Amid the ongoing US-China trade war, Chinese communication system giants such as Huawei and ZTE have taken a low-key approach on the international stage, but back in their home country, they continue to be leading telecom equipment makers, focusing on the domestic market. Both companies and major Chinese players in other tech sectors are expected to be thriving better in the China market on the protectionist measures launched by the Chinese government, sparking concerns about whether this will affect Taiwan's supply chain players and how they should counter.
China recently has announced export controls on important semiconductor metal materials including gallium and germanium, set to take effect on August 1, 2023. According to foreign media reports, Beijing has also begun requiring government units and state-owned enterprises to switch to using products manufactured by Chinese companies for all their IT devices by 2027.
Based on a document issued in September 2022 by the State-owned Assets Supervision and Administration Commission (SASAC) of China's State Council, all its subordinate units are required to report their progress of adopting Chinese-made IT devices, on a quarterly basis and starting January 2023.
The replacement directive for IT devices including PCs and server systems will initially cover sectors such as finance, telecommunications, electric power, petroleum, transportation, aerospace, education and healthcare before being extended to all other industries later on.
At the just-ended MWC Shanghai 2023, many first-tier Chinese system giants were all very active in their "home playgrounds" whether for mobile communications, connected vehicles, metaverse and even the hottest topic of AI.
Meanwhile, major Chinese chipmakers are also quietly proceeding with deployments in networking, AI, server and HPC chip segments, where Taiwan's supply chain partners have a good role to play.
Backend supply chain sources said that as long as Chinese customers have the ability and channels to obtain advanced process wafers, Taiwan's leading OSAT ASE Group and its Chinese counterpart JCET Group can both provide high-end or advanced packaging services.
The sources said that Chinese IC designers that are not on the US Entity List for sanctions are still able to place orders with TSMC for fabricating HPC chips, and contract ASE or JCET to handle backend services if not utilizing the foundry's advanced packaging solutions.
But Chinese fabless clients that cannot access the most advanced process wafers are mostly adopting a multi-chip integration approach to enhance computing power for their chips. In this case, the sources said, wafers used are manufactured using "relatively less advanced" processes, such as 7nm node, which, however, can rely on advanced packaging solutions to achieve computing power comparable to chips built with the most advanced process technology.
This is why Chinese semiconductor companies are also emphasizing the importance of chiplet and heterogeneous integration technologies, which may serve as a way out for them amid the intensifying US-China tech war, the sources stressed.
China still has a significant demand for mature and advanced process chips, and leading Taiwanese semiconductor companies such as TSMC, ASE and MediaTek all maintain a substantial portion of businesses associated with Chinese chip and system customers. Taiwanese partners also play a major role in server contraction production in China.
Industry observers stressed that despite the rising protectionist sentiment in China, Taiwan supply chain players will not be much affected, given the fact that Chinese clients still need to closely collaborate with Taiwanese partners if they want to launch top-of-the line products. However, at this moment, globalization seems to be overshadowed by the concept of "national security" and what path Taiwan's semiconductor supply chain should take to counter has become a critical issue that needs to be addressed, observers concluded.
