The relationship between China and Taiwan has always been uncomfortable, so much so that the tension between them has at times reached the intensity necessary to unleash a large scale conflict. Fortunately, even so they have not come to blows. One such occasion took place in the middle of the last decade, and its unwitting protagonists were Taiwan’s two crown jewels in the semiconductor industry: TSMC and MediaTek.
I am sure that most of the people who are reading this article know the relevance that these two companies currently have, but it is worth briefly reviewing why they are so important because, precisely, that is where the germ of the story lies. in which we are going to investigate. We’ll start with TSMC. This company is the largest manufacturer of integrated circuits on the planet. In fact, its market share is close to 54%, which places it at a comfortable distance from Intel and Samsung, which follow it with 17% for both.
This leadership position is based on highly advanced integration technologies that have placed this Taiwanese company at the forefront of the market. Apple, NVIDIA, AMD, MediaTek, Qualcomm and even Intel are some of its clients. It is doing so well that during 2023 plans to recruit 6,000 engineers in order to meet your needs. And this figure sticks only to their forecasts for Taiwan. When the chip plants he is setting up in the United States are ready, he will need to hire more qualified personnel.
Let’s go now with MediaTek. This company is not as big as TSMC, but it also plays a very important role in the integrated circuit market. In fact, it is the largest semiconductor designer outside of the United States and has a very strong presence not only in the Asian market; also in the European and North American. A good part of the smartphones, tablets or televisions that we can find in stores incorporate at least one MediaTek chip. To a large extent, Taiwan’s economic strength rests on the performance of TSMC and MediaTek, although UMC, which is also a major Taiwanese chipmaker, is close behind.
China’s strategy: strengthen itself by intervening in TSMC and MediaTek
In the early 2000s, a Chinese electrical engineer began to stand out from the crowd. Educated at the highly prestigious Tsinghua University in Beijing, Zhao Weiguo soon became noted for his mastery of semiconductor physics and his ambition. When he finished his training, he began his professional career working in a technology company, but it didn’t take long for him to being recruited by Tsinghua Unigroupone of the largest chip and telecommunications companies in China that is closely linked to the center where he had studied.
Tsinghua University is a public institution administered by the Chinese Government, and the Tsinghua Unigroup corporation, which depends to a large extent on this research center, is also partly managed by the Administration. Weiguo’s rise through the ranks of this company was meteoric, but in 2004 he decided to set aside the vice presidency and found his own investment fund with the intention of taking advantage of the connections he had forged within the government. His success was overwhelming. So much, in fact, that in 2009 he decided to take over 49% of the shares of Tsinghua Unigroup. The remaining 51% remained under the control of Tsinghua University.
In 2015 Zhao Weiguo visited Taiwan with the intention of buying 25% of TSMC and integrating MediaTek into Tsinghua Unigroup.
In 2013, Zhao Weiguo realized the strategic role that semiconductor companies were already playing and decided to strengthen his position in this industry. In his statements, he has always denied that the Chinese government was behind the movements he made when he was in charge of Tsinghua Unigroup, but it is highly unlikely that he acted with complete freedom of movement. Especially if we look at what was undoubtedly his biggest bet. And it is that in 2015 he visited Taiwan with the intention of buy 25% of TSMC and integrate MediaTek into the Tsinghua Unigroup subsidiary specializing in chip design. No more no less.
From a strategic point of view this was a master move. If his plan went well, his company would fully control MediaTek and intervene in the management of TSMC. In addition, China would have access through Tsinghua Unigroup to the intellectual property that was held by the two most powerful Taiwanese companies. It was a very ambitious plan, but it was also naive. The Government of Taiwan did not escape the fact that handing over control of its two semiconductor jewels to a company that was directly supported by the Chinese Administration was contrary to its interests, so it prohibited this operation. It was what could be expected.
Even so, Weiguo did not give up. When he returned to China he urged the government to ban the import of chips from Taiwan in order to boycott both TSMC and MediaTek (and UMC along the way as well). Most of the electronic devices equipped with Taiwanese chips that can be found in the world market are assembled in China, so preventing the entry of ICs produced in Taiwan was an effective way to severely damage the economy of this island region. During this tug of war the tension between China and Taiwan could be cut with a knife.
The pressure to which TSMC and MediaTek were subjected was so high that their management leadership at times was about to succumb
The pressure to which TSMC and MediaTek were subjected was so high that their management leadership at times was about to succumb and accept the interference of China, but the Government of Taiwan remained firm and prevented it despite the fact that it ran the risk to come into conflict with your neighbor. After this defeat, Weiguo decided to look to the United States and flirted with the idea of buying Micron, the largest memory chip maker in North America. Again, the US government prevented it because it considered that this operation put the security of its nation at risk.
This is where Zhao Weiguo’s greatest adventure outside the borders of his home country ended, but in recent months he has returned to the front pages of the media despite the fact that he is no longer running Tsinghua Unigroup. And it is that in mid-July 2022 he was arrested when accused by the Chinese corruption prosecution when he was in charge of the corporation in which he has spent a good part of his professional career. Between 2018 and 2021, Tsinghua Unigroup received more than $8 billion in funding from the state, and Weiguo is suspected of fraudulently managing this money. Now more than ever his future is uncertain.
Cover image: TSMC
Bibliography: ‘Chip War’, by Chris Miller
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