By Sarah Wu
HSINCHU/LONGTAN, Taiwan (Reuters) - Wearing rain ponchos and holding photos of their&nbsp;ancestral&nbsp;temples&nbsp;near Hsinchu,&nbsp;Taiwan's&nbsp;semiconductor capital, 40 residents braved lashing winds in early October to protest plans to take their rural&nbsp;land&nbsp;for cutting-edge chip production.
Two weeks later, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's largest contract chipmaker, dropped plans to build a factory as part of the science park expansion in the bucolic Longtan district nearby - a development that heartened protesters and laid bare one of&nbsp;Taiwan's&nbsp;increasingly fraught "five shortages".
If the&nbsp;land&nbsp;crunch on the densely populated and mountainous island&nbsp;pushes TSMC to shift more production outside Taiwan - countries such as the United States, Japan and Germany have offered it billions in incentives to do so - it could weaken the backbone of&nbsp;Taiwan's&nbsp;economy, analysts say.
"TSMC's expansion in Taiwan has strategic significance for&nbsp;Taiwan's&nbsp;economy and national security," Economy Minister Wang Mei-hua told reporters after the announcement by TSMC, known on the island&nbsp;as "the sacred mountain protecting the country".
Last year,&nbsp;Taiwan's&nbsp;chip industry generated T$4.837 trillion ($150.27 billion) in revenue, nearly half of which came from TSMC, compared with&nbsp;Taiwan's&nbsp;GDP of T$22.667 trillion ($704.21 billion). The sector employs 327,000 people and creates 704,000 jobs indirectly, according to the economy ministry.
With TSMC making most of the world's&nbsp;advanced&nbsp;chips, which power everything from Apple's iPhones to Nvidia's AI data centres, Taiwan is scrambling to find&nbsp;land&nbsp;for the industry and cement its position as a critical node in the global tech supply chain.
"Taiwan's&nbsp;limited&nbsp;land&nbsp;and limited energy have always created a lot of pressure," GlobalWafers CEO Doris Hsu told reporters. "Besides TSMC, all tech companies - when they want to expand in Taiwan - have to consider&nbsp;land&nbsp;and whether residents in the area would support the industry being there."
'OUR ROOTS'
In July, at the first hearing for the proposed expansion, activists unfurled a "stop&nbsp;land&nbsp;pillage" banner and Hsu Shih-jung, a&nbsp;land&nbsp;economics professor at National Chengchi University, shouted his objections.
"Taiwanese society has become a stratified society," he said. "Rich people, the semiconductor industry, bigwigs - they can own&nbsp;land, they can plunder&nbsp;land. Us ordinary folks - prepare for eviction at any moment."
Standing in an overflowing three-story hall in Longtan, Hsinchu Science Park Administration officials emphasised that they would provide fair compensation and pointed to the T$600-650 billion worth of two-nanometre and below&nbsp;chips&nbsp;that would be produced annually and the 5,900 jobs that would be created.
"It was like they were drawing a big pie, but that pie was not for us," said resident Chen Ting-yen, 39, who attended the hearing.
Chen, a restaurant and food delivery worker, and her multi-generational household live in a small house built by her father-in-law Wei Hsin-hsi. Next door is their family's&nbsp;ancestral&nbsp;temple and graves.
"Our earliest ancestors who came to Taiwan - you want me to dig them up?" she said.
"These are our roots," Chen said. "Roots cannot be moved."
The Liao family's&nbsp;ancestral&nbsp;temple also falls within the expansion area. Hundreds of relatives from across the island&nbsp;gather there during Lunar New Year and other festivals.
"Our whole family would be scattered," if the temple is torn down, said Liao Chen-nan, 75.
'FIVE SHORTAGES'
The chip industry has long complained about&nbsp;Taiwan's&nbsp;"five shortages":&nbsp;land, water, energy, labour, and talent. The sector's rapid growth in recent years, which has sent prices of industrial&nbsp;land&nbsp;soaring, is further testing the island's ability to support its prized chipmakers.
After protests, including one outside&nbsp;Taiwan's&nbsp;presidential office, TSMC said it "respects the local community and regulatory authorities" and will work with the government to find suitable&nbsp;land&nbsp;elsewhere on the island, which is about the size of Belgium.
"There are many options and we do not expect any impact on our plan to grow in Taiwan," the company said in a statement.
Taiwan's&nbsp;government - determined to keep its crown jewel's most&nbsp;advanced&nbsp;technology at home - has said it will provide alternative options.
Available&nbsp;land&nbsp;is "absolutely sufficient" to meet the industry's needs, the economy ministry told Reuters, adding that there are already 426 hectares for new semiconductor factories in central and southern&nbsp;Taiwan's&nbsp;science parks.
The Longtan expansion had proposed acquiring 159 more hectares in the north, where TSMC and many chip companies are based. The government is required to compensate&nbsp;landowners at market value.
Although TSMC has encountered opposition from residents and environmental groups before, its economic heft as Asia's most valuable company has allowed it to keep expanding on the island. It has repeatedly vowed to remain "rooted" in Taiwan.
Considering the island's resource constraints, however, TSMC must also expand abroad, senior vice president Cliff Hou said this year.
In December, the company more than tripled its planned investment at its new Arizona plant to $40 billion.
Taiwan still accounts for 90% of TSMC's production, including its most&nbsp;advanced&nbsp;chips, the ministry told Reuters.
"If it really becomes impossible for TSMC to build factories in Taiwan and it moves abroad, the impact on&nbsp;Taiwan's&nbsp;entire economy would not just be from the lack of&nbsp;land&nbsp;now, but from the entire industry starting to move abroad in the coming years," Isaiah Research analyst Lucy Chen said, referring to the robust chip supply chain that developed alongside TSMC.
The science park administration, which had noted that Hsinchu and Longtan are running out of space to create&nbsp;advanced&nbsp;chips, said it would proceed with the expansion for other companies.
Residents have continued to protest, calling for the project to be axed altogether, while politicians from other cities have been vying for TMSC's&nbsp;advanced&nbsp;factory.
Chen Chi-mai, mayor of Kaohsiung, where TSMC is building a 2-nanometre factory, told reporters that his southern city is equipped for more chip production.
"Opportunities are reserved for those who are prepared," he said.
($1 = 32.1880 Taiwan dollars)
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(Reporting by Sarah Wu; Additional reporting by Yimou Lee; Editing by Ben Blanchard and Gerry Doyle)

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Taiwan's land squeeze pits advanced chips against ancestral temples