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Taiwan

Taiwanese engineers lured to mainland China as chip makers go into overdrive

Skilled workers finding it hard to resist fat salaries and perks, raising concern on the island that it could lose a key economic engine to political foe

PUBLISHED : Tuesday, 04 September, 2018, 4:04pm
UPDATED : Tuesday, 04 September, 2018, 10:57pm

A huge pay rise, eight free trips home a year and a heavily subsidised flat. It was a dream job offer that a Taiwanese engineer simply could not refuse.

A veteran of Taiwan’s top-tier chip makers, including United Microelectronics Corp (UMC), the engineer took up the offer from a mainland China state-backed chip maker last year and now oversees a small team at a wafer foundry in eastern China.

The engineer joined a growing band of senior Taiwanese professionals working in the mainland’s booming and fast-developing semiconductor industry.

Attracting such talent from Taiwan has become a key part of an effort by Beijing to put the industry into overdrive and reduce the country’s dependence on overseas firms for the prized chips that power everything from smartphones to military satellites.

That drive, which started in 2014, intensified this year as US-China trade tensions escalated, according to recruiters and industry insiders, exposing what China feels is an overreliance on foreign-made chips.

Who might be hurt by fallout from the US-China trade war? Singapore, Taiwan, Malaysia, to name a few

China imported US$260 billion worth of semiconductors in 2017, more than its imports of crude oil. Chinese-made chips made up less than 20 per cent of domestic demand in the same year, according to the China Semiconductor Industry Association.

More than 300 senior engineers from Taiwan have moved to mainland chip makers so far this year, joining nearly 1,000 others who have relocated since Beijing set up a US$22 billion fund to develop the chip industry in 2014, according to estimates from H&L Management Consultants, a Taipei-based recruitment firm.

The battle for skilled engineers has raised concerns in Taiwan that the island could lose a key economic engine to its political foe, Beijing. Analysts say mainland China is still years behind Taiwan in terms of chip design and manufacturing, however, even as it moves ahead in terms of the production of lower-end chips.

China’s semiconductor plans accelerated this year after the United States banned sales of chips to the Chinese phone vendor ZTE, senior mainland officials familiar with the matter told Reuters in April.

Tariffs imposed by Washington on US$16 billion worth of China’s imports have hit Chinese semiconductors, which are now subject to tariff rates of 25 per cent.

That will make Chinese chips less competitive compared to those from Taiwan and South Korea, and could disrupt China’s semiconductor ambitions. Beijing’s aim is to have local chips comprise at least 40 per cent of China’s semiconductor needs by 2025.

Underscoring the talent crunch, two state-run institutions in August said that about 400,000 professionals were working in China’s integrated circuit sector at the end of 2017 – far short of the estimated 720,000 workers needed by 2020.

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While Beijing has also targeted engineers from South Korea and Japan to address that shortage, it has had the most success in Taiwan thanks to a common language and culture, recruiters say.

Lin Yu-Hsuan, a manager at the recruitment firm H&L, said engineers from Taiwan were lured by high pay, perks and more senior positions at Chinese chip makers like Semiconductor Manufacturing International Corp (SMIC) that are flush with cash from China’s multibillion chip fund.

“Many of them said: ‘The money I will earn in China in three years is equivalent to what I could get in Taiwan in 10 years. I could retire earlier’,” Lin said.

Steve Wang, vice-chairman and president of Novatek Microelectronics, a Taiwanese integrated chip designer, said a small percentage of its employees had left for mainland China over the past two years, and acknowledged that it would be difficult to match offers from Chinese rivals.

The engineer at the wafer foundry, who declined to be named as the details of his contract were not public, said his mainland Chinese employer offered him a new three-bedroom flat with a 40 per cent discount on the condition that he worked for the company for more than five years, in addition to a 50 per cent pay rise. He declined to give the exact figure.

“China dares to burn money, whereas Taiwan companies have limited resources,” he said.

COUNTER-OFFER

A senior executive at a newly established chip maker in northeastern China, SiEn (QingDao) Integrated Circuits Co, said about one-third of its recently recruited 120 engineers were from Taiwan.

“There is not a lack of money. What we need is talent,” said the person, who declined to be named as he was not authorised to speak to the media.

He said the company, led by Richard Chang, the founder of SMIC, China’s leading chip maker, offered new hires discounted property and attractive subsidies for bilingual schools in the port city of Qingdao.

“Taiwanese engineers are most experienced and could help us cultivate local talents,” the executive said. “The movement will continue to escalate.”

Industry watchers said Taiwan’s widely respected chip design houses and foundries were among the hardest hit by the outflow of engineers, and had been forced to ramp up spending to lure workers.

The island’s leading integrated circuit designers and chip makers have seen a 35 per cent jump in labour costs, including salary and benefits from two years ago, compared with a 21 per cent rise in revenue, according to Reuters calculations based on corporate filings from Taiwan’s 10 largest listed companies by market value.

TRADE SECRET

Taiwan has been watching the mainland Chinese recruitment efforts with growing anxiety.

It has long barred chip makers like Taiwan Semiconductor Manufacturing Co, a key supplier to Apple, from moving their most advanced technology to manufacturing operations in mainland China to keep it from falling into the hands of mainland rivals.

Many in Taiwan are also concerned that the rapid development of mainland China’s chip industry could lead to the sort of oversupply and plunging prices that came with efforts to develop other key industries like solar panels and liquid crystal displays.

Mainland China’s integrated circuit design firms have already surpassed their Taiwan rivals in terms of revenue, with US$31 billion in 2017, compared with Taiwan’s US$22 billion, according to Mark Li, an analyst at Bernstein.

The fears are that the battle for talent will widen that gap further.

China’s predictable squeezing of Taiwan hasn’t had the desired effect, and it may be time for Beijing to rethink its strategy as a US backlash gathers pace

In a move to retain top talent, Taiwan’s cabinet in July pledged to relax tax regulations on employee stock ownership.

“The Chinese Communist Party has been poaching our talent,” said Chen Mei-ling, minister of Taiwan’s policy-planning National Development Council. “The government has amended regulations to help companies keep talent.”

Ho Chan-cheng, legal affairs director at Taiwan’s Intellectual Property Office, said “inappropriate poaching” could lead to the leaking of trade secrets and that the government was working to protect the island’s core technology – namely the capacity to increase chip yield per wafer.

Taiwanese companies are also trying to offer their own incentives.

Antonio Yu, spokesman for the Taiwan-based chip design house Phison Electronics Corp, said that while the company “does not have the capital to play such a money game”, it has tried to create a “reassuring environment” for its employees.

He cited long-standing cash bonuses and programmes such as free legal counselling, as well as a monthly town hall meeting with Phison’s chairman, Khein-Seng Pua.

“We treat our employees like family,” he said.

Despite such efforts, Taiwanese engineers are finding incentives from mainland China hard to resist.

Tommy Huang, a 37-year-old Taiwanese chip engineer who in 2016 joined United Semiconductor in southern China – a joint venture between Taiwan’s UMC and mainland Chinese state-backed partners – said Taiwanese efforts to retain talent did not work for him.

“You don’t have any chance if you stay in Taiwan,” said Huang, whose mainland Chinese employer offered him an annual school subsidy of up to 60,000 yuan (US$8,700) for his five-year-old child and a salary more than double what he earned in Taiwan.

“We are buying hope by coming to China.”