Taiwan's strength in semiconductors could be its 'Achilles heel,' economist says

Taiwan ought to plan to diversify its financial system away from semiconductors, given the chance that China would possibly develop the capability to make its personal chips, Paul Cavey, an economist at East Asia Econ, advised CNBC.

“Politicians actually ought to be discussing extra on … diversifying the financial system away in phrases of attempting to encourage extra industries to develop,” Cavey mentioned on CNBC’s “Squawk Box Asia” Friday.

Taiwan’s share of worldwide semiconductor foundry capability stood at about 46% as of 2023, adopted by China (26%), South Korea (12%), the U.S. (6%), and Japan (2%), in accordance with TrendForce.

Much of Taiwan’s dominance can be attributed to Taiwan Semiconductor Manufacturing Co or TSMC, the world’s largest contract chip producer that counts Apple and Nvidia amongst its largest purchasers. TSMC produces probably the most superior processors discovered in Apple’s iPhones.

“40% of [Taiwan’s] exports at the moment are semiconductors. Numerous these are nonetheless going to China. And so if in case you have a state of affairs the place China does develop the capability to make semiconductors itself, the impression on Taiwan’s financial system goes to be very giant,” Cavey advised CNBC’s Emily Tan.

Taiwan exported digital built-in circuits, or chips, value over $47 billion to China in 2023, in accordance with preliminary trade data.

According to TSMC’s third-quarter 2023 earnings report, China accounted for 12% of its internet income in the third quarter of 2023, a rise from 8% in the identical interval a yr in the past. North America contributed 69% to the corporate’s internet income.

“Achilles heel is one thing which is the strength of Taiwan,” mentioned Cavey.

Efforts from Western international locations such because the U.S. and the Netherlands to contain China’s chip tech through export restrictions has pushed the nation to have a look at home companies for chip self-sufficiency in chips.

Revenue of China’s high 10 chip-equipment makers surged 39% in the primary half of 2023 from a yr earlier, in accordance with Shanghai-based CINNO Research.

Traditionally, China has been depending on overseas companies equivalent to Dutch lithography techniques’ producer ASML for chip tools, with Beijing lagging behind the U.S., South Korea and Taiwan in chip-related manufacturing. Earlier this month, ASML said that its license to ship a few of its instruments to China had been partially revoked by the Dutch authorities.

Paul You, chairman of First Securities Investment Corporation, mentioned the worldwide semiconductor business together with Taiwan’s could be in danger from the U.S.-China chip battle.

“I do consider the escalation between U.S. and China, particularly just like the chip battle, will turn into increased and better and that can dampen the expansion for the worldwide semiconductor [industry].”

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Taiwanese companies equivalent to Apple iPhone assembler Hon Hai often known as Foxconn have been attempting to diversify manufacturing away from China, You added.

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