REAL REASON WHY CHINA IS ANGRY WITH PELOSI’S TAIWAN VISIT

If the world thinks the United States and China brought it teeteringly close to a confrontation in early August, think again. Yes, the visit of Nancy Pelosi, Speaker of the US House of Representatives to Taiwan was a trigger point and it angered China. But both sides knew they were merely posturing. China’s concern was something else altogether.

The Communist government is perturbed that Pelosi not only touched down on Taipei but also met the one person China never wanted her to meet. Pelosi had a phto-op with the President of Taiwan, Tsai Ing-wen. But the real meeting she had was with Mark Liu.

Mark Liu may not have the usual high profile like other billionaire-businessmen. But the masters of the defense establishments know him very well. He is the chairman of Taiwan Semiconductor Manufacturing Company (TSMC). His company is the world’s biggest chipmaker. He is the semiconductor king and every missile needs him to fly.

TSMC is the world’s most valuable semiconductor manufacturing company with a $426 billion market cap. The firm produces the world’s most cutting-edge chips, making semiconductors that Americans depend on every day to power their iPhones, medical equipment, and fighter jets. If China, the world’s manufacturing giant, lacks production facilities in any one thing, it is in these chips. Now it is easy to understand why Beijing was so peeved.

The western media reports said during their meeting Pelosi and Liu discussed the CHIPs and Science Act that the United States recently passed. The Taiwanese media said the new legislation includes $52 billion to support chipmaking in the US, and TSMC will likely be among its beneficiaries as a result of the $12 billion chip factory it’s planning to build in Arizona. Both Pelosi and Liu could also have discussed “larger and recurring subsidies” and “nurturing STEM graduates” in the US.

A chip shortage amid the pandemic has delayed production of cars, TVs, and computers and helped fuel global inflation. The shortage prompted US President Joe Biden’s administration to redouble efforts to invest in and reshore the chipmaking supply chain. A larger conflict among Beijing, Taiwan, and the US, however, could cause further disruption.

If the world’s biggest chipmaker and the world’s biggest economy come together to strengthen their relations or formalize a new one, China is bound to be unhappy. The wound would be felt deeper because the chipmaker is parked just across the mightly mainland China, just across a narrow strait, in the small island of Taiwan which China anyway says belongs to it.

The current trade figures between the US and TSMC are mind-boggling. The US is the company’s largest market. The US buyers comprised 64 per cent of TSMC’s total sales last year, up from 60 per cent two years ago. TSMC’s chip sales to American tech giant Apple alone “made up one-quarter of TSMC’s revenue last year”.

The question is, doesn’t Mark Liu realize the danger of working deals with Pelosi right under the nose of the Dragon? Is the TSMC willing to face the wrath of the Chinese government? Wasn’t it deterred by China’s repeated threats – military or otherwise against Taiwan – before Pelosi’s visit?

There is a growing perception in Asia that Pelosi’s visit may have opened a new phase for Taiwan-based companies. They were given an opportunity to choose sides – with Beijing or Washington. And TSMC perhaps made its choice?

The question also is, why was TSMC looking at the US to drive up its business? The data says that the TSMC has of late become “less reliant on revenue from China”. The Chinese market makes up 10 per cent of TSMC’s revenues, down from 20 per cent two years ago.

China is bound to retaliate, whatever the figures may say. The TSMC’s business could be derailed in China in the near future. But that may not be so because both TSMC and China are inter-dependent at one level. “China may be a relatively small market for TSMC chips in finished products, but China is the world’s largest semiconductor consumer when it comes to unfinished goods. Apple supplier Foxconn, for example, may import a TSMC chip from Taiwan to mainland China. That chip could end up in an iPhone that’s sold in the US.” That means TSMC needs China as much as China needs TSMC.

According to reports, the Chinese government reportedly “seized on Taiwan’s chip sector as a means of retaliation for Pelosi’s visit”. Beijing announced that it would “ban the export of natural sand—a raw material used in chipmaking—along with food and other items in retaliation for Pelosi visiting Taiwan”. Chinese state media outlet, China Daily, said the sand ban would “damage Taiwan’s chipmaking abilities”. The flip side is the ban’s damage is likely to be limited because Taiwan imports “just three per cent of its natural sand from China”.

The bottom line is because of the Pelosi-Mark Liu meeting, TSMC must be prepared for a situation where China may retaliate much more than banning sand export.  Also, whatever the military plans China has for Taiwan, they will now include one to neutralize TSMC factories on the island if things eventually drag everyone down to a final confrontation.

Even American analysts feel that though China could be less important to TSMC today than in the past, the company “still needs the Chinese market and peace among Taiwan, mainland China, and the US to thrive”. A seething Chian will not let go of a future opportunity to repay in kind for the Mark Liu-Pelosi meeting.

The departure of Pelosi from Taiwan saw the Chinese demonstrate their anger with a burst of military activity over the waters surrounding the island, summoning the US ambassador in Beijing and halting several agricultural imports from Taiwan.

China’s Assistant Minister of Foreign Affairs Hua Chunying is already on record saying: “The US and Taiwan separatist forces must take the responsibility and pay the price for the mistakes they made.”