SMIC, China’s largest chipmaker, has been seeking to match the technological capabilities of its international rivals © Qilai Shen/Bloomberg

When Liang Mong-song threatened to quit as co-chief executive of China’s largest chipmaker, it was an extraordinary moment even for the notoriously hot-tempered industry veteran.

The departure of Mr Liang, 68, who joined Semiconductor Manufacturing International Corp in November 2017, would have amounted to declaring defeat in his quest to help China’s largest chipmaker catch up with international rivals such as Taiwan Semiconductor Manufacturing Corp and Samsung Electronics.

Last month, what appeared to be a resignation letter by Mr Liang circulated on Chinese social media, hitting SMIC’s shares. Mr Liang appears to be staying — he was included in SMIC’s latest public list of board members and executives, dated December 31. According to people close to him, negotiations are ongoing within management over resources and the company’s future focus.

But the episode highlighted how China’s strategy of building a self-sufficient, world-class semiconductor manufacturing industry is heavily dependent on engineers and executives poached from Taiwanese competitors.

Taiwanese talent has been the lifeblood of China’s chip sector since Richard Chang, an industry executive brought up in Taiwan, founded SMIC in 2000 and hired a team of engineers from TSMC, the world’s largest contract chipmaker.

Mark Li, a Hong Kong-based analyst at investment bank Bernstein, estimates that “easily hundreds, maybe thousands, and if you include semiconductor design, maybe even tens of thousands” of Taiwanese staff now work in China’s chip industry.

China needs that expertise to help it run fabrication plants and develop more advanced process technology, which Taiwan has perfected.

Mr Liang is one of the industry’s most senior and technologically brilliant executives, according to former colleagues and analysts, following lengthy stints at TSMC and South Korea’s Samsung. He has also significantly accelerated SMIC’s technological prowess, taking mass production of chips from 28 nanometres to under 10nm in just over three years. That represents a significant leap in the miniaturisation of semiconductor technology that took rivals much longer to master.

Obsessive dedication

People who know Mr Liang attribute this success to his almost obsessive dedication to technology. That has earned him respect but also frequently sparks conflict with colleagues. “We are moved by his enthusiasm for work,” said one engineer at SMIC.

“He is very strict on the technology, very rigorous. His requirements are very high,” said Charles Hsu, chairman of Taiwanese semiconductor company eMemory and a friend of Mr Liang. “He is like: ‘This is the requirement. You need to meet this. There is no negotiation.’ But if [you use] this personality to deal with other people, then it is very difficult.”

As the US tries to block China’s development of advanced chip manufacturing through sanctions and export bans, that kind of expertise is more important than ever. “China’s demand for semiconductor executives and engineers from Taiwan will increase. They will poach even more aggressively,” said a western expert who follows the industry on both sides of the Taiwan Strait.

The US has blocked supplies of equipment SMIC needs for chip fabrication with processes more advanced than 10nm — exactly the area Mr Liang is developing at the group.

In response, China has focused on expanding manufacturing capacity for older chip technologies and reducing its dependence on foreign software and machinery. Last month, SMIC unveiled a joint venture with two Chinese state funds that will invest $7.6bn in a new fabrication plant for more mature chips, which the company classifies as 28nm or older.

Line chart of SMIC's share price in HK$ showing Sanctions and executive drama hit SMIC's stock

But that pivot represented a setback for Mr Liang. He has had frequent disagreements over strategy with his Chinese co-chief executive Zhao Haijun, given that Mr Liang’s remit has been to help SMIC catch up technologically with its rivals. People directly familiar with SMIC said any strategic shift that redirects resources away from that goal would undermine Mr Liang’s position.

“The entire industry’s direction this year is not in line with the advanced process technology [Mr Liang] has been pushing these years,” said one SMIC engineer.

Describing the Taiwanese working at Chinese chip companies as “mercenaries” who jumped ship for much higher pay, a former TSMC executive said senior officers such as Mr Liang carried a responsibility to pursue influence and resources for the junior Taiwanese managers and engineers they bring with them.

“In that situation, he has to fight — not only for himself but also for his people,” the person said.

Resignation threat

In his letter to the board last month, Mr Liang blamed his threat to resign on SMIC’s failure to consult him on the hiring of Chiang Shang-yi, his former boss at TSMC, as deputy chairman. “I think you probably no longer need me to work hard and fight for the company’s future,” he wrote.

When Mr Chiang retired as TSMC executive vice-president for research and development in 2006, Mr Liang was passed over as his successor and subsequently left to join Samsung. SMIC has not explained its rationale for hiring Mr Chiang.

People who know Mr Liang said he viewed the top job at SMIC as a chance to lead extraordinary advances in technology — an opportunity he felt he had previously been overlooked for at TSMC.

“If he really quits SMIC now, the mission he has committed to so passionately will have failed,” said the former TSMC official.

That could spell a broader failure for Chinese efforts to build a chip manufacturing industry on Taiwanese talent.

“Many Taiwanese companies, first and foremost TSMC, have [now] added legal and financial obstacles against people leaving for Chinese rivals,” he said. “It is nearly impossible that there would be another Liang Mong-song.”

Additional reporting by Qianer Liu in Shenzhen

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