“If that continues, Taiwan’s chip ecosystem remains central to the world’s commercial needs.
“There are some challenges, however, that relate more to public policy. Water and land issues impacting new investment are real and need to be managed in a way that prioritises the needs of the economy.”
After its chip sector took off in the 1980s, making Taiwan a magnet for customers including Apple and Qualcomm, it supplies around 60 per cent of the world’s semiconductors.
In July, Germany proposed a US$22 billion plan to improve its semiconductor manufacturing, as well as other elements of its hi-tech industry.
South Korea’s Ministry of Trade, Industry and Energy also said in July it had identified “specialised complexes” for semiconductors, with deregulation and tax incentives being considered.
“The escalating trade tensions between China and the United States, along with other geopolitical issues, have prompted governments worldwide to recognise the importance of possessing their own semiconductor manufacturing facilities,” said Joanne Chiao, an analyst with the Taipei-based market research firm TrendForce.
Taiwan can stay ahead of the US, Germany, South Korea, and mainland China even while TSMC and its suppliers move offshore, but only if it offers the right incentives for the US$150 billion industry at home, analysts said.
Curbs imposed by the US and allies, including Japan, on chip-making equipment sold to mainland China have accelerated a tech self-sufficiency drive by Beijing over the past three years.
In that vein, Chinese companies have stepped up development of components and equipment.
But chip makers in Taiwan have little land for expansion, while a series of droughts have prompted a search for new water sources.
“We just can’t provide chip makers with a perfect environment to keep them,” said Kent Chong, managing director at professional services firm PwC Legal in Taipei.
During a drought in 2021, the government rationed water near a TSMC plant, but spared the company and other major manufacturers.
A new Taiwan factory of TSMC’s scale would increase daily water intake by 118,000 metric tonnes, the Taiwanese news outlet Commonwealth estimated. It said that amount equals 7 per cent of Kaohsiung’s water consumption.
Chip makers, though, are unable to increase renewable energy because Taiwan’s electricity provider relies mostly on fossil fuels despite investment in offshore wind power.
In March, the island closed one of its three nuclear power plants over public safety concerns.
Last year, renewables made up 8.6 per cent of its energy supply, with 9.1 per cent from nuclear power.
Access to power “remains dogged by under investment”, Hammond-Chambers added.
To secure power as Taiwan tries to derive one-fifth of its energy from renewable sources by 2025, TSMC said in April it had signed a 20,000 gigawatt hour joint procurement contract with a subsidiary of the Taipei-based ARK Solar Energy.
More than a dozen TSMC suppliers are expected to participate, the firm said.
On Wednesday, the Taiwan Water Resources Agency said an industrial park in the southern city of Kaohsiung would rely on recycled water to “assure stable supplies”.
TSMC’s Kaohsiung plant will need more water following “production adjustments”, the agency added.
The government-run Taiwan Power Company last year approved an issue of corporate bonds of NT$18.8 billion (US$592 million) to stabilise power supplies with upgrades at three power plants.
“I think Taiwan’s government is very supportive of the whole [integrated circuit] industry,” said Albert Liu, the Taiwanese founder of Kneron, a California-based artificial intelligence chip designer which employs 180 people in Taiwan.
Liu believes Taipei may offer support, including possible tax incentives.
Other countries could take a while to build up semiconductor “clusters” with raw materials, equipment suppliers, chip factories and end customers, Chiao added.
“Taiwan has been deeply engaged in semiconductor manufacturing for several decades, and the formation of semiconductor clusters did not happen overnight,” she said.
Chiao acknowledged that “demand for talent and workforces” are among the most “crucial” issues.
The Industrial Development Bureau under Taiwan’s Ministry of Economic Affairs declined to comment.
It, though, still might make more sense to allow the Taiwan chip sector to expand overseas, given constraints on the island, plus geopolitical pressures, analysts said.
If mainland China takes military action against Taiwan, chip technology could easily be transferred to other locations with Taiwan-operated factories, said Chong at PwC Legal in Taipei.
Mainland China sees self-ruled Taiwan as a breakaway territory that must be unified, by force if needed. Relations have deteriorated over the past seven years.
US officials have asked South Korea and Japan since February to apply for a cut of the US$50 billion that Washington has set aside as part of the Chips and Science Act to revitalise its chip sector.
“[We] welcome positive dialogue on the issue of double taxation”, a TSMC spokeswoman said in mid-August.
TSMC owned 30 per cent of the world’s non-memory chip market last year, up from 26 per cent in 2021.
“[A taxation deal] implies that Taiwan and the US will be more linked economically, making capital, investment, production, and people move more freely between the two economies,” said Hu Jin-li, an Institute of Business and Management professor at National Yang Ming Chiao Tung University in Taipei.
“This is, of course, a gravity that economically pulls Taiwan to the US side.”