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Taiwan's Six-Year Crackdown on Covert Chinese Chip Labs

Taiwanese authorities have investigated 166 cases over six years for alleged concealment of ties to China, with 67 additional trade-secret probes in the technology sector. This crackdown targets Chinese companies accused of illegal investments and talent poaching to access Taiwan's crucial semiconductor industry.

A Taiwanese engineer discovered he was working for a company, Blue Ocean Smart System, that was secretly Chinese-owned despite claiming American backing. Taiwanese authorities raided the company in 2021, alleging it illegally operated in Taiwan by disguising its Chinese ownership. The company was forced to shut down.

Exclusive data from Taiwan's Ministry of Justice Investigation Bureau (MJIB) reveals 166 investigated cases and 67 completed trade-secret probes in the tech sector over six years. Recent raids in August 2023 targeted 18 technology companies.

Taiwan, a global semiconductor powerhouse, faces interference from Chinese competitors seeking to acquire advanced chipmaking technologies through illegal investments and talent poaching. This crackdown aligns with global efforts to limit China's access to critical technology.

Chinese companies circumvent Taiwan's regulations requiring government approval for operations by setting up shell companies or using non-Chinese nationals as registered representatives. In 2020, Taiwan intensified enforcement with a special operation involving 2,000 investigators.

China criticizes these investigations as political manipulation, accusing Taiwan of obstructing cooperation. However, Taiwanese authorities view this activity as a national security risk, warning of China's use of indirect channels for talent poaching and technology theft.

Industry insiders report that Chinese companies offer significantly higher salaries, sometimes five to ten times the Taiwanese average, to attract talent. Many Taiwanese engineers have been approached or worked for Chinese firms.

Investigations have uncovered tactics like registering as non-Chinese foreign entities or using foreign nationals as representatives to hide Chinese affiliations. Taiwan has strengthened its laws, increasing penalties for offenses related to critical technologies.

China's drive for semiconductor self-reliance, spurred by US restrictions, has led to a significant increase in Chinese chip design companies. Taiwan's "silicon shield" strategy relies on its critical chip manufacturing role for defense.

The Hsinchu District Prosecutors Office has led many of these cases, focusing on chip design, semiconductor equipment, and AI servers. Protecting intellectual property is a key concern.

Court records show that out of 36 reviewed investigations into illegal Chinese operations, all led to convictions under the Cross-Strait Act, with 33 focusing on R&D or chip design. Trade-secret theft cases have a higher threshold for prosecution.

High-profile cases include allegations against Xiaomi for an unauthorized smartphone chip R&D operation and OnePlus for an unauthorized software R&D outfit. SMIC allegedly used a Samoan company to operate in Taiwan and poach talent.

Few Chinese companies have publicly responded to allegations. VeriSilicon stated its Taiwan subsidiary was only for sales activities. Experts note that while China has made progress, it still lags in cutting-edge chip technology.

While reliance on poaching foreign talent has diminished due to legal restrictions and China's growing domestic talent pool, awareness of Chinese involvement in Taiwan's tech scene has increased. Some Taiwanese engineers now avoid companies with potential Chinese investment ties.

Globally, other countries like the Netherlands and the US are also scrutinizing Chinese firms' efforts to acquire critical technologies. Experts suggest China tailors its approaches to local conditions and that a coordinated policy with allies like Taiwan is needed.

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