizchina.com

 

[VCT]

TSMC Taiwanese employees are not machines. Most of us will not work for Communist.
Even some workers have to do so to make a living. The result will be totally different.

Chinese leaders are quite rational. (unlike most uneducated Chinese people)
They won't do so unless they are more powerful than the US. I don't think that will happened within 30 years. (with now western world are beware of China stealing IPs)
The only think I worried is that the leader become old and out of his mind.　

The chance of war are quite small. Hope I'm right.

 

[hist78]

I have been reading some articles about China / Taiwan situation it dawned on me that the probability of China taking over Taiwan in the next decade or two is not as low as I thought before. In the near term the military scenario seems the only one possible, but later even peaceful re-unification might be on the cards if China gets their way (e.g. if Taiwan doesn't see any way out of re-unification they might prefer the peaceful option and China would prefer that too because 中国人不打中国人).

This raises the question of what would happen to TSMC if the takeover happened. Would the company still exist? Would their position as the king of semiconductor manufacturing suffer? Would they still work with the clients in the West? Would the existing shareholders (including via ADRs) remain shareholders of the now Chinese TSMC? How would this impact Samsung and Intel and other foundries?

Any thoughts?

"I have been reading some articles about China / Taiwan situation it dawned on me that the probability of China taking over Taiwan in the next decade or two is not as low as I thought before. "

"This raises the question of what would happen to TSMC if the takeover happened."

I have read that personal blog article you referred to. I don't know what's exactly causing you to come to the conclusion about CCP taking over Taiwan?

That article has several history, background, reasoning and factual issues. I don't plan to elaborate those issues here because this site is about semiconductor industry. A person really needs to read and study a lot if he/she is interested in this CCP vs Taiwan ROC subject.

For example, in the CCP vs Taiwan ROC conflict analysis, many western analysts assume the war theatre will be in Taiwan and put so much effort to study Taiwan's defense capabilities.

Let's relate it back to the semiconductor industry. If you check the map of Taiwan strait, SMIC's Shanghai Fab is helplessly located inside of Taiwan's missiles range. Similar threats can happen to many mainland China's oil refinery, natural gas terminal, power generation facility, power grids, and many other important infrastructures.

It's impossible for CCP to defend majority of mainland targets from Taiwan's counterattacks if a war does start. And we haven't talked about the military and economic responses that will be carried out by US, Japan, South Korea, Australia, and NATO countries.

CCP knows their own vulnerabilities but they can't patch most of them at all. This partially explains why the Taiwan Strait stalemate has been going on for 72 years!

 

[PBealo]

VCT: I too hope you are correct! The thing nobody has addressed yet is what happens to TSMCs fabs if PRC invades.

While painful in the short run, the only question in my mind is whether Japan, Korea, the USA or all three destroy the TSMC fabs, and maybe others as well. They are undefendable IMHO.

 

[danxchen]

I have been reading some articles about China / Taiwan situation it dawned on me that the probability of China taking over Taiwan in the next decade or two is not as low as I thought before. In the near term the military scenario seems the only one possible, but later even peaceful re-unification might be on the cards if China gets their way (e.g. if Taiwan doesn't see any way out of re-unification they might prefer the peaceful option and China would prefer that too because 中国人不打中国人).

This raises the question of what would happen to TSMC if the takeover happened. Would the company still exist? Would their position as the king of semiconductor manufacturing suffer? Would they still work with the clients in the West? Would the existing shareholders (including via ADRs) remain shareholders of the now Chinese TSMC? How would this impact Samsung and Intel and other foundries?

Any thoughts?

In answering your question, I would like use one ancient Chinese proverb, " Under a smashed bird nest, would there be any eggs untouched?" That is why you "don't want to put all of your eggs in one basket", so to speak. On the other hand, I do see that war between the Taiwan Straight might happen, if someone becomes irrational in his/her way of thinking. There is no guarantee that current leaders of China, Taiwan, Japan, US are always rational. It doesn't take too much for the world to lit up in an Hell Fire. God forbid should history of WWI and WWII repeat itself. I am sorry for the the pessimistic view.

 

[l3mhuang]

I would like to put a scenario of China starting a war with Taiwan. One is if they win the war, the military commander will be instantly the Chinese hero who accomplishes the historical mission of China unification. That will cast a shadow on Xi. The other outcome of losing the war due to the interference from the alliance of Japan, US, and Australia (this is a very likely joint force to come), then Xi definitely will be forced to step down from his political opponent. Either way, Xi will not be the winner. The war can happen if only Xi has a below par IQ.

