Taiwan cracks down on China poaching tech talent

Taipei is ramping up efforts to stem brain drain in semiconductor industry as officials warn of a ‘red supply chain’.

Taiwan is beefing up efforts to stem brain drain in its semiconductor industry [File: Tyrone Siu/Reuters]

By Erin Hale-Published On 4 May 20224 May 2022

 

Taipei, Taiwan – Taiwan is beefing up efforts to protect what may be the island’s most important resources: semiconductor executives and engineers that Taipei says are being poached by China.

Earlier this year, Taiwan’s cabinet proposed strengthening the country’s National Security Act to apply harsher sentences for crimes including “extraterritorial misappropriation of trade secrets” and economic espionage. Under the proposed amendments, the offences could soon carry prison sentences of up to 10 and 12 years, respectively, and fines of between $1m and $3.5m.

The proposals also target Chinese companies that circumvent restrictions on investing and hiring, two common methods of acquiring Taiwanese technology and experience. Taiwanese companies acting as fronts for Chinese firms would face fines of up to $860,000, while Chinese companies operating in Taiwan without authorisation could be fined up to $500,000 and face up to three years in jail.

Taiwan Semiconductor Manufacturing Company, better known as TSMC, alone produces more than half the world’s semiconductors, which are critical components of everything from smartphones and medical devices to cars and fighter jets. The industry was recently described by Premier Su Tseng-chang as a “lifeline” for Taiwan that had been infiltrated by China’s “red supply chain”.

“The reason that is so important for Taiwan is that it’s leading to concerns about leakage of some very important intellectual property,” Nick Marro, an analyst for China, Taiwan, and Macau at the Economist Intelligence Unit, told Al Jazeera. “There is a very big fear that if these top engineers are being lured away to China, they will take some trade secrets with them and that could damage the competitiveness of the Taiwanese economy.”

Brain drain to China

Despite its success in advanced manufacturing, Taiwan has long struggled with brain drain to neighbouring China, where students and professionals can access better scholarships, salaries, and benefits than on the island, where wages have largely stagnated over the last 20 years.

While the problem is not new, the stakes have become increasingly high as Taiwan’s semiconductor industry takes on outsized importance for the economy and Beijing ramps up pressure on the self-ruled island, which the Chinese Communist Party considers a breakaway province that should be reunified by force if necessary.

In 2020, semiconductors made up 35 percent of Taiwan’s exports, compared with 18 percent a decade ago, said Eric Yi-hung Chiou, an associate professor of international relations at National Yang Ming Chiao Tung University in Taipei.

Talent poaching, meanwhile, has taken off as China tries to develop its indigenous tech industry as part of its “Made in China” initiative, according to Marro, while also providing Beijing with another means to isolate Taiwan.

“They’re luring away a lot of Taiwanese talent and cultivating their own industries in ways that are implicitly weakening the Taiwanese economy, and they’re doing this without sending ships or boats into Taiwanese territorial space,” Marro said.

Taiwan’s attempts to cut down on Chinese recruiting have pushed hiring and investment efforts into the “shadows”, he said, leading to more illegal activity.

Two recent cases listed on the website of the prosecutors’ office in Hsinchu, the unofficial capital of Taiwan’s semiconductor industry, detail how two Chinese firms allegedly posed as Taiwanese companies to acquire research on chip design and then send the information to China.

China’s Taiwan Affairs Office has dismissed any suggestion of wrongdoing.

“Recently, they have been deliberately trying to smear and intimidate mainland companies in Taiwan, further escalating cross-strait confrontation and provoking trouble,” spokesperson Ma Xiaoguang told a news briefing last month.

“Such political manipulation cannot hinder the general trend of exchanges and cooperation between compatriots on both sides of the strait, and will only harm the vital interests of Taiwan’s business community and compatriots on the island.”

“Spy catchers” dispatched 

In 2020, the Ministry of Justice’s Investigation Bureau – often described as Taiwan’s “spy catchers” – established a task force to investigate illegal hiring and investment practices, which since last year has included recruiters advertising for jobs at Chinese companies. In March, Taiwanese authorities raided eight companies in a multi-city mass crackdown, with one government official telling Reuters that as many as 100 companies were under investigation for illegal talent poaching and investment.

The government had been slow to act until recently due to political concerns, according to Mark Ho, a Democratic People’s Party legislator who sits on parliament’s foreign affairs and national defence committee. The previous administration of Ma Ying-jeou, who served as president from 2008 to 2016, had much closer ties with China, where many Taiwanese companies, including iPhone supplier Foxconn, do business.

China is also Taiwan’s largest trading partner despite their ongoing sovereignty dispute.

Taipei’s hardening stance also comes as businesses from the United States and the European Union grapple with rising costs associated with doing business in China, from forced technology transfer to “zero COVID”-related supply chain disruptions.

“It’s like the Ukraine war, alone you cannot do anything,” Ho told Al Jazeera. “But since the US, Japan, Korea and other countries, even the EU, are tackling problems like patents, like core tech, brain drain, these are problems the whole world needs to face, so the timing is right.”

TSMC alone accounts for more than half of global revenue generated by semiconductor foundries [File: Ann Wang/Reuters]

Talent poaching is politically complex not only because it pits Taiwan against China, but also Taiwanese citizens against a government and industry that cannot offer the kind of compensation available across the strait.

Liang Mong-song, a former TSMC executive turned co-chief executive of China’s Semiconductor Manufacturing International Corp (SMIC), received a salary of $1.53m in 2020 and perks including company shares and an apartment, according to a report in the South China Morning Post. Lower-level executives and engineers can expect salaries three to five times higher than in Taiwan, where the median annual salary for a TSMC employee is about $65,000, one analyst told Al Jazeera, speaking on condition of anonymity.

Lower salaries, however, are reflected in the competitive pricing of Taiwan’s semiconductor industry, which can produce high-grade tech at a lower price than countries like the US. TSMC co-founder Morris Chang recently told a Brookings Institution podcast that chips cost half the price to produce in Taiwan compared with its Oregon factory opened in 1997.

Chien-huei Wu, an associate research fellow at Academia Sinica’s Institute of European and American Studies, said US trade war restrictions on tech exports to China combined with the fallout of the pandemic had done as much to reverse the brain drain – even if only temporarily — as punitive policies.

“Something like 10 years ago, China recruited a lot of engineers, especially high-level ones, but these people came back in the past two years,” Wu told Al Jazeera, adding that many overseas Taiwanese found their rise up the career ladder restricted due to misgivings about their loyalty.

Taiwan’s handling of COVID-19 has also made it a more desirable location for many engineers to wait out the pandemic than China, where lockdowns continue even in cosmopolitan cities like Shanghai.

TSMC heads West and to Japan 

Taiwan’s semiconductor industry is also encountering an emerging challenge from friendlier countries such as the US, Japan and South Korea after global chip shortages last year drew attention to the world’s dependence on the island’s supply. The US, in particular, expressed concerns about its overreliance on Japan, South Korea and Taiwan, and is now seeking to onshore some semiconductor manufacturing.

Last year, TSMC began construction on a $12bn factory in Arizona and announced a new factory in Japan as a joint venture with Sony and automaker Denso. The company has also announced potential plans to build its first European factory in Germany.

While these decisions have been widely seen as political choices as much as economic ones, they could also have a long-term impact on Taiwan.

“China is the biggest threat we are faced with, but in terms of economic security, I would say the government also needs to pay attention to the danger to Taiwanese economic security if semiconductors are [shipped] out to the US, to Japan, to EU,” said Wu.