Taiwan's High Tech Race

Calm has returned to Taiwan. From the bustling convention floors and overbooked hotels that are teeming with foreign executives, it is hard to imagine that just one month ago it seemed to the outside world that Taiwan was at the brink of war with China.

But inside the labs and corner offices in Hsinchu, the site of Taiwan's version of Silicon Valley, a sober reassessment of the island's industrial future is under way. To many business leaders and government officials, China's menacing war games underscored vulnerabilities of Taiwan's $21.3 billion information-technology industry. For the past five years, Taiwan has been going gangbusters exporting computers, peripherals, and chips to the West and Japan (chart, page 26). Its industry is now as large as France's and Germany's combined.