In fact, with the reduction of dependence on chip imports from Taiwan, the risk of a very serious paralysis of Chinese national technological production would be eliminated
Taiwan's unification with China is a repeatedly stated goal of Xi Jinping.
The question is not whether this will happen, but rather when it can happen.
Therefore, in the case of reunification with the use of armed force, there are questions in China about how to minimize the impact on the lives and property of people on both sides of the Taiwan Strait, as well as on the economies of both countries.
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The first issue to be addressed, then, is that of China's dependence on imports from Taiwan.
First of all, it should be mentioned that in 2023, Taiwan's exports to China, as shown in the figure below, are chip-related products.
Taiwan's official statistics
Secondly, analyzing the competitiveness of Taiwan's manufacturing sector from the structure of raw materials exported to China in 2023, it turns out that half of them are chips, followed by LCD panels and components.
Specifically, according to Taiwan's official statistics, the top 30 products exported to mainland China in 2023 are:
in first place is a variety of chips, including cell phone processors, AI chips and so on, with a 40.46 percent share;
in second place are RAM and ROM memories used in mobile phones, computers, etc. For example, 8GB and 16GB in the current flagship mobile phone are RAM, while 512GB and 1TB are ROM, with a total percentage of 7.29%.
It can be noted that the first two companies directly export chips, they have a share of 47.75% of exports to China.
In third place are solid-state storage devices such as hard drives and SD cards, accounting for 2.7%. These devices also contain chips;
among the top thirty exports to China, there are other chip-related products, such as semiconductor manufacturing equipment in 17th place (0.57%) and wafers in 19th (0.53%).
Therefore, in total, chips and related products account for more than 50%.
In fourth, eighth and thirteenth place, however, are all the products or semi-finished products linked to LCD screens, which represent 2.03%+1.53%+0.79%=4.35%.
So, LCD screens can actually be considered Taiwan's second largest export product to the mainland after chips.
Furthermore, sheets and plates made of polarizing materials, ranked 12th, should actually be materials related to LCD screens, accounting for 0.86%. Taken together, therefore, they represent over 5% of exports related to LCD panels to China.
Unlike chips, however, imports of display panels, related raw materials and all components from Taiwan can be easily replaced.
Other exports to China, accounting for more than 1%, include printed circuit boards (1.56%), paraxylene chemicals (1.33%), some machine parts, etc. These assets are also generally very fungible.
Therefore, there is a critical issue for China at the moment: in the event of military aggression from the island of Taiwan, Beijing-to avoid a paralysis of its domestic technology production-should preemptively substitute semiconductor imports from Taipei.
Here, however, attention must be paid to two things, production and quality. It is important to note that both are very important when dependence on foreign production is high; this means that once imports are no longer possible, there will be a huge impact on multiple aspects of the domestic economy. Even if there is a high degree of quality dependence - meaning that chip can only be imported from Taiwan - the Chinese economy would still risk a shock.
In terms of quality, it is known that the release of the Huawei Mate 60 pro mobile phone at the end of August 2023 was an exceptional event because its high-quality processor was produced in China.
From this perspective, China's dependence on TSMC, once considered inevitable and immovable, has been broken.
Previously, Huawei and TSMC had formed a competitive relationship, that is, the more Huawei mobile phones sold, the greater the impact on TSMC's share.
According to the latest report released by Canalys on April 26, in the first quarter of 2024, China's smartphone market rebounded for the first time in two years, reaching 67.7 million units. Among them, Huawei regained the top spot in the China market after 13 quarters. Thanks to the enthusiastic market response of the Mate series, shipments reached 11.7 million units, with a market share of 17%.
Huawei therefore, got rid of its dependence on chip imports from Taiwan, which is a historic event because, according to the normal industrial scale, this capability will gradually extend to the entire industry of China.
At the end of August 2023, Huawei became the first Chinese company to free itself from dependence on chips imported from Taiwan, but it will certainly not be the last once Beijing's industrial chain capabilities improve.
For well-known reasons, local market demand for domestic integrated circuits has also increased in recent years.
In addition to satisfying the local market, the export volume of integrated circuits has also increased, which shows that China's integrated circuit manufacturing industry is on the rise. China, therefore, is continually expanding.
This is also demonstrated by the revenues of the two largest national chip foundries where turnover in 2023 was more than double that of 2019.
If domestic integrated circuit production continues to grow for another three years, production will further increase and dependence on chips imported from Taiwan will be further reduced.
This also means that if strong, unified actions are taken in the future, the overall impact on the economy will be further weakened.
With the reduction of dependence on chip imports from Taiwan, China would be economically stronger and could, therefore, be more tempted to conquer the island militarily, without running the risk of a very serious paralysis of its national technological production.
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