 

[kvas]

Thanks everyone for all your thoughts. Just to clarify, I don't think it is likely that China would try to take over Taiwan, but at the same time this scenario is not impossible, so I was trying to get some help in thinking it through.

@hist78 Your point about Taiwan's possible retaliation by hitting important Mainland targets is an interesting one. I haven't seen it brought in any other sources that I have read, but it seems important for the cost-benefit calculation (of the invasion). It might also explain why Taiwan's military doctrine is not quite aligned with the US recommendations (according to this post) that focus on inflicting damage on and slowing down the invasion force.

@Daniel Nenni, @VCT, @danxchen If you're right, capturing Taiwan would feel much less sweet, since TSMC would not be part of the prize. This together with the other countries being very unhappy about losing the critical supplier of chips would mean that Taiwan's "silicone shield" is strong. I really hope you are right.

@l3mhuang I was thinking that Xi would authorize the operation and would thus get the credit in case of success. If you're right, then perhaps the risk is even less worth it.

 

[danxchen]

Evaluating how the CCP would act in dealing with Taiwan and what would be all in the "calculation", I recommend reading this information (https://en.wikipedia.org/wiki/Siege_of_Changchun). After that siege, even after half of a century, common folks in Changchun greeting each other by saying, "Have you eaten yet?" (Or did you had your meal today?)
Please note, this was what had happened in Mainland China during the civil war, a long time ago. However, CCP has not changed a bit after all these years. Amazingly enough, history sometimes repeats itself.

 

[kvas]

Evaluating how the CCP would act in dealing with Taiwan and what would be all in the "calculation", I recommend reading this information (https://en.wikipedia.org/wiki/Siege_of_Changchun). After that siege, even after half of a century, common folks in Changchun greeting each other by saying, "Have you eaten yet?" (Or did you had your meal today?)
Please note, this was what had happened in Mainland China during the civil war, a long time ago. However, CCP has not changed a bit after all these years. Amazingly enough, history sometimes repeats itself.

Brutal. I really hope this doesn't repeat. Luckily, similar siege of Taiwan doesn't appear possible because other countries would likely interfere. My impression is that if CCP was to be successful, it would have to be quick. Anyway, this is probably off-topic for this forum.

 

[Godfree Roberts]

Our media conceal the degree to which Taiwan and China are already integrated. Taiwan is represented in China's Congress, for example, and enjoys the right to sail on China's vast internal waterways–giving it a unique cost advantages over its SE Asian rivals. President Xi has relatives in Taiwan and the Taiwanese trust him more than they trust their own politicians.

My Chinese friends laugh at the idea of a purely military takeover of Taiwan. As they observe, one Chinese frigate can sink the entire Taiwan Navy without ever coming in range of its weapons.

More likely, they say, is a bland official announcement that, henceforth, all movement of goods and services into and from Taiwan must clear PRC Customs and Immigration. Otherwise, no changes are contemplated.

Of course, this would be backed up and enforced by China's immensely powerful navy, air-force and missiles, and a picket line of missile patrol boats around the new ADIZ and across the Taiwan Strait which would, a fortiori, become domestic waters, closed to all military traffic.

In other words, business as usual, except that global power would shift decisively in China's favor both through its control of IC imports and exports, and the impotence of the US military to hinder China's move.

 

[tonyget]

The recent semiconductor policy trend in the US/EU/SK/Japan indicate that they all going towards self-sufficiency direction, rather than placing bet on Taiwan's future. TSMC has to fasten it's pace in order to remain the current domainate position, to keep the world rely on Taiwan for the sake of security.

 

[coldsolder215]

Evaluating how the CCP would act in dealing with Taiwan and what would be all in the "calculation", I recommend reading this information (https://en.wikipedia.org/wiki/Siege_of_Changchun). After that siege, even after half of a century, common folks in Changchun greeting each other by saying, "Have you eaten yet?" (Or did you had your meal today?)
Please note, this was what had happened in Mainland China during the civil war, a long time ago. However, CCP has not changed a bit after all these years. Amazingly enough, history sometimes repeats itself.

Pretty sure the KMT triggered the civil war when they tried to massacre the communists. They "f@cked around and found out" as we say in America. KMT also went on to work with the CIA to develop heroin trade in the Golden Triangle and fueled our drug war in the 80s which explicitly targeted urban African Americans.

