TSMC's Move to the South
Author’s note: You can watch this video below. It is one of my older ones … oh wait, just one year ago?! What the heck?
Anyway. News has recently come to me about TSMC’s first installation in Kaohsiung.

Love Kaohsiung. It’s making me thinking about relocating there! TSMC being in Tainan has turned it into one of the south’s richest areas.
The relationship between TSMC and the Taiwan government is interesting to observe. The government - or institutions associated with it - essentially founded the company, infused it with some of their best employees, and they retain a significant percentage.
There are times when the two do not see eye to eye - like for example, the situation when TSMC wanted permission to invest in fabs on the Mainland. And I do notice that environmental inspections can be contentious.
But at the same time, I also notice times when the company acts at the best of the current administration. TSMC’s investments in Taichung, Tainan, Miaoli, and now Kaohsiung are partly cost arbitrage - but also represent actions done at the request of the Taiwanese government’s social policies. TSMC doesn’t have to go all the way there. For instance, there is a lot of land in Taoyuan.
But the North-South divide in Taiwan is politically and socially significant, and helping to revitalize industry there is important. Widening social inequality is a problem and things need to be done for it.
Taiwan's formidable semiconductor industry has at its heart TSMC, the island's most valuable company by market capitalization.
The company was founded in Hsinchu and has its headquarters there. However, it also has a sizable campus in the southern city of Tainan, Taiwan's fourth largest city and my hometown. This includes TSMC's latest cutting edge fabs - a $17 billion fab churning out chips with its leading-edge N5P process and another in progress that will utilize its next-generation N3P process.
In this video, we look at how Tainan, a city more known for its amazing beef soup, turned into a technology powerhouse. And why that might not have turned out as intended for the Tainan people.
Tainan in the South. Taipei to the North.
Before we can explain Tainan, we need to talk about Taiwan's North-South divide. If you want to read something crazy, take a look at the Wikipedia article for this topic. That page definitely needs some editing. I am going to approach the topic with as much delicacy as an ignorant, American-born Taipei elite can.
In Taiwan's early years, its oldest and largest cities were in the south. This includes Tainan and Kaohsiung. This is mostly due to the south's rich agricultural plains and favorable conditions.
Tainan marked the spot of the Dutch colonization and the beginnings of Han settlements on Taiwan island. You could argue that the south served as the economic and political center of Taiwan island as a whole.
But when the Japanese colonization took control of Taiwan, they opted to rule out of the northern city of Taipei. The reasons for this are myriad and frankly arbitrary. Taipei was easier to get to from Japan than Tainan or Kaohsiung. It was less crowded. It was also less "Chinese" than other cities, affording the Japanese more of a blank slate. It also offered rich deposits of camphor trees and tea farms, aligning more closely with Japanese economic interests at the time. Over time, Taipei gained in power and influence over its southern counterparts.
When the KMT received Taiwan island from the Japanese, they simply stepped into those governmental organs of power. Taipei city would thus become the Party's home and the home for over a quarter of the waishengren settling in Taiwan from the mainland. As Taiwan's economy grew throughout the 60s and 70s, Taipei grew along with it - developing the perception of being vastly richer and more developed than its southern counterparts.
Taiwan's other cities benefitted and got richer as well too but it seemed like Taipei the cream of the crop. Taipei got all the cool tourist spots (the National Palace Museum, etc), the first and biggest MRT, and urban development. This led to resentment from Taiwan southerners, grumbling at "Taipei elites" living in the "Dragon City".
When Taiwan decided to enter higher value industries including the semiconductor industry, the central government settled on a strategy of industrial clusters - which means that they would put all the companies working in an industry or "science park" at a certain location, emulating Silicon Valley.
This strategy began in 1980 with the establishment of the Hsinchu Science Park. Hsinchu, if you don't know, is in the north. As TSMC, UMC and other foundries grew, people very clearly began talking again about the north-south divide.
The Tainan Science Park would be an attempt to spread some of the benefits coming from semiconductor growth to the south.
The Tainan Science Park
In the late 1990s, it became clear that the Hsinchu Science Park was running out of space to accommodate further foundry growth and expansion. A second science park will need to be selected.
At this time, the ROC president at the time was Chen Sui-bian, the first in 55 years not to be a member of the once invincible Kuomintang party. The DPP has generally drawn its strength from southern Taiwan and Chen himself was born in Tainan. Part of his economic policy would be for "balancing between the North and South". Government and company officials saw an opportunity to address this appearance of "imbalance" between Taiwan's north and south.
