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Inside the Taiwan chip incubator the U.S. is trying to emulate

SCOTT SIMON, HOST:

The U.S. CHIPS Act has become a catchphrase among policymakers since last year. The American legislation was designed to try to constrain China's advances in making semiconductors. It also tries to emulate Taiwan's success. But is that possible? NPR's Emily Feng went to visit a key hub in Taiwan to find out.

EMILY FENG, BYLINE: I'm in one of the world's most successful technology incubators, but you've probably never heard of it. The Industrial Technology Research Institute, or ITRI, created companies now worth hundreds of billions of dollars that make the world's most advanced semiconductor chips.

SHIH-CHIEH CHANG: Here, we can do design. We can do manufacturing.

FENG: Chang Shih-Chieh, the general director, shows me around. This is one of the facilities, including a chip factory, that ITRI provides for Taiwanese companies.

CHANG: You know, all sorts of ingredients that we can cook different kind of good dishes for everybody (laughter).

FENG: ITRI began in 1973 at a time when politically, China was starting to isolate Taiwan diplomatically, convincing country after country, including the United States, to switch its allegiance from Taipei to Beijing.

MONIQUE CHU: So this really made Taiwan feel like a pariah state.

FENG: This is Monique Chu, who researches the semiconductor industry at the University of Southampton in England. She describes how, facing diplomatic pressure, Taiwan's government made a very intentional choice to make semiconductors.

CHU: The government in Taipei at the time was really determined to foster economic development in order to consolidate its political legitimacy at home.

FENG: Hence, ITRI - the result of merging three existing government institutes but given an independent budget. Today, about 60% comes from the government. Its first task was to buy semiconductor technology from a foreign company - something to get it started and that they could improve upon. Shih Chintay was studying in the U.S. but came back to Taiwan to be part of ITRI's new electronic research program in 1976. It was an exciting opportunity for him.

CHINTAY SHIH: Most of the people in this group are young. A lot of them were just 30 years old, like my age at that time. So we bring in a lot of innovation.

FENG: In 1980, just a few years later, ITRI helped launch United Microelectronics, its first commercial venture. The company is now one of the world's biggest chip makers and worth more than $20 billion. In 1987, ITRI's then-Director Morris Chang launched and ran its second venture, called TSMC. That's now the biggest, most advanced chip maker in the world. Chang, the current general director I met earlier, says quite a few of ITRI researchers went on to become top executives, spitting out cutting-edge research done at ITRI's labs into commercial ventures.

CHANG: And this technology later can licensed to the companies, and the company can use this to upgrade their technology.

FENG: This snowball effect set Taiwan on track to pioneer advanced chipmaking and created funds to support even more research at ITRI.

SHIH: Industry can work with any company in the world. But we want to let the industry say, you can always come back to ITRI.

FENG: This is Shih Chintay again. He was ITRI director during much of the 1990s. Looking back, he stresses Taiwan's success happened because of a unique combination of economic, political, as well as cultural factors. It had a pool of young, highly educated and diligent engineers who were willing to work extra hard. And it also had huge markets in both China and the U.S. and even natural gas reserves the Japanese discovered. So can countries like the U.S. do the same?

SHIH: You plant the same orange tree on the riverside, but then you move that into the other side of the river.

FENG: It's a Chinese idiom, meaning it won't work. Context matters.

SHIH: Work ethic, the value system - it's all different.

FENG: Taiwan, he says, is a small economy. The U.S. is big, and it wants to innovate across a wide spectrum of technologies. By contrast, what Taiwan did was do one thing really well, and so far, in part thanks to ITRI, no one has been able to catch up.

Emily Feng, NPR News, Hsinchu, Taiwan. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Emily Feng is NPR's Beijing correspondent.