Taiwan’s decision to impose export restrictions on hundreds of Chinese companies, including Huawei and SMIC, has triggered a strong backlash from Beijing, which has vowed to respond in a bid to ‘defend its economic and technological interests,’ reports Bloomberg.
“Such despicable acts are utterly contemptible,” said Zhu Fenglian, spokesperson for the Taiwan Affairs Office of the State Council, reports China’s state-owned Global Times.
“We will take forceful measures to resolutely safeguard the normal order of cross-Straits economic and trade exchanges and cooperation, and protect the interests and well-being of compatriots on both sides of the straits,” said Zhu.
It is unclear what ‘countermeasures’ are planned by China. In addition to the forceful seizure of the island or its blockade, China has multiple avenues to affect Taiwanese companies. First up, China has already restricted exports of rare earth materials to other countries and could potentially impose stricter limitations on Taiwanese companies. Secondly, China could restrict the operations of Taiwanese companies in China. Thirdly, China could restrict imports of non-high-tech products from Taiwan. All of these measures could hurt Taiwan and its industry.
More broadly, China’s ultimate plan is to flood the market with cheap chips made on mature nodes, and that is already happening. The expansion of chip production in China will naturally harm smaller Taiwanese foundries, such as PSMC, Vanguard, and UMC.
Earlier this month, Taiwan’s Ministry of Economic Affairs updated its list of restricted foreign entities, adding 601 companies from mainland China. Among them are major players in the semiconductor industry, such as Huawei and Semiconductor Manufacturing International Corp. (SMIC), China’s premier chipmaking fab.
The restrictions require Taiwanese businesses to obtain an export license before supplying goods or services to the listed entities. Customs offices have been instructed to block any exports to those companies that do not have government authorization. The update was a result of a policy review across government agencies aimed at bringing Taiwan into closer alignment with export control rules used by the U.S. and its allies.
The decision follows Huawei’s unlawful procurement of chips produced by TSMC using one of its advanced process technologies, which is prohibited by American sanctions against Huawei. After getting blacklisted by the U.S. and losing ‘official’ access to TSMC’s advanced process technology in 2020, Huawei has been expanding reliance on domestic suppliers to reduce its exposure to foreign export controls. This transition has already reduced the role of some Taiwanese firms, but Huawei remains a key buyer of components from the island and therefore relies on its suppliers from the island.
China strongly condemned the decision as it clearly hurts a variety of the country’s high-tech industries that require Taiwanese chips, manufacturing tools, or raw materials. Also, the restrictions affect regional supply chains. China described the move as a technological blockade and stated that it cannot halt the country’s technological advancement.
“We hereby warn the DPP authorities that technological blockades cannot stop the pace of scientific and technological innovation on the Chinese mainland, and attempts to decouple and break chains cannot hinder the mainland’s industrial upgrading process,” said Zhu. “Any act by the DPP authorities to disrupt cross-Straits economic cooperation will only damage the competitiveness of Taiwan enterprises and narrow the development space of Taiwan’s economy.”
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