The government of the self-ruled island is increasingly aligning its policies with Washington to reshape existing value chains, a process that could limit China’s access to know-how and talent from Taiwan, which Beijing claims as its own.

Analysts said the moves reflect Taipei’s desire to protect core technologies and may cast shadow over exchanges in the semiconductor sector, even though its real impact will depend on how strictly the new laws are implemented.

“The Taiwanese government aims to protect its competitive edge by introducing amendments to current laws, and tightening controls on talent outflows and technology cooperation with China,” said Arisa Liu, a senior semiconductor research fellow at the Taiwan Institute of Economic Research. “It’s yet to be seen whether it can effectively prevent talent outflow.”

Liu said the revisions helped plug a loophole in the absence of criminal laws covering economic espionage, but government efforts might not be sufficient and companies also need to have a “comprehensive plan” for better providing evidence to law enforcement and helping them identify areas for investigation.

Cross-strait investment was banned for decades after the end of the Chinese civil war in 1949, when the Kuomintang under Chiang Kai-shek fled to Taiwan after defeat by Mao Zedong’s communist forces.

Investment flows and people exchanges started to pick up in the 1980s, although Taipei did not fully legalise such activity until 1991.

Under Taiwan president Lee Teng-hui in late 1990s, the policy was to restrict Taiwanese investments in hi-tech and infrastructure on the mainland, but that was relaxed in 2001 after China’s entry into the World Trade Organisation.

Controls were maintained over sensitive hi-tech sectors such as semiconductors, with mainland chip factories built by Taiwan firms restricted to technology that was at least two generations behind the state-of-the-art on the island.

Those restrictions, however, did not stop Taiwan becoming an important partner for the mainland’s chip development. China’s leading foundry, Semiconductor Manufacturing International Corp (SMIC), was founded in 2000 by Richard Chang Ru-gin, who specialised in building wafer fabs for US firm Texas Instruments before returning to Taiwan to establish his own foundry in the late 1990s.

An army of Taiwanese engineers followed, lured by generous salary packages and sought after because they spoke the same language and shared Chinese culture. The poaching became so rampant that Taiwanese authorities last year raided offices of headhunters that were recruiting for mainland chip plants. Now, the island’s mainland affairs body has plans to restrict those who possess or have access to core technologies from pursuing a career in mainland China.

Patrick Liao, a Taiwan technology analyst for Smartkarma, said the new laws will have a limited impact on the cross-strait semiconductor industries as they will only be a deterrent for a “very small group of people who want to exploit the cross-strait conflict”.

Liao said there is no short cut in China’s drive for self-sufficiency in semiconductors. “This is an industry that takes years of accumulation of patents and experience, and the lack of professionals has been a major barrier,” he said.

EU ‘open for business’ for TSMC and other chip companies

Already experiencing a chronic talent shortage in its own semiconductor industry, mainland China will feel the pain even more if the flow of talent from Taiwan is further restricted. Regardless of the new government restrictions, Taiwan also faces a worsening talent crunch in its chip supply chain amid the global semiconductor shortage.

The talent shortage in Taiwan’s semiconductor industry is the worst it has been in seven years, with monthly vacancies reaching 34,000 in the fourth quarter last year, up from 27,701 a month in the second quarter, according to figures from the island’s largest human resources company 104 Job Bank.

Even without the new laws, it will be harder for mainland Chinese chip makers to lure Taiwanese talent, according to Douglas Fuller, an associate professor at City University of Hong Kong.

The current excess global demand for chips has caused “human capital shortages” in the industry, “consequently increasing salaries for skilled engineers”, he said.

In a broader context, Taiwan’s latest restrictions are part of a global realignment of the semiconductor value chain, where the US wants more semiconductors made at home, Taiwan is trying to protect its edge in advanced chips, and China is desperately trying to cut its reliance on US core technologies.

Under the proposed Indo-Pacific Economic Framework, the US wants to seek cooperation with “like-minded” democracies in the region, with a clear intention to exclude China. Taiwan, on the other hand, is actively seeking a role in the framework, even though details are still sketchy under the new concept.

Taipei’s stricter rules reflect in part Washington’s requirement – as expressed in its trade sanctions on Chinese companies like Huawei Technologies Co – that the island does not provide its most advanced chip making technologies to China, said Steve Tsang, director of the China Institute at SOAS University of London.

“The threat to China’s semiconductor self-sufficiency has its real origins in China’s aggressive foreign policy in recent years,” said Tsang. “If China had not started to come across as a threat to the US and to Taiwan, such restrictions would not have happened.”

Meanwhile, Taiwanese engineer Chang – whose employer in China makes chip-testing gear – does not think access to advanced equipment is the key to China’s chip drive. Hiring engineers with real know-how in the semiconductor manufacturing process is more important than securing advanced equipment, he believes.

But that just got a bit harder with the new laws introduced in Taiwan.