Inadvertent Ally: Taiwan's Role in China's Defense Tech Advances
Inadvertent Ally: Taiwan's Role in China's Defense Tech Advances
Examining Taiwan's role in China's military modernization.
Welcome to another edition of Eastern Empirics, where we dissect groundbreaking academic research to bring you nuanced insights into Asia's ever-changing landscape. Today, we delve into ‘China’s defence semiconductor industrial base in an age of globalisation: Cross-strait dynamics and regional security implications,’ a compelling paper by Professor Ming-Chin Monique Chu, whose research focuses on international political economy and security studies at the University of Southampton. You can find the original paper here.
As the U.S.-China rivalry intensifies, semiconductors have emerged as a critical battleground. These tiny chips are the lifeblood of modern technology, powering everything from dishwashers to advanced military systems. For China, the stakes are high; the nation aims to become self-reliant in semiconductor production to bolster its economic competitiveness, technological innovation, and military capabilities. But how successful has China been in achieving these lofty goals? And what role has Taiwan, a key player in the global semiconductor market, played in China's ascent?
Dr. Chu’s paper offers a deep dive into these questions, examining China's four-pronged rationale behind the indigenization of its semiconductor industry. From modernizing the People's Liberation Army (PLA) to mitigating the risks of foreign dependence, the paper sheds light on the different strategies Beijing employs. Intriguingly, the paper also contends that Taiwan has inadvertently aided China in upgrading its quality of defense microelectronics, adding another layer that applies to both Cross-Strait relations and U.S. efforts to prevent Chinese semiconductor advancement.
Dr. Chu's primary data comes from 165 interviews conducted between 2004 and 2022. The interviewees include officials and industry insiders from 68 firms in the semiconductor sector. In addition to industry-focused interviews, the paper also incorporates perspectives from Pentagon officials responsible for defense technology export controls. Furthermore, senior executives from leading semiconductor and defense firms were also interviewed, offering firsthand accounts of the intersection between the semiconductor industry and defense microelectronics.
China's Defense Semiconductor Industrial Base and CMI Reform: An Evolutionary Perspective
Before 2001, China's defense microelectronics sector was an autarkic system, heavily reliant on state-owned research institutes, academies, factories, and university labs. These entities were responsible for the development of microelectronics that were supplied to the military for various applications, including missiles, drones, and radars. However, this approach came with its own set of challenges. The lack of economies of scale, technological weaknesses, and insufficient investment in industrial infrastructure plagued Beijing’s defense microelectronics industrial base.
Since 2001, there has been a significant shift in China's approach, moving from an autarkic system to embracing Civil-Military Integration (CMI). Despite this restructuring, the industrial base has continued to rely on indigenous fabs (production facilities) that operate design and manufacturing facilities independent of external control.
This has led to two key enhancements in China's security. First, the development of home-grown chips has seen improvements in miniaturization and functionality, reducing the weight and size of PLA systems while improving their reliability and performance. Second, the use of domestically produced components has mitigated security risks associated with imported microelectronics.
China opened its defense production system to non-state-owned enterprises post-2001. The CMI strategy now allows certified civilian firms to participate in weapons production. Further institutional changes introduced since 2017 have emphasized the importance of CMI in modernizing the PLA, bringing in a new era of mixed security implications.
Through the gradual liberalization of its microelectronics industry, China has effectively leveraged Taiwan's technological strengths, assimilating select aspects into its own infrastructure, as evidenced in the following nine cases:
In the first case, since its inception in 2000 by Taiwanese American executive Richard Chang, Semiconductor Manufacturing International Corporation (SMIC), China's premier chip maker, has grown rapidly. Benefiting from Taiwanese expertise, technologies from Taiwan Semiconductor Manufacturing Company (TSMC), and Taiwanese investments, SMIC has become integral to China's semiconductor landscape. The company provides foundry services to Chinese integrated circuits (IC) design firms, contributing to military systems like drones and satellites. Collaborating with subsidiaries of China Electronics Technology Group Corporation (CETC) and offering design kits to PLA-affiliated researchers, SMIC plays a key role in developing advanced military technologies. Despite its denial of direct PLA ties, these links suggest an indirect benefit to the Chinese military.
In the second case, TSMC provided fabrication services to Phytium, a Chinese company. Phytium used TSMC's advanced chips in a supercomputer designed to simulate the performance of China's DF-17 hypersonic missiles. These missiles were tested in 2021 and raised significant concerns in the United States. A U.S. general referred to the tests as a "Sputnik moment," indicating their potential to evade existing ballistic missile defense systems deployed by the U.S. and its allies in the Pacific.
