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Peter Altmaier, Federal Minister of Economic Affairs and Energy of Germany, in Davos, January 23, 2019. Copyright by World Economic Forum / Ciaran McCrickard

03:49 pm | January 25, 2021

One letter, two false signals

When it comes to the interest of German car makers, the German Economic Minister seems to forget a simple economic rule: first come, first served.

By Zhu Yi

German Economy Minister puts pressure on chipmaker TSMC“ reads the headline of an article posted on the Chinese internet on 24.01.2021. The news coverage concerns a letter from the German federal minister of economics, Peter Altmaier, who, according to a report in the 'Saarbrückener Zeitung' on 23.01.2021, wrote to Taiwan's economy minister Wang Mei-hua, as well as Vice Premier Shen Jong-chin, to appeal for an additional capacity of semiconductor for vehicle manufacturing.

The resolution of the capacity problems is, according to Mr. Altmaier, “of outstanding importance for industrial policy.”

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Screenshot from the Chin ese headline concerning Altmaier's action to put TSMC under pressure

 

The unusual letter attracted international media attention over the weekend. According to the way in which Chinese media interpreted the tone of the letter from Mr. Altmaier, it contained two warning signals that were not entirely positive for Germany's reputation:

  1. It  gives the impression that the Federal Minister of Economics believes, or at least assumes, that the large Taiwanese chip manufacturer TSMC can/should do more for German carmakers. In Other words, TSMC hasn’t done enough for German car manufacturers.
  2. The German government will do anything for German car manufacturers, regardless of whether this means disregarding their own political principles.

The first signal concerns the industry; in the context of the chip crisis, there are both Chinese and international reports that chip manufacturers around the world are criticizing the automotive industry, misjudging the situation of the pandemic, and therefore miscalculating their own productions. For example, the CEO of the American semiconductor company giant ADI said that "car makers and suppliers slowed down chip buying, digging deep into their own inventories. The result: auto makers had fewer chips on hand when demand picked up again." Thus, the Taiwanese Ministry of Economic Affairs responded to Reuters' inquiry last Sunday stating they would "provide full assistance"; while on the other hand, it was pointed out that "[t]he relevant supply and demand situation is also closely related to the plans of automotive chip factories to reduce inventory during the off-season."

Reuters also reported on TSMC’s statement suggesting it was being taken seriously: “It is our top priority”. While such official statements are diplomatically and professionally formulated, Taiwanese internet users overwhelmingly make negative comments about the inquiry from Germany, even to a point of sarcasm. They seem to doubt whether the German Economic Minister knows a simple rule in market economics: If you want to be treated as priority, you have to pay accordingly, otherwise it's first come, first served. They also criticize the approach of putting pressure on a private company through diplomatic channels. Furthermore, “does Germany have a diplomatic relationship with Taiwan?”

The truth is that automotive chips represent only a very small portion of semiconductor industry revenues and are not a major priority in the slightest. Digital products, such as smartphones and laptops bring in a higher amount of revenue while chip producers are currently unable to meet the increased global demands caused by the pandemic.

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Screenshot from TSMC Quarterly Management Report October 15, 2020

“In the third quarter, TSMC revenue increased 14.7% quarter over quarter, driven by the strong demand of specialty technology solutions for 5G smartphones, HPC and IoT-related applications” according to the report. This is related, among other areas, to US sanctions against tech company Huawei. Since the end of 2018 Huawei has increased the stockpiling of its chip inventory as a defensive measure. Various Chinese news sources (see link here) reported in September 2020 that, as the force of the Huawei ban was underway, TSMC has been producing day and night for Huawei. According to a Bloomberg report: “The Taiwanese contract manufacturer eventually shipped more than 2 million units at Huawei’s behest ahead of the sanctions cutoff.” Of course, this actually put additional strain on production capacity. But in economic terms, both Huawei and TSMC followed the proverb of first come, first served. While the German Minister of Economics' actions are more reminiscent of the Chinese saying: ‘The baby that cries the loudest is the first to get the milk’.

The excerpt from the TSMC report offers another interesting angle: while China represents over 20% of the market share for TSMC; all of Europe, the Middle East, and Africa combined account for only 5-6%. Semiconductor bottlenecks in VW production in China were already reported in December 2020. Now production sites in Germany are following suit: Audi headquarters in Ingolstadt has put 10,000 employees on short-time work because of this, while Daimler Benz is shutting down production in Rastatt. With regard to the global battle over computer chips for cars, one could also speak of a melodrama à la Kramer versus Kramer. Wouldn't that be a question that Minister Altmaier should tackle; especially in terms of industrial policy?

The second warning signal concerns politics and policy making. Until now, the German government has always emphasized its one-China policy and avoided official exchanges with Taiwan at a ministerial level. In this respect, it is very striking that economics minister Altmaier seems to forget all political sensitivities in the interests of German car manufacturers. So far, as the title of the Chinese news item reflects, his letter has been perceived in China with a certain amount of amusement as opposed to outrage. No protests have surfaced in China, neither the official statement that the "feeling of the Chinese people" are hurt by the letter. However, the German government always emphasized that it prefers to negotiate Taiwan-related issues quietly and behind closed doors. When the car factories of German manufacturers such as Daimler-Benz have to close for weeks, such considerations apparently no longer play a critical role for the Federal Minister of Economics.

January 25, 2021
Author
Zhu Yi

Currently a researcher at the Institute of China Studies at the University of Heidelberg, Ms. Zhu has her research focus on political communication, media perceptions and China’s social changes.