Lesser-known startups could evade scrutiny in China chip sanctions: Report

Taipei, Dec. 20 (CNA) Lesser-known startups could help China integrate Taiwanese firms in its pursuit of semiconductor self-sufficiency, according to a report by a national think tank released on Wednesday.

Unlike major corporations like Huawei, China's technology giant, low-profile startups can more easily avoid international scrutiny, said the Taipei-based Research Institute for Democracy, Society and Emerging Technology (DSET), a think tank supported by the National Science and Technology Council.

According to the report by DSET adjunct analyst Wang Tsai-yi (王采逸) and non-resident fellow Chiang Min-yen (江旻諺), China's state-owned Shenzhen Major Industry Investment Group (SZMII) is trying to create a self-sufficient chip supply chain through collaboration with existing firms and mergers.

It has also been seeking technological assistance from Taiwanese companies through Huawei-affiliated chip companies it has established.

Startups fully controlled by SZMII include PXW Semiconductor Manufactory Co., known for its executives' ties to Huawei, as well as SwaySure Technology Co. and Pengxinxu Technology Co.

All three companies are listed on the U.S. Bureau of Industry and Security's Entity List, with the latter two added to the list in early December.

In a phone interview with CNA on Friday, Chiang said the recent inclusion of SwaySure and Pengxinxu on the list was significant, and that China's approach to Taiwan was likely to become more complex.

One Taiwanese company highlighted by DSET was L&K Engineering, a leading cleanroom supplier whose clients include Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corporation (UMC).

DSET highlighted L&K's "T+A" business model -- referring to a company listed on both the Taiwan and Shanghai stock markets -- which allows its Chinese subsidiary to raise funds in China more easily and could operate more independently from its Taiwanese parent company.

Wang warned that the growing autonomy of such subsidiaries could put them beyond the reach of international regulatory measures, serving as a cautionary example for other companies investing in China.

While the listing of Taiwanese subsidiaries on Chinese stock markets was often seen as a strategic move to expand global operations, ties to China have now subjected Taiwanese companies to increased restrictions due to the U.S.-China tech war, Wang said, adding that this could in turn threaten Taiwan's economic security.

Rather than labeling companies like L&K as illegal, Chiang emphasized it is the fact that "they do not violate related regulations" that "makes such cases a warning."

He said he intended the report to help the government reflect on its regulations, especially as competition between the United States and China intensifies.

Also in the same report, DSET said SZMII's bid to become the third pole of China's advanced chip industry, after Beijing and Shanghai, indicated that "competition among local governments within China persists" despite the central government's overarching policy to develop technological self-sufficiency.

"The competition and interaction among these local governments will be crucial for observing the technological development and breakthroughs of China's semiconductor industry, as well as the effectiveness of international export control regimes," it wrote.