A hot potato: According to the Nikkei Asian Review, two of China's government-backed semiconductor manufacturers have hired over 50 TSMC engineers and executives this year. Both companies are coaxing some of the world's best researchers with offers of exorbitant compensation packages to accelerate the growth of China's domestic chip industry.

Quanxin Integrated Circuit Manufacturing (QXIC) was founded in 2019, while Wuhan Hongxin Semiconductor Manufacturing Co. (HSMC) was founded in 2017. Neither are producing competitive products yet, but both have received several billion dollars from the state to accelerate their development. They're also both led by former TSMC executives.

"Hongxin [HSMC] offered some amazing packages, as high as two to 2.5 times TSMC's total annual salary and bonuses for those people," an anonymous source told the Nikkei.

The Chinese firms' primary strategy is to use their funds to draw in talent. They're also opening up shop close to where talent already lies: QXIC recently established a research and development lab down the road from TSMC's 5nm plant in Taiwan. It will, at least, be some time before either company is ready to produce 5nm products themselves. HSMC expects to launch 14nm products domestically in 2022.

An executive from within the chip industry said that "all these Asian governments, including the Taiwanese government, need to think up good ways to retain talent, since China can use its great capital market, government subsidies and lucrative packages to attract workers. You can't expect your employees to be loyal forever if you did not offer enough incentives and opportunities."

TSMC is confident that their loss of employees won't cause them harm and highlighted their sub-5% turnover rate. However, they did express concern that trade secrets were being shared with their new competitors.

"As a company, TSMC competes to our fullest within the law, but we do not slander our competitors and we respect the intellectual property rights of others. Similarly, we expect our suppliers and other companies to respect TSMC's intellectual property rights and will take appropriate protective actions."

Although the business practices of these Chinese companies are certainly concerning, China's desperation is understandable. The US has prohibited TSMC from selling to China's largest technology company Huawei, and they won't survive unless they can access domestically-produced chips.