- Critics slam Taiwan’s government for inadequate China curbs
- Taiwan has pledged to keep advanced tech from Chinese military
Several Taiwanese technology companies are helping Huawei Technologies Co. build infrastructure for an under-the-radar network of chip plants across southern China, an unusual collaboration that risks inflaming sentiment on a democratic island grappling with Beijing’s growing belligerence.
On a scorching summer afternoon in Shenzhen in late August, one vast, nearly-finished construction site established by a Huawei-backed firm buzzed with workers. The dozens of hard-hatted staffers who gravitated toward nearby street vendors couldn’t be told apart except for brightly hued safety vests that bore their employers’ names and official logos.
They included a unit of Taiwanese chip material reseller Topco Scientific Co. and a subsidiary of Taipei-based L&K Engineering Co., according to a Bloomberg News investigation. Across town at another Huawei-affiliated site, Bloomberg identified workers from a subsidiary of construction specialist United Integrated Services Co.
Meanwhile, Taiwan’s Cica-Huntek Chemical Technology Taiwan Co. said on its website that it had won contracts to build chemical supply systems for two Chinese chipmakers — Shenzhen Pensun Technology Co. and Pengxinwei IC Manufacturing Co., which was blacklisted by the US last year. Both companies have been identified as working with Huawei to build chip fabrication facilities. The company removed the online reference after Bloomberg News inquired about it.
The previously unreported Taiwanese presence in Huawei’s efforts risk triggering a backlash on an island that is preparing for polls next January, with the question of Taiwan’s rocky relationship with China likely the most pivotal issue.
At a time when China threatens Taiwan regularly with military action for even contemplating independence, it’s unusual that members of the island’s most important industry may be helping US-sanctioned Huawei develop semiconductors to effectively break an American blockade. Those sanctions were called into question after Huawei unveiled a smartphone in late August with an advanced made-in-China chip, spurring alarm in Washington and calls to completely cut off Huawei and its Shanghai-based chipmaker Semiconductor Manufacturing International Corp.
Cica-Huntek slid 2.6%, while Topco and United Integrated closed about 1.5% lower in Taipei on Tuesday. L&K Engineering finished largely unchanged.
Away from SMIC, Huawei is setting up its own shadow network of chipmakers with tens of billions of dollars in Chinese government support, according to trade group Semiconductor Industry Association. Huawei was said to be relying on a trio of little-known firms in Shenzhen — Pengxinwei, Pensun and SwaySure Technology Co. — to help it turn its chip designs into reality.
“The chips from these plants built with Taiwanese companies’ help could eventually be used on Chinese missiles aimed at Taiwan,” said Li Jung-Shian, professor of electrical engineering at Tainan, Taiwan-based National Cheng Kung University. “The government of Taiwanese President Tsai Ing-wen is not being serious about Taiwan’s defense if it does not tighten controls on local firms’ support for Huawei.”
It’s unclear whether the Taiwanese companies’ potential involvement violates American sanctions, in part because US curbs are designed to curtail the export of American-origin technology to Huawei rather than blocking all business relationships. Kevin Wolf, a partner at Akin Gump who specializes in trade policy, says it’s impossible to know whether these firms are violating US regulations without more detailed information. Because of the complexity of US sanctions against Huawei, it can be difficult to determine such violations without knowing exactly what technologies and equipment suppliers are using.
Wang Mei-hua, Taiwan’s minister of economic affairs, told reporters on Tuesday her agency will look into the four Taiwanese firms’ relations with Huawei. The ministry, responsible for export controls, said in an earlier statement in response to Bloomberg enquiries that it will reach out to the companies to “gain an understanding” of their activities in the region. The US Commerce Department declined to comment on the Huawei suppliers but referred Bloomberg News to previous statements where they said they were investigating the Chinese company’s reported chip advances.
“The ministry will also tell these firms to pay attention to US export control measures if the equipment they use are restricted by American rules,” the Taiwanese agency said in its statement.
Representatives for Huawei and L&K Engineering did not respond to multiple requests for comment.
A Topco representative confirmed that a Chinese subsidiary has an ongoing contract to handle waste water for Pengxinwei, or PXW, and said that environmental projects aren’t prohibited by US sanctions. Topco said it secured the contract before PXW’s blacklisting and doesn’t supply semiconductor equipment or material. Cica-Huntek won a contract for Pengxinwei’s chemical supply system in 2022, according to the firm’s now-deleted web page seen by Bloomberg News. A representative for the company declined to comment.
Additionally, a tank truck from specialty gases supplier Air Liquide SA was spotted leaving the PXW campus in August. The French company said it fully complies with regulations wherever it operates.
“With regards to PXW, Air Liquide China operates in full compliance with applicable regulations, supplying it only with products that are not subject to the U.S. Export Administration Regulations,” Air Liquide said in a statement.
The French finance ministry said it can’t comment on US regulations and hasn’t discussed Air Liquide’s ties with PXW with American officials.
United Integrated Services confirmed that a Chinese subsidiary has won a contract to help SwaySure renovate its interior and the unit has proceeded with the project. The Taiwanese firm said as the company and its Chinese subsidiary are in the construction business and the parent does not manufacture nor export wafer-related products or equipment, they do not violate export control rules.
“Since United Integrated Services was first founded, it has been complying with all relevant policies and regulations with all of its investments and businesses,” the company said in a statement. “The company values the rights of its investors and it prioritizes the protection of social order and public interest even more.”
Taiwanese voters will pick their president in 2024. They will choose between a ruling party determined to maintain Taiwan’s political independence, and an opposition that sees closer ties with China — the island’s biggest trading partner — as the only viable path.
Getting support from Taiwanese firms is significant for Huawei in terms of obtaining know-how. The suppliers seen aiding Huawei-affiliated chipmakers have played a critical role in supporting industry titans like Taiwan Semiconductor Manufacturing Co. and helped build an economy that makes nine of every 10 of the world’s most advanced chips.
Taipei has pledged to work with the US and other allies to prevent China’s military from acquiring state-of-the-art technology, as the island relies heavily on Washington for weapons and security. It will adopt measures to stop its tech from being used by the People’s Liberation Army, Deputy Minister of Economic Affairs C.C. Chen said last year. But he admitted it was “challenging” to implement export controls on China due to a “civil-military fusion” program that directs industrial innovation toward warfare.
At the heart of Huawei’s chip initiative is a giant factory with a coal-colored exterior that stood out in an urban area full of office buildings. Run by PXW, the startup got sanctioned by the US last December after Bloomberg News reported it’s backed by Huawei, one of at least three chip factories it’s bankrolling around its Shenzhen headquarters.
While the majority of workers present at these sites were mostly from local companies such as state-owned China State Construction Group Ltd., Taiwanese suppliers were spotted at all three locations. At SwaySure’s complex, United Integrated Services employees were toiling near a pole displaying the motto “winning the future with honesty and integrity.” Personnel from L&K Engineering Suzhou Co., the subsidiary, were also present at Pensun.
“These suppliers are sacrificing other Taiwanese people’s security to make a profit,” said Lin Tsung-nan, professor of electrical engineering at Taipei-based National Taiwan University.
© Bloomberg