Taiwan’s land shortage pits advanced chips against ancestral temples

HSINCHU/LONGTAN, Taiwan (Reuters) – Forty residents wore rain ponchos and held photos of their ancestral temples near Hsinchu, Taiwan’s semiconductor capital. In early October, they braved fierce winds to protest plans to use their rural land for cutting-edge chip production.

Two weeks later, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract chipmaker, dropped plans to build a factory as part of its science park expansion in the nearby idyllic Longtan district – a development that emboldened protesters and exposed one of Taiwan’s interests increasingly afflicted with “five bottlenecks”.

If land shortages on the densely populated and mountainous island push TSMC to move more production outside Taiwan – countries including the United States, Japan and Germany have offered the company billions of dollars in incentives to do so – it could weaken the backbone of Taiwan’s economy, analysts say say.

“TSMC’s expansion in Taiwan has strategic significance for Taiwan’s economy and national security,” Economic Minister Wang Mei-hua told reporters after the announcement of TSMC, known on the island as the “holy mountain that protects the country.”

Last year, Taiwan’s chip industry generated revenue of T$4.837 trillion (US$150.27 billion), nearly half of which came from TSMC, compared to Taiwan’s GDP of T$22.667 trillion (US$704.21 billion). According to the Ministry of Economic Affairs, the sector employs 327,000 people and indirectly creates 704,000 jobs.

With TSMC making most of the world’s advanced chips, powering everything from Apple’s iPhones to Nvidia’s AI data centers, Taiwan is scrambling to find land for the industry and cement its position as a critical node in the global technology supply chain.

“Taiwan’s limited land area and limited energy have always created great pressure,” Doris Hsu, CEO of GlobalWafers, told reporters. “Apart from TSMC, all tech companies – if they want to expand in Taiwan – need to think about land and whether the region’s residents would support the industry there.”

In July, at the first hearing on the proposed expansion, activists unfurled a banner reading “Stop Land Looting,” and Hsu Shih-jung, a professor of land economics at National Chengchi University, loudly voiced his objections.

“Taiwanese society has become a stratified society,” he said. “Rich people, the semiconductor industry, bigwigs – they can own land, they can loot land. We common people – prepare for eviction at any time.”

In a crowded three-story hall in Longtan, Hsinchu Science Park Administration officials stressed that they would provide fair compensation, citing the T$600 billion to T$650 billion worth of chips sized two nanometers and below, as well as the 5,900 produced annually Jobs that would be created would be created.

“It was like they were drawing a big cake, but that cake wasn’t for us,” said 39-year-old local resident Chen Ting-yen, who attended the hearing.

Chen, a restaurant and food delivery worker, lives with her multigenerational household in a small house built by her father-in-law, Wei Hsin-hsi. Next door is the ancestral temple and her family’s graves.

“Our earliest ancestors who came to Taiwan – should I dig them up?” she said.

“These are our roots,” Chen said. “Roots cannot be moved.”

The ancestral temple of the Liao family also falls within the expansion area. Hundreds of relatives from across the island gather there during Lunar New Year and other festivals.

“Our whole family would be scattered,” said Liao Chen-nan, 75, if the temple was demolished.

The chip industry has long complained about Taiwan’s “five bottlenecks”: land, water, energy, labor and talent. The sector’s rapid growth in recent years, which has driven up prices for industrial land, is further testing the island’s ability to support its prized chipmakers.

After protests, including one outside Taiwan’s presidential office, TSMC said it “respects the local community and regulators” and will work with the government to find suitable land elsewhere on the island, which is about the size of Belgium.

“There are many options and we do not expect any impact on our plan to grow in Taiwan,” the company said in a statement.

Taiwan’s government – determined to keep the most advanced technology in its crown jewel at home – has said it will offer alternative options.

Available land is “absolutely sufficient” to meet industry needs, the economy ministry told Reuters, adding that 426 hectares are already available for new semiconductor factories in science parks in central and southern Taiwan.

The Longtan expansion had proposed acquiring 159 more hectares in the north, where TSMC and many chip companies are based. The state is obliged to compensate landowners at market value.

Although TSMC has previously faced opposition from local residents and environmental groups, its economic importance as Asia’s most valuable company has allowed it to continue expanding on the island. It has repeatedly vowed to remain “rooted” in Taiwan.

But given the island’s resource constraints, TSMC also needs to expand abroad, Senior Vice President Cliff Hou said this year.

In December, the company more than tripled its planned investment in its new Arizona plant to $40 billion.

Taiwan still accounts for 90% of TSMC’s production, including its most advanced chips, the ministry told Reuters.

“If it actually becomes impossible for TSMC to build factories in Taiwan and the company relocates overseas, the impact on Taiwan’s entire economy would be due not only to the current land shortage, but also to the entire industry starting in the coming years Isaiah Research analyst Lucy Chen was referring to the robust chip supply chain that has developed with TSMC.

The science park administration, which noted that there was no longer enough space in Hsinchu and Longtan to develop advanced chips, said it would continue expansion for other companies.

Local residents continued to protest and demand the project be scrapped, while politicians from other cities vied for TMSC’s advanced factory.

Chen Chi-mai, mayor of Kaohsiung, where TSMC is building a 2-nanometer factory, told reporters that his southern city is prepared for more chip production.

“Opportunities are reserved for those who are prepared,” he said.

($1 = 32.1880 Taiwan dollars)

(Reporting by Sarah Wu; Additional reporting by Yimou Lee; Editing by Ben Blanchard and Gerry Doyle)

Copyright 2023 Thomson Reuters.

Brian Ashcraft

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