Bottom line: New remarks by Taiwan’s likely new president indicate a flurry of recent new cross-Strait chip tie-ups could be delayed, but most are likely to ultimately get approved in a new era of more pragmatic cross-Strait relations.
In a move that I predicted earlier this week, Taiwan’s likely next president is pouring cold water on a nascent series of tie-ups between its fragmented high-tech chip industry and cash-rich partners from mainland China. The latest reports cite Tsai Ing-wen, presidential candidate of the opposition Democratic Progressive Party (DPP), calling a recent series of planned Chinese investments a “huge threat” to the island’s large but also struggling semiconductor industry.
Even I was a bit surprised by the alarmist tone of Tsai’s comments, as I previously predicted that she was likely to call for a slowdown in the recent series of new deals but not an outright halt. (previous post) Beijing was also somewhat surprised, and a top official called on Taiwan not to politicize such commercial transactions.
Honestly speaking, the recent series of deals involving planned investments by Tsinghua Unigroup are hardly purely commercial transactions. Unigroup is an arm of Tsinghua University, China’s leading sciences university that is strongly tied to Beijing. Those ties are the most obvious factor explaining why this previously obscure company has suddenly disclosed it has a $47 billion war chest to spend on global acquisitions and construction of new chip plants. (previous post)
That said, it’s still probably fair to say that Beijing is motivated by a relatively commercial desire to build up a local chip-making complex on the mainland, and that Unigroup doesn’t have any hidden political motives. Still, Tsai’s remarks show that some people in Taiwan are concerned about the recent flurry of deals that would see Unigroup take sizable stakes in 3 Taiwanese chip makers.
Tsai made her comments in response to a question about Unigroup’s plans to invest a combined $2.6 billion in 3 local chip makers, with plans to buy 25 percent each of Siliconware Precision Industries (Taipei: 2325), ChipMOS Technologies and Powertech (Taipei: 6239). She said Unigroup is backed by government capital and influence, and that its control of the 3 companies would give it big influence over Taiwan’s local chip industry. (English article)
Tsai doesn’t currently have any real power, but is widely expected to win next year’s Taiwan presidential election, replacing an 8-year-old administration of the China-friendly ruling KMT party. Her DPP has a much stormier relationship with Beijing, which was clearly alarmed by Tsai’s comments. Taiwan had previously banned most high-tech investments by China, but has recently eased rules to allow for limited tie-ups like the 3 that Unigroup is now proposing.
Beijing was quick to react to Tsai’s comments by saying Unigroup’s investments were purely commercial, and shouldn’t become politicized. (English article) Those comments came from Ma Xiaoguang, spokesman for China’s Taiwan Affairs Office, who added that the trend of growing economic ties between the former Cold War foes couldn’t be stopped.
So, the big question becomes: Will Tsai use her new powers, assuming she’s elected president, to try and halt investments by Unigroup and other mainland buyers in Taiwan’s chip sector? I do suspect the answer isn’t an absolute yes or no, and both sides will have to engage in a period of getting to know each other before any deals can be consummated.
Tsai’s latest comments probably reflect some concerns at the sudden rapid pace of Unigroup’s new deals, which all came in the space of less than a month. She’s also in the middle of a political campaign, so she wants to show the people of Taiwan that she won’t be too soft on China.
Beijing may also need to make a bit more effort to show where Unigroup’s big money is coming from, and then demonstrate why the company’s buying spree is commercial and not political. At the end of the day, I do expect that most of the deal will be approved, perhaps with some delays. But it’s also possible that one or two could collapse for political reasons, or also possibly due to rival bids like one we saw earlier this week for Siliconware. (previous post)
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