Can ASEAN become a Chips Hub?

[Can ASEAN become a semiconductor Hub to replace Taiwan?]

In December 2023, Jensen Huang, CEO of Nvidia, embarked on a whirlwind tour of four nations—Japan, Singapore, Malaysia, and Vietnam—where he held consequential meetings with each country's prime minister. While Huang's leadership at Nvidia, one of America's leading semiconductor companies, is widely acknowledged, the frequency and significance of these diplomatic engagements were unprecedented. Notably, his visit to Singapore marked his first in 25 years, with Malaysia and Vietnam being entirely new destinations for him. Against this backdrop, the global semiconductor industry and major media outlets closely tracked Huang's every move, anticipating potential announcements of significant investment ventures by Nvidia in these countries.

Nvidia CEO Jensen Huang speaks at a media conference held in Singapore on December 6, 2023 / Reuters

Amid efforts to revitalize the semiconductor industry, Japan took decisive action by establishing Rapidus, a 'next-generation semiconductor' venture, in 2022 through a joint venture involving eight leading Japanese corporations, including Toyota, Sony, NTT, and Softbank. Designating the northern Hokkaido region as ‘Japan’s Silicon Valley,’ the government laid the groundwork for a monumental 5 trillion yen initiative. While Japan's ambitions in semiconductor technology are fiercely contested by industry giants like Samsung and TSMC, the Japanese government sought priority GPU supply and urged Nvidia to invest in Japan. Despite Huang's cautious response, emphasizing a commitment to meeting Japan's GPU demands and exploring AI-focused R&D initiatives, expectations remained high.

In contrast, Huang's response during his ASEAN tour was buoyant. In Malaysia, he extolled Southeast Asia's burgeoning technological landscape, highlighting its strengths in packaging, assembly, and technology supply. He expressed optimism about the region's potential for success in fields such as semiconductor and system design, data center operation, software design, and software operation and services. Nvidia pledged support for Malaysia's AI aspirations, announcing initiatives to establish a center of excellence for AI learning and research, develop an AI ecosystem, and collaborate on constructing Malaysia's first supercomputer. A $4.3 billion partnership was inked to build an AI data center in Malaysia. Similarly, in Singapore, Huang envisioned the city-state as a future hub for artificial intelligence, unveiling plans for a supercomputer larger than Nvidia's existing setup.

The apex of Huang's Southeast Asian tour occurred in Vietnam. Addressing a seminar on semiconductor industry and AI development hosted by Vietnam's Ministry of Planning and Investment, Huang declared Vietnam's readiness for AI development and pledged to invest in enhancing the country's human resources capabilities and infrastructure. Nvidia announced plans to establish a semiconductor design center in Vietnam, signaling its commitment to making Vietnam a second home.

While Taiwan and Korea dominate the global semiconductor market, the expansion of AI data centers and semiconductor facilities in the ASEAN region reflects strategic imperatives shaped by geopolitical considerations. Singapore and Malaysia, though significant semiconductor producers, cannot match Taiwan's dominance. The selection of Vietnam underscores the imperative of securing semiconductor supply chains amidst escalating tensions with China, which poses threats to Taiwan. Recognizing the vulnerabilities exposed by the COVID-19 pandemic, the United States and its NATO allies are diversifying semiconductor production bases to safeguard national security. This geopolitical calculus informs Nvidia's investment in ASEAN as a strategic move to bolster semiconductor supply chains and reduce dependence on Taiwan.

Amid the COVID-19 pandemic, the United States and its NATO allies in Europe awakened to the vulnerabilities inherent in a global supply chain overly reliant on China. The disruption caused by shortages of automotive semiconductors underscored the critical importance of a stable semiconductor supply to national security, even for policymakers less versed in semiconductor technology. In response, the United States has taken proactive measures, including restricting the export of cutting-edge semiconductor equipment to China. This move aims to compel China to invest in semiconductor manufacturing facilities within the United States, thereby curbing China's rapid technological advancement, which poses a perceived threat.

Despite the potentially higher costs associated with semiconductor production in the US-allied NATO region compared to those from Taiwan, efforts are underway to bolster domestic manufacturing capabilities. Countries like Germany, Poland, Italy, and Ireland are expanding their manufacturing facilities to establish a secure semiconductor supply chain. This strategic initiative not only aims to mitigate dependence on Taiwan but also seeks to enhance resilience in the face of geopolitical uncertainties and safeguard critical technology sectors from external disruptions.

The significance of semiconductors in global security discourse has surged in recent years, as evidenced by the persistent coverage in leading diplomatic and security media outlets. Notably, publications such as <The Diplomat> and <The Hill> have emphasized the pivotal role of ASEAN in diversifying America's semiconductor supply chain away from Taiwan. Concerns over the concentration of semiconductor production in Taiwan, where 50% of the world's semiconductors originate, have spurred calls for dispersion to enhance supply chain resilience and national security. American think tanks like CSIS have underscored the urgent need to redefine supply chain resilience and security in light of Taiwan's dominance in cutting-edge semiconductor production.

European defense and security consulting firm Carb International further underscores the critical importance of semiconductors in bolstering national security advantages. Their report highlights the transformative impact of semiconductors on military technology, particularly in communication systems, autonomous vehicles, and artificial intelligence. The reliance on cutting-edge semiconductors for advanced military operations underscores the direct link between semiconductor supply and national security.

Carb International, a prominent European defense and security consulting firm, released a report in November 2023 titled "How Semiconductors Strengthen National Security Advantages." In this report, Carb International emphasized the transformative role of semiconductors in shaping military technology, particularly in communication systems, autonomous vehicles, and artificial intelligence. The firm underscored the indispensable nature of intelligence defense technologies in modern military operations and highlighted the critical relationship between cutting-edge semiconductors and national security.

As artificial intelligence technology increasingly becomes a cornerstone of military advancements, the supply of high-performance semiconductors to support AI applications becomes a matter of direct national security concern. The report also raised apprehensions regarding the stability of semiconductor supply from Taiwan, a key supplier to the United States, in the face of potential Chinese aggression. The prospect of Taiwan being invaded by China not only threatens the stability of semiconductor supply but also poses the risk of China gaining access to Taiwan's advanced semiconductor technology, thereby further heightening security concerns for the United States.

In light of these security imperatives, Nvidia's strategic investment in the ASEAN region assumes significance. Understanding this investment from the perspective of 'semiconductor equals US security' and the US reassessing its reliance on Taiwan underscores the strategic calculus driving Nvidia's diversification efforts. By expanding semiconductor production and research capabilities in ASEAN countries, Nvidia aims to bolster semiconductor supply chains and mitigate geopolitical risks associated with reliance on Taiwan. This strategic shift aligns with broader efforts by the United States to safeguard its national security interests in the face of evolving geopolitical dynamics in the semiconductor industry.