Our media conceal the degree to which Taiwan and China are already integrated. Taiwan is represented in China's Congress, for example, and enjoys the right to sail on China's vast internal waterways–giving it a unique cost advantages over its SE Asian rivals. President Xi has relatives in Taiwan and the Taiwanese trust him more than they trust their own politicians.

My Chinese friends laugh at the idea of a purely military takeover of Taiwan. As they observe, one Chinese frigate can sink the entire Taiwan Navy without ever coming in range of its weapons.

More likely, they say, is a bland official announcement that, henceforth, all movement of goods and services into and from Taiwan must clear PRC Customs and Immigration. Otherwise, no changes are contemplated.

Of course, this would be backed up and enforced by China's immensely powerful navy, air-force and missiles, and a picket line of missile patrol boats around the new ADIZ and across the Taiwan Strait which would, a fortiori, become domestic waters, closed to all military traffic.

In other words, business as usual, except that global power would shift decisively in China's favor both through its control of IC imports and exports, and the impotence of the US military to hinder China's move.

American elites are desperate for another war because they think it'll reset their balance books. They abandoned their labor aristocracy to the Chinese in response to stagflation in the 1970s and the CCP used it to pull a billion people out of poverty, which is a surefire way to draw their ire. (e.g. GDP per capita in Bolivia under Evo Morales)

But one of the drawbacks of zero meritocratic accountability since the fall of the USSR is that now everyone is an inept, cynical, upward failson. The revolving doors between public and private bodies in finance, insurance, real estate, and defense have made for such national embarrassments like the wars in Iraq and Afghanistan, the financial "bailout" of 2008 that purged 10,000,000 families* from their homes, the "Affordable" Care Act, the F-35 "Lightning", etc.

I think it's telling that they ignored the F-35 in their latest simulations of China crossing the Straits. War with China will only exist in the imaginations of people who consume mainstream media, all while our elites continue plundering the tax base as the country decays into irrelevancy as a post-WWII economic fluke.

 

[Daniel Nenni]

In other words, business as usual, except that global power would shift decisively in China's favor both through its control of IC imports and exports, and the impotence of the US military to hinder China's move.

Remember, it would be the impotent US military plus allies all over the world (Japan, Korea, Europe, etc...) versus China. Maybe N. Korea will help China but I doubt Russia will. If all of those countries stopped buying/selling China products the war will be over very quickly.

 

[animesh]

Just pitching in, as I have given thought to this many years back.

I would divide the problem into two parts.
1. If china will take over Taiwan
it's a matter of when, if not IF. While it is better left to defence analysts, more than china..I am more interested in Taiwan's defence strategy. How far are they willing to go.

2. What will happen to tsmc
During the last phase of WW2, US and USSR were acting more like rival . There was a race to capture defence tech assets of soon to decline Germany.
What they got hold of.. (Equipments, scientists).. Acted as foundation for their future space race.
I see same trend here.. China will not let tsmc die.. Consider it like acquisition.. A bigger company like huwei will take over management,.. Change a few things here and there... World will complain for a while.. After few yrs it will be business as usual.

I guess US has games this eventuality (post take over bargaining power).. That is why I see tsmc, samsung diversifying in US to ensure their business continuity.

 

[Portland]

China has conflicts with India as well as internal issues like foods, electricity etc.

Reserve units can be effective. Before the Hamas-israel conflict people chuckled at the Israeli reserve units. They pushed Hamas into the tunnel, mined it and blew it up. Everyone's jawed dropped.

Taiwan has the same thing reserve units of people that work in manufacturing. Is it possible China can take over Taiwan in 5 minutes? Yes but it's far from a sure thing.

 

[count]

All this talk of a war with China and Taiwan is silly.

The world is at a sort of stalemate where there is no point for any major power to even consider war. There will be no hot war between Taiwan and China. Over time, China is gradually becoming stronger, is increasing it's political and military strength, and meanwhile the US is getting weaker. So why start an very difficult war next year when you could wait 5 years and be in a better position? Why start a war in 5 years when in 10 years you'll be in an almost guaranteed position of victory? Why start a war in 10 years when in 20 years you've got the political and economic leverage to achieve your goals without the sacrifices of war at all?

Look how things played out with Hong Kong. There was no real war, China is more or less crippled the Hong Kong economy and now has complete political leverage over them. China gained this control over Hong Kong over a period of 50 years without a war. That's the template for what will happen in Taiwan.

China is thinking in terms of the next 50 years, not just the next 5.