There is also a second link between TSMC and the Chinese defense microelectronics industry, specifically with Southwest Integrated Circuit Design Co. Ltd. (SWID). SWID is a fabless company specializing in analog ICs for both military and commercial applications. It has a history of pioneering military foundry projects in China and supplying semiconductors for various military and space programs, including China's first manned spaceship, Shenzhou V.
However, SWID faced limitations in terms of the reliability and fabrication technology of its military analog ICs compared to its global counterparts. This technological gap began to close when SWID started using TSMC's fabrication services. Given SWID's known military affiliations, it's likely that some of these TSMC-fabricated chips have been used by the PLA.
In the third case, Huajing, a Chinese firm integral to the defense chip sector, collaborated with Central Semiconductor Manufacturing Corporation (CSMC), a Taiwanese-established entity. Huajing's Central Research Institute (CRI), listed on the 2002 Qualified Products List (QPL), signifies its military relevance. In 1998, Huajing leased its specialized Fab 1 facility to CSMC, which then offered a two-year "foundry management service" aimed at enhancing both production capacity and the commercial customer base. Concurrently, CRI maintained its semiconductor supply to the PLA. This situation implies that Taiwanese engineers, through their managerial roles at the fab, could have indirectly facilitated the advancement of Huajing's military-grade integrated circuit capabilities.
The fourth case highlights the involvement of the Electronic Design Automation (EDA) Center of the Chinese Academy of Sciences (CAS) in Multi-Project Wafer (MPW) services provided by HeJian, a foundry with investment from Taiwan's United Microelectronics Corporation. The collaboration aims to improve the IC design capabilities of those participating in the MPW services. Given CAS's known connections with the PLA, it is likely that these enhanced IC design capabilities could be utilized for military applications to China’s benefit.
The fifth case discusses a 2005 agreement between the Institute of Microelectronics of the CAS and the Central Semiconductor Manufacturing CSMC to construct a six-inch wafer fabrication facility in Beijing. Production at this facility began in June 2006. Given CAS's established links with the PLA, it is probable that this facility was used to produce chips for military applications. Although the technology used was not considered cutting-edge at the time, it likely provided an improvement over the chips previously available for Chinese defense systems.
The sixth case focuses on the training of graduate students from the Shanghai Institute of Metallurgy (SIM) at the CAS at Grace Semiconductor Manufacturing Corporation (GSMC). Under the guidance of GSMC's then-chairman, Zou Shichang, these students gained access to advanced equipment and expertise, including insights from senior engineers from Taiwan. Given SIM's historical role as a supplier of military semiconductors, it is plausible that the training these students received at GSMC could be applied to enhance China's defense microelectronics capabilities.
The seventh case focuses on China's No. 771 Research Institute, which has a history of seeking Taiwanese expertise to advance its military projects. The institute is a key supplier of space-qualified and military-grade ICs and IC-based computers, used in spacecraft and missiles. It has two certified manufacturing lines for fabricating hybrid military ICs and was producing between 5,000 to 10,000 wafers per month as of 2005. The institute also equipped China's second manned spacecraft, Shenzhou VI, with 22 IC-based space-qualified computers. In the mid-1990s, the institute reached out to a Taiwanese company for radiation-hardened integrated circuit (rad-hard IC) design services to support its Hangtian project. Although the Taiwanese company declined the request, this outreach is significant. It indicates that the institute recognized the need for Taiwanese expertise to further enhance its capabilities in military and aerospace systems.
The eighth case highlights the role of interpersonal relationships in transferring expertise from Taiwan to China, particularly in the context of military projects. A junior Chinese engineer at Shanghai Fudan Microelectronics sought advice from a senior Taiwanese engineer who was heading a Chinese-based subsidiary of a leading Taiwanese design house. This interaction occurred within the framework of a PLA-commissioned project aimed at developing a 32-bit CPU. While senior members of the project were inclined towards reverse engineering, the junior engineer favored innovative solutions and reached out to the Taiwanese expert for guidance. This collaboration led to the debut of Shenwei I microprocessor in 2002, earning the company a defense technology award.
The final case focuses on Shenzhen I-Lacs Technology Co., Ltd., which became China's first civilian supplier of military-grade PCs to the PLA in 2006. The company sourced its ICs from Taiwan's VIA Technologies Inc. One of the military PC products even featured a VIA Eden CPU. When questioned about this, an executive from VIA was uncertain and downplayed the significance of the military business, stating it comprised only a small percentage of the company's revenue. Despite this, the case clearly illustrates that a PLA-qualified supplier relied on Taiwanese semiconductors for military applications.
