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Chip Wars

Taiwan introduces measures to thwart PRC’s economic attacks on its industries

Story and photos by Reuters

Taiwan’s spy catchers have launched probes into about 100 Chinese companies suspected of illegally poaching semiconductor engineers and other tech talent, a senior official at the island’s Investigation Bureau said in April 2022.

That comes on top of seven companies prosecuted since the start of 2021 and includes 27 that have either been raided or whose owners have been summoned for questioning by the bureau, the official said.

Tech powerhouse Taiwan makes most of the world’s microchips, used in everything from fighter jets to mobile phones, and the government has long worried about Chinese efforts to copy that success, including through economic espionage, poaching talent and other methods. South Korea, Taiwan’s nearest competitor, controls about 17% of the market. 

Home to industry giant TSMC and accounting for 92% of the world’s most advanced semiconductor manufacturing capacity, Taiwan makes the smallest and fastest chips and possesses what the People’s Republic of China (PRC) needs — chip expertise.

The Taiwan Semiconductor Research Institute displays two chips at its facility in Hsinchu.

To date, the island’s prominent microchip industry has served as a defense shield of sorts. Because the semiconductor industry is essential to the PRC’s economy, Taiwan has calculated that military actions that would jeopardize the fabrication plants would only be undertaken as a last resort, analysts said. 

A global chip shortage and Beijing’s avowed goal of self-reliance in advanced chips — more forcefully promoted by Chinese Communist Party General Secretary Xi Jinping after a trade war with the United States — has intensified the scramble for engineering talent and heightened the risks for Taiwan.

Taiwan responded in December 2020 by creating a task force within the Justice Ministry’s Investigation Bureau, its main spy-catching organization, to tackle poaching.

Cases involving raids or questioning represented “the tip of the iceberg,” the senior bureau official said, asking to remain anonymous so that investigations are not impeded.

The Investigation Bureau said the official’s comments represented its views.

Increased Determination

Heightened military pressure from the PRC, which claims self-governed Taiwan as its territory, has strengthened Taipei’s determination to protect its chip supremacy. 

The PRC’s aggression has also raised concern among nations that a PRC takeover of Taiwan’s industry could lead to a broader conflict given the U.S.’s chip dependence. Multilateral responses and global efforts to build supply chain resilience could also help protect Taiwan’s microchip industry, according to a January 2022 study by the Center for a New American Security.

A smartphone displays the TSMC logo.

In February 2022, Taiwan’s government proposed a law to prevent the PRC from stealing its chip technology amid rising concern that Beijing is stepping up its economic espionage.

Taiwan’s Cabinet proposed new offenses for economic espionage under the national security law, setting out punishment of up to 12 years in prison for leaking core technologies to the PRC or “foreign enemy forces.”

Using TSMC’s most advanced 2-nanometer chipmaking technology as an example, Cabinet spokesman Lo Ping-cheng said such technology could be deemed vital to Taiwan’s security under the new law, and thus extra protection was needed in addition to existing laws on trade secrets.

“Everyone knows that TSMC … has world-leading technologies,” Lo said. “If their technologies were stolen, there would be a significant impact.”

A designated court for economic espionage would be established to speed up trials, Lo added.

The government also has proposed tightening laws to prevent Chinese companies from illegally poaching Taiwan talent via companies set up in a third country. Taiwan’s Parliament must pass the revisions before they become law.

Taiwan authorities already have toughened punishment for Chinese investment in Taiwan via illegal methods, which the government said had led to many cases of industrial espionage in recent years.

An engineer prepares to test a chip at the Taiwan Semiconductor Research Institute.

“The infiltration in Taiwan’s industries from the red supply chain is getting more and more severe in recent years,” Taiwan Premier Su Tseng-chang said in a statement, referring to Chinese tech suppliers. “They poached our nation’s high-tech talents and stole the nation’s core and key technologies.”

In March 2022, the Investigation Bureau conducted its biggest operation to date, a raid of eight companies aimed at countering what it said was “the Chinese Communist Party’s illegal activities of talent-poaching and secret-stealing.”

Tricks Employed

It is not illegal, per se, for Chinese companies to hire Taiwan engineers. Taiwan law, however, prohibits Chinese investment in some parts of the semiconductor supply chain, including chip design, and requires reviews for areas such as chip packaging, making it difficult for Chinese chip companies to operate on the island legally.

Taiwan engineers can go to China, but many prefer the quality of life on the island, especially while COVID-19 restrictions make travel harder.

One case under investigation involves a company that purports to be a Taiwan data analysis company, which authorities believe is an arm of a Shanghai-based chip company sending chip design blueprints to the PRC, according to the senior official and a colleague.

In mid-March 2022, after nearly a year of surveillance, the Investigation Bureau summoned the company’s owner for questioning. Officials declined to identify the company as charges had not been filed.

Other tactics employed include incorporating units in tax havens such as the Cayman Islands, making it difficult to identify investment from the PRC.

Beijing-based Starblaze Technology, an integrated circuit design company, has been accused of running a research and development center in the Taiwan tech hub of Hsinchu without approval. It allegedly conducted job interviews via Zoom and used a Hong Kong company to handle payroll and insurance, according to court documents.

Tongfu Microelectronics, a Chinese state-affiliated company, was accused of having an illegal office whose employees’ salaries were paid in U.S. dollars via offshore accounts wired through a Hong Kong-based subsidiary. The defendants were found guilty in January 2022.

The Most Wanted

Lucy Chen, vice president of Taipei-based Isaiah Research, said that in 2021, Chinese chip companies came wooing with salary offers two to three times local levels. Among the most sought-after employees are integrated circuit designers, who can work remotely.

While it is difficult to compete on salary, local companies aim to provide long-term career development and on-site perks such as day care centers, massages and gyms, a Hsinchu chip company executive said.

Those willing to be poached risk not finding work again at Taiwan tech companies as well as public shaming. Several senior TSMC executives who went to work for SMIC in the PRC have been branded as traitors in the Taiwan media.

Authorities are working to increase penalties for poaching. Maximum prison sentences are set to triple to three years, with top fines jumping from U.S. $5,200 to U.S. $520,525.  

FORUM Staff contributed to this report.

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