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China Chips Away at Taiwan’s Semiconductor Talent Pool

Summary

The US-China trade war, combined with stringent sanctions restricting Beijing’s access to a majority of the chip market, has impaired China’s semiconductor aspirations. As a result, Chinese companies have employed various means to poach top semiconductor talent from Taiwan in order to achieve the technological self-sufficiency they seek. Experienced and skilled Taiwanese semiconductor, or integrated circuit (IC) design engineers, could be the key to Chinese chip dominance. However, it could also lead to a significant talent deficit in Taiwan’s semiconductor industry.

Semiconductor chips are tiny data processors used in a wide range of electronic devices. As smartphones and computers become ubiquitous in everyday life, the importance and value of these chips continues to increase dramatically. China seeks to domestically produce 70% of the chips it uses by 2025; however, a trade war and tough sanctions against Chinese technology companies have severely hindered this goal.

One of the most crucial necessities to producing high-end chips is seasoned semiconductor experts. While Beijing has pledged a US$1.4 trillion investment into its digital economy, it is estimated that China has a talent gap of about 300,000 integrated circuit (IC) engineers. Determined to hit its target, China has spent the past few years covertly recruiting semiconductor engineers from Taiwan.

For the past three years, WiseCore and IC Link, two Taiwanese subsidiaries under the Chinese cryptocurrency mining giant, Bitmain Technology Ltd., poached top talent from the island’s semiconductor foundries with the lure of higher pay and additional benefits. A probe conducted by the Investment Review Committee of the Ministry of Economic Affairs of Taiwan discovered Bitmain, through the two branches, illegally recruited Taiwanese IC engineers without prior approval from Taipei. With two highly experienced Taiwanese chip executives as chairman and vice president respectively, WiseCore and IC Link set up an R&D center and head-hunting teams to lure these engineers, as well as recruit former colleagues of the chairman and VP. The companies targeted hundreds of IC design engineers and highly skilled workers in top-level positions, but also recent graduates and new talent. 

As China ramps up investment into its domestic semiconductor industry, cross-strait talent poaching has also accelerated at an alarming speed. Mainland companies have poached several Taiwanese, high-profile chip experts over the past few years and will likely continue to do so – weakening Taiwan’s position as a semiconductor powerhouse as it loses chip innovators to the mainland.

Historical Background

Cross-strait talent poaching is not a new phenomenon. Since the late 1990s, China has actively worked to increase the labor flow from Taiwan to China, specifically in the technology field. In 2019, Beijing introduced 26 measures to ramp up cross-strait economic and cultural exchange. The legislation is a follow-up to 31 measures issued in 2018 targeting Taiwanese businesses and individuals in the mainland. The measures include smoother paths to residency for Taiwanese citizens, as well as giving Taiwanese companies the option to invest or participate in a large variety of critical projects such as 5G. Measures also significantly opened up access to mainland capital and debt markets.

So far, it seems the measures have enticed some tech professionals to leave their companies for China. Since 2017, more than 3,000 semiconductor engineers have left Taiwan for positions in the mainland. This is quite a significant chunk of the 40,000 semiconductor research and development (R&D) engineers throughout the entire island. In addition, for the past few years, Taiwan has lost many from its educated population to China in every sector. Offering higher salaries, more opportunities, and more global reach, working in the mainland is attractive to many top Taiwanese graduates. 

Experienced and skilled Taiwanese IC design engineers just might be the key to Chinese chip dominance. Currently, China’s own workforce lacks the education or skills to support Beijing’s ambitious semiconductor aspirations. In order to produce high-end high-precision chips, manufacturers require in-depth, specialized knowledge of production processes. The semiconductor industry relies on a small number of experts who know the tips and tricks of producing these chips, yet China’s fledgling chip industry lacks these veteran engineers. As a result, poaching Taiwanese engineers is one of the easiest and most direct ways towards Beijing’s goal of semiconductor self-sufficiency. In addition to their high-level experience and skills, Taiwanese engineers also already have an understanding of Chinese language and culture, as opposed to engineers from other parts of the world, which make them even more attractive in the eyes of Beijing.

High Profile Movements Across the Strait

Beijing has certain standards for its semiconductor experts. Multiple high-profile Taiwanese semiconductor experts and legends have left Taiwan for top-level positions with companies such as Semiconductor Manufacturing International Corporation (SMIC), China’s most prominent chip-making foundry, and technology conglomerate, Tsinghua Unigroup.

Richard Chang

Educated in Taiwan, Richard Chang began his lengthy semiconductor career in the US where he established microchip fabrication plants for Texas Instruments (ironically, also the former workplace of future Taiwan Semiconductor Manufacturing Company (TSMC) founder and Chang’s rival, Morris Chang). In 1997, Chang returned to Taiwan as general manager of Taiwan’s Worldwide Semiconductor Manufacturing Corporation (WSMC). After WSMC’s biggest shareholder sold the company to TSMC against Chang’s wishes, he left his position with WSMC. In 2000, with the backing of the Shanghai government and banks, he founded SMIC. Notably, he took a few TSMC executives and engineers with him, further contributing to the bad blood between himself and Morris Chang. 

