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As Eddie Kung ponders who to vote for in Taiwan’s January elections, the physics student’s foremost concern is Taiwan Semiconductor Manufacturing Company.

Crown jewel of the country’s economy, the world’s largest contract chipmaker has emerged as a global strategic asset which the US, Japan and European governments all court for local fabrication plants to reduce supply chain risks but which Taiwan’s government hopes to keep at home.

Many Taiwanese citizens, however, look at it very differently. “The government is beholden to TSMC because the company totally dominates our stock market. That creates a real problem because TSMC’s interests are not necessarily what’s best for our economy overall,” said Kung. As of December 8, TSMC accounted for 26.8 per cent of the Taiwan Stock Exchange’s market capitalisation.

Pointing to the huge amounts of energy and water needed to produce semiconductors, he argued that the company’s expansion in Taiwan was not sustainable and clashed with global efforts to reduce carbon emissions. “Do you want to choose TSMC or the climate? Wouldn’t it be better to put these chip plants in a location with ample supply of renewable energy?”

Kung feels strongly about the issue because air pollution in the Taichung area, his home, is frequently worse than elsewhere because of the country’s largest coal-fired power plant which is located in the city. But the outsized role TSMC and the semiconductor industry overall play in Taiwan’s economy has become a concern for many voters.

“Taiwan is getting stronger and stronger in global tech manufacturing and especially in chips,” said Wu Chun-han, a hardware electronics engineer. “While that makes us indispensable to the world, it is resulting in something like the Dutch disease,” he added, a reference to economies where a boom in one sector impedes the development of others.

Ko Wen-je, the former Taipei mayor who is challenging Taiwan’s largest two established parties, the DPP and the opposition Kuomintang, in the presidential race, also claimed that Taiwan was suffering from the “Dutch disease”. He pointed to a growing gap in investment and incomes between its tech sector and the rest of the economy. He has appealed to the economic concerns of swing voters with a constant drumbeat that the country must address its “five shortages” of power, water, land, workers and jobs for highly-qualified professionals.

Economists agree that Taiwan’s economy is growing too lopsided. In the past two years, semiconductors accounted for almost 42 per cent of exports, up from about 33 per cent in 2016 when president Tsai Ing-wen and her Democratic Progressive party came to power.

The shift was driven by fresh global demand for more and higher-end chips to power artificial intelligence applications and 5G mobile services, while many of Taiwan’s traditional industries, squeezed out of China by rising costs, were losing their competitive edge.

Meanwhile, the services sector which provides the majority of jobs — it employs 4.8mn people compared with just 663,000 in the chip industry — is languishing because sluggish consumption during the pandemic has weakened its mostly small companies.

“It doesn’t affect me, but it’s true that our industry is siphoning up all the resources so surviving becomes more difficult for everyone else,” Wu said. According to TSMC’s 2022 ESG report, the company, including a handful of overseas plants, consumed 21,056GWh of electricity, equivalent to 7.5 per cent of Taiwan’s entire power consumption last year.

TSMC said it was “committed to sustainable practices in its use of resources while contributing positively to the economy”. In an emailed statement, it said its chips helped save 4kWh of energy for each kWh of energy spent on their production, and the water recycling rate at its plants was close to 90 per cent.

According to Wang Chien-chuan, deputy director of the Chunghua Institution for Economic Research, a government think-tank, the polarisation meant that even at times of brisk growth, such as in 2021 and 2022, people outside the technology sector still felt that the economy was sluggish.

The government has rejected suggestions that the chip industry’s strength was crowding out other sectors. Tsai and other DPP politicians have repeatedly emphasised that TSMC was here to stay. The government was concerned that Washington’s push to move some semiconductor manufacturing out of Taiwan made voters question US support for the country, officials said. Tsai’s government prides itself on strengthening the relationship with the US.

In a survey that the Institute for European and American Studies at Academia Sinica conducted in September, only 39 per cent of respondents agreed with the statement that TSMC investments in production in the US made Washington less likely to send troops to help Taiwan against a Chinese attack, while 52 per cent disagreed. While 45 per cent said they believed TSMC’s importance to the US would make such military support more likely, 48 per cent disagreed.

As Ko and Hou Yu-ih, the KMT’s presidential candidate, campaign about what they call Taiwan’s weak economy, balancing the chip industry with the rest of the economy has become a more important topic of debate than TSMC’s link to national security. The government last month cut its 2023 gross domestic product growth forecast to 1.42 per cent.

Tsai’s government has already been fostering a broader range of sectors including smart manufacturing, green energy, medical technology and defence industry. It has offered incentives for companies to upgrade their technology and boost employment — policies Lai Ching-te, the DPP candidate to succeed Tsai, has pledged to continue and expand.

“The government has done a lot, but it is still not enough,” said Wang. “We need to find a way to create spillover effects from the semiconductor industry into a broader range of sectors. There are lots of opportunities because chips are now entering so many more industries like agriculture or cars. But we need to pour more government resources into creating those links.”