Sat, May 12, 2001 page8

• 'Silicon shield' may protect from China attack

  • By Craig Addison
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  When Iraq's military forces invaded Kuwait in August 1990, Iraqi dictator Saddam Hussein had concluded that Western nations wouldn't interfere. But Saddam miscalculated. Kuwait was rich in a resource vital for developed economies: oil. When months of diplomatic pressure and threats from the US failed to convince Saddam to withdraw his troops, Allied forces began bombing Iraq on Jan. 16, 1991, launching Operation Desert Storm.

  While the US-led UN forces were ostensibly stepping in to protect a democratic Kuwait from invasion by Saddam's brutal military dictatorship, the real motive was to protect the supply of Kuwaiti oil to the rest of the world.

  While oil is vital for the survival of industrialized economies, another natural substance -- silicon -- has become equally important for the survival of the world's information-based economies.

  What if there were a threat to disrupt the supply chain for silicon-based products that power the digital economies of the US, Asia and Europe? Would the US and its allies be compelled to fight against this threat to their information economies?

  Such a scenario exists today in the Taiwan Strait. Taiwan has become the world's third biggest producer of IT hardware (when China-based production by Taiwan companies is taken into account) and the fourth largest producer of semiconductors.

  Yet 160km across the Strait is the PRC which has refused to rule out the use of force to bring Taiwan under Beijing's rule.

  While debate will continue in coming years over whether to provide Taiwan's navy with US-supplied destroyers equipped with AEGIS battle management systems, Taiwan can take some comfort from another kind of shield that is already in place and will provide a degree of protection if China moves towards a military solution to the so-called "Taiwan problem."

  A "silicon shield" currently covers Taiwan and grows stronger year by year.

  The silicon-based products being produced by Taiwan companies form the basis of the digital economies in the US and other developed nations.

  Military aggression by China against Taiwan would cut off a large portion of the world's supply of these products. Suddenly the global information technology economy, dependent on silicon and software, would grind to a halt.

  Chinese attempts to damage the factories or supply lines of companies such as Acer Inc (宏電), Quanta Computer Inc (廣達電腦) or Taiwan Semiconductor Manufacturing Co (台積電), would constitute an indirect but just as lethal hit against US firms such as IBM Corp, Dell Computer Corp, Hewlett-Packard Co and Cisco Systems Inc that rely on Taiwan for manufacturing services and components.

  PRC government and military officials continually tell the rest of the world that the Taiwan issue is an "internal affair." Yet Taiwan's integration with the global technology industry means any action by China against the country will have serious, global, economic consequences.

  Thus China's hands are tied when it comes to launching any military action -- be it blockade or missile barrage -- to disrupt or destroy Taiwan's economy.

  The pro-war propaganda coming from high-ranking People's Liberation Army (PLA) officers clearly shows that they do not understand Taiwan's role in the global electronics supply chain.

  Chinese military leaders, for example, are unlikely to realize that destroying a Taiwan semiconductor wafer fab would soon halt shipments to hundreds of "fabless" US chipmakers that provide vital silicon parts to new economy infrastructure providers such as Cisco Systems.

  China's president, Jiang Zemin (江澤民), however, would be able to make the connection. Trained as an engineer, he served as minister of electronics during the early 1980s and his son, Jiang Mianheng (江綿衡), is a partner in a wafer fab project in Shanghai with Winston Wang (王文洋) of Taiwan's Grace Semiconductor (宏力半導體). As commander of the PLA forces, Jiang would be forced to step back from the brink of ordering an attack on Taiwan because of the global consequences.

  Taiwan's strong manufacturing partnerships with US computer and networking equipment companies also give the country a connection with President George W. Bush, whose home state is Texas. Dell Computer founder and CEO, Michael Dell, is a fellow Texan, friend and supporter of the president.

  Last year, Dell purchased US$4.5 billion worth of computer parts from Taiwan and the company sources almost all its notebook PC requirements from the country.

  Cisco CEO John Chambers, who refers to his Taiwan outsourcing partners as Cisco's "virtual manufacturing plants," is another staunch Bush supporter.

  More than 300 so-called fabless chipmakers in the US also source more than half of their silicon wafers from Taiwanese semiconductor foundries such as TSMC and United Microelectronics Corp (聯電).

  If China threatens to disrupt Taiwan's economy and US OEMs and chipmakers can't get their electronics parts, Dell, Chambers and others would be powerful voices urging Bush to protect Taiwan.

  Perhaps realizing the extent to which the US' and Taiwan's high-tech economies are linked, Bush last month went so far as to say that the US military would protect Taiwan from Chinese aggression. Given that Taiwan is clearly of "vital" interest to the US economy, US intervention in a cross-strait conflict is certain.

  In 1996, when China test-fired missiles in the Taiwan Strait to intimidate voters ahead of the first free presidential elections in the country, then-president Bill Clinton ordered two aircraft carrier battlegroups to the area.

  The message was clear: not only should China stop interfering with Taiwan's democracy, but it also shouldn't disrupt the supply chains to and from the country's high-tech export economy.

  Any US action to defend Taiwan would need at least tacit support from Japan, which once ruled Taiwan. Again, the increasing integration of Japan's information technology manufacturing economy with Taiwan's would play a major role.

  Japan's DRAM chipmakers now outsource large portions of their manufacturing to Taiwan firms, as do its notebook PC makers. Taiwan is also a major market for Japanese electronic parts that go into the wide range of IT products produced by Taiwan.

  While China has been successful in restricting Taiwan's diplomatic efforts on the international stage, it has been unable to stop the country's rise as a technology provider to the world.

  Taiwan's place as a key provider of silicon and hardware for the digital economy has given it the international recognition that it craves and provides an effective means of defense against Chinese aggression.

  Craig Addison, a Hong Kong- based writer, was editor in chief of Electronic Business Asia magazine from 1994 to 1997. His new book, Silicon Shield: Taiwan's Protection Against Chinese Attack, will be available in September from Fusion Press.
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