Over 90% of the world’s most advanced semiconductor chips are produced in Taiwan.
About forty years ago, it was a small town known for its tea plantations. Today, it has become the origin of global excellence in chip manufacturing. Hsinchu City and its famous tech park, located about 80 km from Taipei, are a key driving force in Taiwan’s economic recovery.
Hsinchu’s story provides significant insight into Dholera, Gujarat, the promised chip city of India, an area comparable in size to Singapore, where New Delhi hopes to create its own Silicon Valley.
At first glance, the scenery here hides the idea that Hsinchu is part of Taiwan’s so-called “silicon shield,” a strategic city, where rows of two-wheelers are neatly lined up on roads, and 24-hour convenience stores, multi-cuisine restaurants, parks, schools, universities, large residential areas, and abundant trees are present.
Besides the tree cover, the signs on the large buildings scattered across the city also reflect why Hsinchu has become one of the most important places in the global economy. Not all names are well-known, but they are all significant. Although Hsinchu is not Taiwan’s diplomatic or financial center, it might be the most globalized city in Taiwan.
Taiwan produces more than 90% of the world’s most advanced semiconductor chips, and Hsinchu is home to the world’s most valuable chip company, TSMC, which accounts for a large part of the total production. Another chip design company, MediaTek, is also headquartered there. Companies like Wistron (which briefly produced iPhones in India before selling its factory to Tata) and UMC, Taiwan’s first chip company, are also located there.
Companies registered in the Hsinchu Science Park account for about 6% to 8% of Taiwan’s GDP and around 12% of the island’s trade-dependent exports. Hsinchu has over 150,000 people (close to 1% of Taiwan’s population) working there, and its residents have the lowest average age on the island.
In the 1980s, after a major fuel crisis, Taiwan was seeking to reverse its fledgling economy, and government officials established a high-tech zone in Hsinchu to attract more companies to join. The world’s best tech talent was brought to what was then a poor, tropical island. At the time, many engineers linked to Taiwan lived in places like the US, Japan, and Europe. But when the government called on them to return to Taiwan and turn it into a tech manufacturing hub, many of them came back to take the plunge.
Among them was Morris Chang, who moved to Taiwan in 1985 after working in the US chip industry for a long time. Two years later, at 55, Morris Chang founded TSMC.
The company pioneered the contract manufacturing of chips without designing any itself. This proved to be a revolutionary business model that paved the way for fabless companies like Apple and Nvidia, which are among TSMC’s biggest customers today.
Before TSMC was established, the Taiwan government played a crucial role. Apart from plant subsidies, the Industrial Technology Research Institute (ITRI) was established around a decade earlier and obtained a technology transfer for chip manufacturing from RCA.
After the technology was perfected, the government realized it should exit chip manufacturing and transfer the technology along with tools to private companies, leading to the creation of UMC in 1980. TSMC was also incubated and spun off from ITRI, graduating from it a few years later.
India has a large pool of chip design engineers, but it currently lacks enough workforce to employ in cutting-edge manufacturing facilities. The government hopes that as India enters the chip industry, its vast non-resident engineering talent pool will return to the country. However, India must also ensure a high quality of life.
Hsinchu has changed the wealth distribution in Taiwan due to its importance to the economy and its people.
According to recent data, Hsinchu City residents were the highest-earning households in Taiwan for the fifth consecutive year in 2021. Their average annual income in 2021 was about $49,000, roughly INR 4.1 million. Most people live in Hsinchu and nearby areas like Baoshan and work in one of the several semiconductor factories in Science Park or related industries that supply materials for chip production.
The town and its industrial operations are largely self-sufficient. The water needed for chip manufacturing comes from the Baoshan Reservoir, about 20 km from Hsinchu, and all major gas suppliers are located near the city. It has two major universities — National Yang Ming Chiao Tung University and National Tsing Hua University — considered top schools for semiconductor education, ensuring a steady stream of talented semiconductor engineers graduates every year.
Hsinchu can serve as a blueprint for India.
Today, Dholera faces many of the same issues that Hsinchu did forty years ago. Many engineers who moved to Hsinchu when it was being built were disappointed with the state of the infrastructure and the general wilderness surrounding the area. Of course, the rise of Taiwan’s semiconductor industry, led by TSMC, changed the fortunes of Hsinchu and its people.
Dholera and India both need a similar champion. While the government has ensured that core infrastructure is in place — a massive network of roads and power plants — much of Dholera is still barren land, with a few scattered factories. Large areas show almost no signs of human activity, with no residential communities, parks, schools, or restaurants.
The Tata-PSMC foundry and packaging plant being built by CG Power could bring about a huge change, potentially catalyzing India’s long-unrealized chip industry — though these projects will still take some time to come to fruition.
An international airport is being built near Dholera for foreign visitors and factory staff who will set up factories in the future, as well as to transport the materials and parts needed to service various industries in the area. For example, the gases essential for chip manufacturing will come from Dahej, about a four-hour drive from Dholera.
While Hsinchu is the ideal blueprint the government wants to use for Dholera, there will still be some differences. For instance, those working in the city’s factories will live in Ahmedabad, more than 100 kilometers away. Therefore, Dholera is unlikely to have Hsinchu-like schools, convenience stores, and restaurants.
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