In 1998, Tainan was chosen as the location for the second science park after a fierce competition between several cities. It would have been a tough choice. Kaohsiung in the south (get rich!) and Taichung in the center have bigger populations and established industrial bona fides. Kaohsiung is the center of Taiwan's petrochemical industry. Taichung houses some of Taiwan's largest manufacturing companies like bicycle-maker Giant.
Tainan on the other hand at the time relied heavily on a largely agricultural economy. Outside of its urban core, the area is rural with vast sugar fields and rice paddies.
But the one thing that Tainan had was a stellar university. The main campus of National Cheng Kung University and its hospital are in Tainan. The university is known for its engineering strengths, and this turned out to be the tipping factor for the central government choosing it. Companies like TSMC would set up close partnerships with the university, funding 10% of the university's research budget and paying it millions of dollars of licensing fees for its tech discoveries - something akin to Tainan's Stanford.
(Though being the president's hometown probably didn't hurt).
TSMC in Tainan
From the very beginning, TSMC planned to stay in Tainan for the long haul. Their $2.4 billion dollar facility, Fab 6, would be just the first of many occupying the Tainan science park. Groundbreaking began in July 1998, very soon after the TSP itself was initialized. With classic TSMC speed and efficiency, the building would be opened for production in March 2000, less than two years later.
Fab 6 is a monster of a building. It is six stories tall and has a 190,000 square foot clean room designed to eventually churn out over 50,000 wafers a month. From construction start to high volume production, the fab would cost the company over $2 billion. At the time of its unveiling, it would be the largest single fab in the world. And the prior fabs were not small potatoes either.
Almost immediately upon completing Fab 6, TSMC embarked on creating additional capacity with Fab 14 in 2001. This particular fab was slightly delayed due to concerns about vibrations coming from trains on the High Speed Rail, at the time then being built and scheduled to be completed four years later. It goes to show just how sensitive tolerances are when it comes to making something so tiny.
Fab 14's successful build and start in Tainan would cause TSMC to pivot upwards, putting its next Fab, Fab 15, in the central city of Taichung.
TSMC's latest facility in Tainan is the stunning Fab 18. It is one of TSMC's Gigafab-class flagship locations and is making chips with the latest N5P process. Groundbreaking happened in early 2018. They started bringing in equipment a year later in early 2019. It cost $17 billion to build this single fab, more than the per-unit cost of a Gerard Ford-class aircraft carrier ($13 billion). Unlike that aircraft carrier, the fab is right now being used - presumably churning out chips for the iPhone 12.
Conclusion
TSMC has pointed to these fabs and campuses as proof of its work in being a good corporate citizen to Taiwan the country. And I do want to say that in many ways TSMC responds well to the government's requests - part of that seems to be because the government for the most part stays out the company's business (unlike the Chinese Communist Party). The relationship between the two is something I want to look at in the future.
But the thing I think a lot about when I think about TSMC's growth in Tainan is any pride in hosting the company's cutting edge fabs should be seen as being rather superficial. For the thing is that the Tainan Science Park in many ways fell short of its political and economic goals.
The Tainan Science Park was not founded just to be TSMC's overflow capacity. What local officials wanted was to help upgrade the city's agricultural economy with new companies and startups sprouting in agro-biotech. It was for that reason that TSP was founded with cooperation from the Taiwan Livestock Research Center and the Asian Vegetable Research and Development Center.
But the agricultural biotechnology aspect of TSP never came to fruition (pun!). For whatever reason, Tainan never got to sprout its own version of TSMC for the agriculture industry. Such a company could have revitalized the prospects of the locals.
The result is that the benefits of TSMC's growth went not to local Tainan people and companies, but instead to outside employee elites moving down to Tainan from the north. Go take a walk around the suburbs of east Tainan and you see massive million dollar houses and condos. The average Tainan salary in Tainan is about $1,400 USD a month.
Who can afford these except for rich tech people? And fabs don't employ a lot of people. Fab 6 for all of its size and grandeur employs just 2,300 people - most of them highly educated engineers.
As someone familiar with the knock-on effects of tech wealth on San Francisco and Silicon Valley, I recognize a lot of the symptoms. And it is a bit sad.