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China 'must seize TSMC' if the US were to impose sanctions

So says Chinese economist, but it wouldn't achieve much if Taiwan destroyed its fabs first

China should seize Taiwan to gain control of TSMC if the United States and its allies impose sanctions against the Middle Kingdom like those now in place against Russia, according to a prominent Chinese economist.

The move follows the suggestion last year out of the US that Taiwan should be prepared to destroy its semiconductor factories if China were to invade.

This latest development comes in a speech by Chen Wenling, chief economist for the China Center for International Economic Exchanges, delivered at the China-US Forum hosted by the Chongyang Institute for Financial Studies at Renmin University of China at the end of May. The text of the speech was posted to the Guancha (Observer) online news site.

In the speech, Chen opened by saying that China and the US needs to ease the hostile relations between them, and that a confrontation between the two powers would be "a disaster for mankind."

However, she then claimed the US was seeking to isolate China, citing the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) agreements as attempts by the US to create two large "anti-China" trade bodies, although the US pulled out of the former and the latter was cancelled because of disagreements.

Echoing many concerns in the West, Chen said that China needs to take steps to secure its industrial chain and supply chain, and make strategic preparations to "deal with the United States' insistence on breaking the chain and containing it," according to a translation of the text.

This means that if the US and allies imposed sanctions on China like those deployed against Russia, China "must recover Taiwan" and "seize TSMC, a company that originally belonged to China."

Chen claimed that "they are speeding up the transfer to the United States, and to build six factories in the United States. We must not let all the goals of the transfer be achieved," a possible reference to the US CHIPS Act, which seeks to encourage the building of semiconductor fabrication plants on US soil, which may include funding going to TSMC for chipmaking facilities it is building in Arizona.

While alarming, Chen's speech appears to suggest that China should only take this action as retaliation to threats against its economic security, and there is no reason to believe that sanctions comparable to those on Russia are likely unless China becomes involved in a similar act of hostility against another country.

Any attempt by China to seize Taiwan and TSMC might be futile anyway, if the Taiwanese government were to adopt the scorched-earth policy proposed last year in a paper from a US Army War College.

This suggested that Taiwan's best deterrent against potential Chinese aggression is to put in place a credible strategy to destroy its semiconductor manufacturing facilities if an invasion were to occur, thus depriving China of the supply of much of its semiconductors. As well as TSMC, the island also has facilities owned by Chinese chipmaker Semiconductor Manufacturing International Company (SMIC).

Taiwan is seen as vital by both the US and China because it accounts for such a large part of the world's semiconductor manufacturing capacity. Currently, the island has 48 per cent of the global foundry market and 61 per cent of the world's capacity to fabricate chips using a 16nm process node or smaller.

This is especially true for China, which last year produced only one in six of the chips that its industries used, despite setting an ambitious goal to be 70 percent self-sufficient in semiconductors by 2025.

TSMC recently reported revenue for the first quarter of 2022 of $17.6 billion, a 36 percent jump on the same quarter a year ago. The company estimated sales will continue growing at similar rate for the current quarter, based on high demand seen from the automotive and high performance computing markets. ®

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