In 2003, TSMC sued SMIC for trade secrets theft and patent infringement, as well as accusing the company of poaching about 180 former TSMC employees who brought private documents explaining TSMC design rules and chip-making processes. After multiple cases, SMIC settled with TSMC for US$200 million, as well as 10% of SMIC stock. After such a major blow, Richard Chang resigned as CEO in 2009, though he continues to offer his optimistic insights on SMIC’s current position in the industry. 

Charles Kao

In Taiwan, Charles Kao is known as the “Godfather of DRAM.” Dynamic Random Access Memory, or DRAM, is a type of semiconductor memory usually used for data in computer processors. Kao has a career spanning over 30 years in the semiconductor industry and has worked everywhere from Intel to TSMC. In 1995, he helped found Nanya Technology Corporation, a leading Taiwanese DRAM producer that helped transform Taiwan into a semiconductor manufacturing hub in the 1990s. However, in 2015, Kao announced he was retiring from Nanya Technology Corporation, only to reemerge as the CEO of Tsinghua Unigroup’s DRAM unit. Tsinghua Unigroup is a Chinese state-backed semiconductor manufacturing conglomerate founded by China’s prestigious Tsinghua University. Taiwan’s semiconductor industry considered Kao’s defection a huge blow as the industry pioneer took decades worth of experience, innovation, and expertise with him. He left Tsinghua in late 2020 after finishing his five-year contract and quietly retired. 

Shang-yi Chiang

Shang-yi Chiang’s case is an unusual one. Chiang was a long-time TSMC employee and rose the ranks to become Chief Operating Officer and an executive VP at TSMC. He was also a longtime R&D lead. He retired from TSMC in 2013 and was an adviser to Morris Chang until 2015. However, in 2016, he joined SMIC as an independent board director. In 2019, he became the CEO of Wuhan Hongxin Semiconductor Manufacturing Company, a once-promising private chip manufacturer. He jumped ship after the company suffered from a plague of issues, ranging from financial woes to the co-founder’s lack of technical knowledge. In late 2020, Chiang returned to SMIC and is now a vice-chairman tasked with assisting SMIC navigate US sanctions and blacklistings.

Chiang is one of the most high-profile Taiwanese semiconductor savants that has been poached by the mainland thus far. Unfortunately for Taiwan’s semiconductor industry, he will not be the last. Chiang’s case is a prime example of Chinese semiconductor companies frantically pursuing Taiwanese chip gurus by any means necessary. In this particular case, it meant offering Chiang an annual salary of US$670,000 plus bonuses, an offer very few could refuse. However, SMIC is not the only tech giant chasing Taiwanese talent. Reportedly, more than 10 other mainland companies approached Chiang after he resigned from Hongxin. As sanctions against Chinese tech companies continue to take their toll, mainland companies will only grow more assertive with their recruitment efforts.

Resurgence of the Red Supply Chain Threat?

The poaching of IC engineers and executives reignited fears over what Taipei officials deemed the “red supply chain.” In 2015, the term “red supply chain” emerged as a component of Beijing’s “Made in China 2025” plan to lock foreign competitors out of domestic technology production processes. This sounded the alarm for Taiwan’s technology sector as mainland manufacturing firms were snatching up key electronics manufacturing contracts away from Taiwanese firms. Taiwanese companies were forced to enter a low-price war with mainland rivals. 

Significant moves to restructure the global supply chain by the US, Taiwan, and others have curtailed the red supply chain’s dominance for the time being. Currently, Taiwan’s technology sector, particularly the semiconductor industry, is flourishing. Taiwan Semiconductor Manufacturing Company, the world’s largest semiconductor foundry, saw its share price surge 70% in 2020 to a market value of US$560.7 billion. This is in part thanks to the rush to buy laptops and smartphones as the world coped with persistent lockdowns during the global pandemic. Demand for high-end chips is at an all-time high, and Taiwanese semiconductor foundries are happy to deliver. 

The Road Ahead

Behind every thriving semiconductor foundry is a talented workforce. China’s aggressive recruitment of Taiwanese engineers can be seen as a method to reinvest in its red supply chain, cutting off Taiwan’s semiconductor industry at the source. The recruitment of highly-regarded industry veterans and fresh talent alike is clear evidence that Beijing intends to kill two birds with one stone, acquiring knowledge from one of the world’s best semiconductor talent pools while siphoning the industry’s future potential.

To prevent further fallout, Taipei is currently in the process of drafting amendments to the Trade Secrets Act that would discourage talent from jumping ship to China, as well as instructing staffing companies and recruitment platforms to remove all listings for jobs located in China. Nonetheless, Chinese companies continue to offer two-to-four times the usual salary to Taiwanese IC engineers, as well as additional benefits. With Taiwan’s persistent salary stagnation problem, significant financial packages from across the strait further incentivizes high-performing engineers to accept offers in the mainland, leaving Taiwan facing the risk of a slim pickings talent pool as China continues to poach talent from the island.

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