Before we delve into the security implications, it's worth noting that Chu argues that the trend of globalization is set to further boost China's acquisition of Taiwanese expertise.
Globalization has significantly benefited China's commercial chip sub-sector and has played a crucial role in facilitating the CMI process. Local firms' IC design capabilities, which have been partly developed through Taiwanese contributions, are now valuable assets for Chinese military chip operations.
As globalization continues to improve China's defense chip industrial base, there's a growing possibility that the People's Liberation Army could incorporate semiconductors of Taiwanese design or fabrication, especially in a strait contingency. Interestingly, the expertise transferred from Taiwan has proven to be more valuable to the PLA than the hardware supply itself.
The level of process technologies used by Taiwanese chipmakers in their Chinese subsidiaries is noteworthy. These technologies are comparable to those used by the U.S. military, and as they advance, they could become significant assets for the PLA. However, this is contingent on the PLA not viewing these firms' Taiwanese background as a security threat.
While the eligibility of Taiwan-related semiconductor players for CMI partnerships with the PLA remains unclear, insiders suggest that wholly Taiwanese-owned firms would be the least likely partners. This is due to national security considerations, as the PLA would prefer to partner with indigenous firms, viewing Taiwan as a 'foreign adversary' rather than a 'part of China' in this context.
Senior executives in the industry have varied opinions on whether Taiwanese-owned or run foundries in China have fabricated chips for military end-use. Some claim no PLA involvement, while others concede that chips might have been fabricated for the PLA under specific circumstances. These circumstances include a lack of prior knowledge of the end use of the chips, low commercial demand, or the deals being kept confidential.
As Taiwan continues to help China acquire an increasingly integrated semiconductor capability, the security implications are fourfold
1. First, a robust domestic production base would mitigate China's vulnerabilities from foreign dependency and alleviate the impact of export controls on militarily sensitive semiconductors. This would be particularly beneficial for China, given its lack of trustworthy allies to guarantee a supply of such semiconductors.
2. Second, an improved commercial semiconductor industry would remove an obstacle to the PLA's pursuit of digitalization. Historically, China has relied on state-run entities for low-end semiconductors, but a rapidly improving commercial chip sub-sector could produce higher-quality semiconductors for military use, thus accelerating the PLA's digital transformation.
3. Third, enhanced semiconductor capabilities would improve the PLA's ability to wage both conventional and non-conventional warfare. Cutting-edge semiconductors would enable the development of advanced weapons systems and artificial intelligence gadgets, including next-generation stealth drones. Furthermore, a strong domestic chip industry would support China's Information Warfare (IW) capabilities, potentially enabling tactics such as chipping or EMP strikes to paralyze networked electronic devices.
4. Fourth, the regional balance of power is likely to shift in Beijing's favor relative to Taiwan as China increases its warfare capacity. While the PLA is not expected to catch up with its American counterpart soon, the improved chip capability could compromise security for both Taipei and Washington to a significant degree.
The paper concludes that the globalization of the semiconductor industry across the Taiwan Strait has been instrumental in bolstering China's industrial base, particularly in enhancing the capabilities of the PLA. This challenges the growing narrative around "decoupling," which advocates for the separation of U.S. and Chinese technological ecosystems. The paper argues that China's quest for semiconductor dominance is closely tied to its broader military ambitions, including its goal to become a world-class military by 2049. Despite U.S. efforts to curb technology transfer to China, the paper suggests that if globalization trends continue, they will likely aid in the PLA's modernization efforts.
From a policy perspective, the paper offers two key lessons. First, it recommends closer coordination between Washington and Taipei, particularly through supply chain cooperation forums. This would enable more effective control over the transfer of semiconductor technology, investment, and human resources across the Taiwan Strait. Second, it cautions that firm-led globalization efforts may produce security risks that are not in line with state interests, highlighting the limitations of government-led control measures aimed at constraining the PLA's modernization.
The overarching challenge, as the paper outlines, is to find a balanced approach that navigates the complex interplay between globalization and security. This involves reconciling the need for technological collaboration and economic growth with the imperative to mitigate security risks, especially in the context of the U.S.-China rivalry and its impact on global semiconductor supply chains.
Thank you for taking the time to read this comprehensive review. We hope it has provided you with valuable insights into the complex dynamics of the relationship between China’s aims for military modernisation and the Taiwanese microeletronics industry. The original research paper offers a more detailed exploration of this topic, and we highly recommend reading it for a deeper understanding. Dr. Chu has spared no effort in providing a comprehensive and detailed exploration of the situation. You can access the full article here. Your engagement and interest in this topic contribute to the ongoing dialogue on international relations and security.