The tremendous disruption caused by COVID-19 to the supply chains of different industries has prompted developed countries to diversify their supply chains and strengthen their control of key technologies, from semiconductors to satellites. The race for new technologies is on.
Take the semiconductor industry as an example, the U.S. plans to expand the manufacturing of chips in order to resolve the problem of chip shortages. The Defense Advanced Research Projects Agency (DARPA), the R&D agency of the United States Department of Defense responsible for the development of emerging technologies for use by the military, came up with the Electronics Resurgence Initiative with a focus on four areas: design and security; 3D heterogeneous integration; new materials & devices; and specialized functions. The U.S.-Japan Summit Meeting in April 2021 emphasized that the U.S. and Japan will collaborate in the development of distributed supply chains, in order to reduce their reliance on specific regions including Taiwan and China.
For China, the extension of the U.S-China tech war is creating a few challenges during the 14th five-year plan. First, the sanctions imposed by the U.S. on China have resulted in the exodus of production capacities from China by some multinationals. This discourages investment in China and will eventually disintegrate the Chinese supply chain. Second, the lack of talent in emerging industries in China will be even more pronounced, although the tightening of visa rules by the U.S. may send some Chinese nationals currently working in the US in R&D and senior management roles back to China. In general, the technology controls by the U.S. will limit China’s opportunities in international collaboration for new technologies. This will restrict access to international high-caliber talent and will decelerate the development of China’s own supply chain in new technologies. Third, government-led policy funds are overly parochial and are likely to see more projects abandoned and resources wasted as a result of gold rush fever.
In the most recent, i.e., the 14th, five-year plan released by the Chinese government in 2021, technology independence is the strategic pillar of national development. The idea is to rely on domestic demand and reduce reliance on technologies from the U.S.
The International Strategy Center of ITRI (ISTI) expects that the Chinese government will adopt a systematic three-pronged approach to innovation and development, in order to enhance industrial independence and innovation, and to develop China’s own standards and talent pipelines for new technologies.
1. Enhancement of R&D, innovation and independence of technologies and industries
The goal is to control key and fundamental technologies where China is still dependant on other nations. These technologies include semiconductors, artificial intelligence, biomedicine and key equipment. Considering the urgent requirements and long-term development in China, the best resources will be concentrated on key components and basic materials. Support will be extended to the development of third generation semiconductors, so that the country is not constrained by others. In the example of semiconductors, the goal is to establish China’s own supply chain and eliminate dependence on the U.S. for mature manufacturing processes. SMIC and equipment suppliers are building home-grown production lines and expanding the production capacity in mature processes.
2. Support of the Chinese supply chain with own standards
The National Standardization Work in 2020 has shed light on the priority tasks: connecting with the major domestic and national strategies; persistence in the pursuit of innovation and autonomy; and linkage with international standards. The focus is on the construction of standards for the new generation of information technology and biotechnology such as Internet-of-Things (IoT), Big Data, 5G, artificial intelligence and smart cities. This is to support the blueprint for technologies and industries and use standardization to promote the autonomous development of the Chinese supply chain.
3. Deployment in forward-looking domains and talent in urgent demand
This includes systemic reforms and a series of changes such as the development of talent pipelines, performance review and incentive mechanisms. The focus is on forward-looking domains and areas known for their urgent talent requirements. A futuristic technology academy will be established for forward-looking technologies; a modern industrial academy will be set up to address key technologies in demand.
In general, it is possible to predict that China will, proactively or passively, undermine its legacy partnerships with the U.S. from industry upstream to downstream in emerging technology or strategic sectors. As both China and the U.S. wish to restructure their supply chains, and China hopes to establish technological independence, Taiwan will be faced with the issue of bipolarization, i.e., the China camp and the U.S. camp. Going forward, Taiwanese companies will need more resources if they are to provide products and services for two different systems in emerging technologies such as 5G and satellite navigation, and they will either have to bet on both sides or choose one side depending on corporate scales, technical capabilities, target markets and supply chain elements.
To ensure the security of trusting relationships in sensitive industries with international strategic partners, Taiwan companies should first examine their own supply chain security and develop management systems and trusted technologies in order to showcase to the world that working with Taiwan does not affect resilience. The segmentation of supply chains for customers from different nationalities will be necessary to avoid political risks.