In a five-story factory nearly the size of three football fields, technicians clad in spacesuit-like attire work around the clock producing silicon chips at Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).
The company, the world's largest contract chip maker, is a source of pride in Taiwan. It's what people point to when they say the "Made in Taiwan" label is no longer a symbol of shoddy umbrellas, sneakers, radios and trinkets the nation was known to churn out.
But TSMC and other companies in Hsinchu, Taiwan's Silicon Valley, are beginning to feel the heat from China. Some observers say it's just a matter of time before the country's high-tech lead is eclipsed by China, just 160km to the west.
"Taiwan's chip advantage over China can only be maintained for the next five or 10 years," said Darryl Cheng of Yuanta Core Pacific Securities (
Hong Kong-based analyst Warren Lau of investment bank Macquarie agrees, noting that by the end of last year China accounted for more than 20 percent of global chip consumption, making it the largest chip buyer in the world.
The growing Chinese market will force more foreign companies to invest in China to take advantage of its burgeoning chip demand, Cheng said.
The issue of Chinese inroads is a major worry for many Taiwanese.
China's growing abilities also are a major concern of Taiwan's government, which has imposed restrictions on technology transfers to China.
"China is now employing a policy of using business to encircle Taiwan,"' says Huang Chin-tan (
Still, with a 50 percent market share, TSMC dwarfs the 6.6 percent registered by China's Semiconductor Manufacturing International Corp (SMIC, 中芯) -- China's largest chip foundry, analysts say.
Leaders of Taiwan's chip industry are confident they'll stay dominant in the US$227 billion world semiconductor market.
In the Hsinchu Science Park (新竹科學園區), Taiwanese companies like Powerchip Semiconductor Corp (力晶半導體) and Advanced Semiconductor Engineering (
The park's pre-eminent tenant is TSMC, which produces logic chips for tech firms that don't want to spend about US$3 billion to build their own chip plants, known as "fabs" in industry parlance. Customers include Texas Instruments Inc, graphics card maker ATI Technologies Inc and others.
"Our biggest competition does not come from China," said TSMC spokesman Tzeng Jinn-haw (
The numbers suggest he's right -- at least for now.
The Taiwan Semiconductor Association (台灣半導體協會) says that last year Taiwanese chip companies had revenues of US$35 billion -- more than seven times China's total.
"The size of their foundry market has very little implication for us at this point," Tzeng said.
But in government corridors, officials affiliated with President Chen Shui-bian's (
The DPP worries about Taiwan's estimated US$100 billion in Chinese investments and its overwhelming trade surplus with the mainland -- US$58 billion last year. The party doesn't want the nation's economy to become too dependent on China.