What kind of sentiment does the donation of a facemask convey? According to Sina Finance the answer is “friendship and love” in these troubled times. However, in this particular instance, the news site wasn’t referring to China’s ‘mask diplomacy’ (as we reported in WiC488, the Chinese have coordinated deliveries of masks and other medical equipment to at least 80 countries).
Instead it was highlighting Taiwan’s decision to export 100,000 masks a week to the US. In return the US will send the Taiwanese the raw materials to make 300,000 suits of protective medical gear.
Sina Finance was unimpressed, contrasting this reciprocity with Taiwan’s decision to ban exports of masks to China at the beginning of the coronavirus outbreak. The China Times also highlights how Taiwan has been trying to keep its dwindling stock of diplomatic allies onside by sending them masks too. There are just 15 countries left that still recognise Taiwan diplomatically: they include Nicaragua (it got 30,000 masks and 100,000 protective shoe covers), Paraguay (100,000 masks) and the Vatican City (600 cans of tuna for the homeless).
Some of these shipments have been contentious in Taiwan, which has suffered from mask shortages of its own. These abated after it imported mask-making machines and ramped up capacity (currently 13 million per day). Now that it is able to satisfy domestic demand, Taiwan has also pledged to donate as many as 10 million masks to the European Union – a course of action that suggests Taipei is becoming bolder in its diplomacy. This has not gone down well in Beijing – nor has the signing of the cooperation agreement with the US embassy to fight the virus together.
Beijing’s diplomats railed at the deal as “a political plot to pursue independence with the help of the epidemic”.
Tensions with Taipei have ratcheted up over a number of issues. Beijing was particularly unhappy when Tsai Ing-wen was re-elected as the island’s president in January on a ticket that was hostile to the mainland. That also seems to have prompted a rethink in parts of the Kuomintang (KMT), the party which has advocated closer relations with mainland China. Some of its members are said to be reviewing their stance after younger Taiwanese voted heavily for Tsai’s Democratic Progressive Party (DPP). In the run-up to his election as KMT chairman, Johnny Chiang said the party would review its adherence to the 1992 Consensus, which acknowledges there is only ‘One China’. He told the Financial Times that exchanges beneficial to both sides would be possible only if Beijing acknowledged Taiwan’s separate political identity.
When Tsai was first elected in 2016 she refused to reaffirm the 1992 Consensus, infuriating Beijing. It redoubled its efforts to isolate the island politically, including a successful campaign to deprive Taiwan of its observer status at World Health Organisation (WHO) assemblies.
The issue has become even more of a flashpoint during the pandemic because Taiwan has not been privy to briefings or emergency meetings about the virus. The WHO’s senior advisor Bruce Aylward also came a cropper last week when he was asked about Taiwan’s status during an interview with Hong Kong’s RTHK radio station. After pausing for several seconds, Aylward pretended that he had not heard the question properly. When it was put to him a second time, he either put down the phone, or was inadvertently cut off. So RTHK rang him back and asked him a third time. His response: “Well, we’ve already talked about China.”
Taipei’s exclusion from many of the world’s international bodies has also formed the centrepiece of a new piece of legislation in the US that is embittering Beijing too.
In late March, US leader Donald Trump signed the Taiwan Allies International Protection and Enhancement Initiative (TAIPEI), which had been unanimously passed by Congress.
In essence, the act obliges the US to strengthen international support for Taiwan, rewarding countries that grant it statehood or upgrade their diplomatic relations but “altering its economic, security and diplomatic engagement” with nations that “undermine the security or prosperity of Taiwan”.
The Americans are also legally required to provide military support to “meet existing and likely future threats”.
Unsurprisingly Beijing is not keen on these clauses. Typical headlines in the media have slammed the US for stoking geopolitical tensions at a time when the world should be coming together to fight the coronavirus. The nation’s Foreign Affairs Committee released a statement saying that the act violates the ‘One China’ principle that has been at the heart of Sino-US relations since diplomatic ties were normalised. The legislation blocks nations from establishing normal sovereign relations with China and follows the “logic of flagrant hegemonism,” Foreign Ministry spokesman Geng Shuang fumed.
Mainland Chinese media has highlighted some of the more critical reactions to the legislation on social media in Taiwan as well. “The Americans don’t recognise Taiwan themselves but they want other nations to. What a bunch of nonsense” was one of the comments reprinted in the China Times.
One major change that the Senate made to the act was removing a stipulation for the US to negotiate a free trade agreement with the Taiwanese. The wording was watered down to a simpler reference to improving economic relations. Tsai herself is keen on a free trade deal, arguing that it would reduce Beijing’s influence, because the mainland has been trying to increase its “political influence in Taiwan primarily using economic actors”.
In the meantime, another row is brewing over Taiwanese tech giant TSMC’s relationship with Huawei. The Wall Street Journal has reported that the Americans are considering new restrictions that go beyond the current ‘entity list’ embargo, which requires US companies to get a special export licence before they can do business with Huawei.
Security analysts believe that Washington could decide to reduce the de minimus threshold on the export of items made overseas with technology, software or components of US origin from 25% to 10%. Analysts say that could embroil TSMC in the embargo.
Huawei is TSMC’s second largest customer after Apple, accounting for about 15% to 20% of its revenues according to analysts. By some estimates, Huawei is also reliant on TSMC for making about 70% to 80% of the chips in its forthcoming 5G devices. There are no mainland Chinese foundries that can produce chips at the 7nm nodes that TSMC is capable of, so any new constraints on the Taiwanese firm’s sales to Huawei would be hugely disruptive.
Commentators think that mainland chips firms are at least eight years behind the top Taiwanese foundry in developing the technology needed to produce chips at very small nodes.
As we reported in WiC480, the US government also persuaded the Dutch to refuse an export licence that would have allowed ASML to ship an Extreme Ultraviolet Lithography (EUV) machine to China’s most advanced foundry SMIC last year.
Donald Trump, meanwhile, has been pushing for TSMC to establish an advanced chipmaking facility on the US west coast to service clients like Apple with the next 2nm technological generation. If that goes ahead, it would be a coup for the president in an election year.
TSMC’s newest plant in Taiwan cost $24 billion to get into operation. To put this into perspective, the island’s total investment from the US in 2018 was $14.1 billion.
Clearly, Washington wants to make life a lot harder for Huawei, especially in slowing down its advance into 5G. However, it doesn’t want to damage American tech companies revenues in the process. As the Financial Times reported this week, Huawei’s new P40 smartphone still incorporates some US chips. The newspaper hired XYZone, a Shenzhen-based firm, to break down the the new phone and it found that products made by Qualcomm, Skyworks and Qorvo were still being used in the smartphone’s critical radio frequency modules (though US components for NAND flash memory had been replaced by parts from South Korea’s Samsung).
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.