The development of the semiconductor industry can be used to broadly indicate the technological level a nation has attained.
For Taiwan, the sector is especially significant as it accounted for 28 percent of exports in 2016.
However, faced with a rapidly growing semiconductor sector in China, Taiwan's semiconductor industry is at a crucial juncture -- one where its response will determine whether the sector slips into decline or continues to prosper.
Former U.S. President Barack Obama expressed worries that China might overtake the United States after the Chinese government chose to focus on expanding its IC industry. The trump administration is expected to take an even tougher stance.
Whether the U.S. seeks to block Chinese access to its technology or takes retaliatory action, the impact is likely to be limited. As such, we believe the best strategy is for the U.S. to upgrade its semiconductor industry by nurturing new talent, protecting intellectual property rights and promoting the Internet of Things.
The semiconductor industry has long been a top priority in China, based on its policy of national self-reliance. This involved establishing a national development fund in September 2014 with a plan to invest 120 billion yuan (US$17.35 billion) over a five-year period, but that has since increased to 138.7 billion yuan.
Through such investment and related policy efforts, Beijing has promoted the formation of four IC industry clusters in the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin Bohai Sea region and the Central-Western region.
Although the self sufficiency of China's semiconductor industry is currently only about 30-40 percent, the level of demand means it is expected to attract more foreign investment, talent and technology.
Faced with such a huge change in the semiconductor industry, Taiwan has seemed helpless.
The policy of the Tsai Ing-wen administration currently involves allowing Taiwanese manufacturers to invest in China, but banning Chinese funds from investing in Taiwan.
That policy has forced the industry to relocate overseas, as seen by Powerchip Technology Corp, Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. investing in wafer foundries in Hefei, Nanjing and Xiamen.
If China's semiconductor industry develops rapidly, perhaps resulting in overproduction and price competition, the local semiconductor sector could go into a terminal decline.
Reviewing this situation more broadly, we believe that only through proper opening of cross-strait cooperation can Taiwan maintain its competitive edge through a comprehensive design, wafer manufacturing, packaging and testing industry chain. We believe this is the only way forward for the semiconductor industry in Taiwan. ( Editorial abstract - March 11, 2017)
(By Lilian Wu)