There was another way in which Taiwan helped California: it saved Silicon Valley when, still in its infancy, Silicon Valley was about to prematurely die.

During the 1960s Taiwan was still a poor and underdeveloped country. The tech industry was established by US and Japanese multinational corporations that built assembling factories in Taiwan, taking advantage of Taiwan's cheap labor.

In 1980 the Taiwanese government attempted to recreate the innovative atmosphere of Silicon Valley on Taiwanese soil and established the Hinschu Science-based Industrial Park. It specifically aimed at attracting Taiwanese engineers and scientists who had studied or worked in California, i.e. who had experienced first-hand the spirit of Silicon Valley. By the 1990s, Taiwan had become the world’s third largest producer of tech gadgets for customers in the USA and Europe, notably the top computer vendors and cellular-phone manufacturers. The success of Hinschu was such that already in the mid-1980s the vast majority of Taiwanese emigrants with a college degree returned to Taiwan, including those who had acquired that college degree in the USA. In 1983 there were only 27 "returnees" working in Hinschu, while in 2000 there were more than five thousand and by then about 40% of Hinschu's 284 startups had been founded by Taiwanese who had studied in the USA. It helped that Taiwan finally lifted martial law in 1989 (after exactly 40 years): the pro-democracy movement had been growing since the "Kaohsiung Incident" and, starting in 1986, Nan-jung Deng had spearheaded the "Green Ribbon Campaign" of increasingly large street demonstrations against martial law. The formation of Taiwan's identity among young generations who had not experienced the civil war also contributed to motivate young people to choose Taiwan over the USA. In 1988 Taiwanese were finally allowed to visit China (previously they could be executed for doing it), where many still had close relatives. Those emotional reunions had a funny psychological impact on the Taiwanese: before 1988 they viewed themselves as a somewhat inferior province of China, not any freer because of the dictatorship of the Kuomintang, but after witnessing the poverty and destitution of their home towns they started viewing themselves as the lucky citizens of a superior nation. Comparing the two systems instilled in the Taiwanese a sense of pride. In 1992 Taiwan held its first democratic elections and returning Taiwanese didn't have to fear anymore from blacklisting and persecution because of their political affiliations. The quality of life kept improving and in many ways Taiwan became a better, cleaner and safer version of California (not of mainland China), at least as far as the technocratic elite went. At this point English was as common as Mandarin, and cities like Taipei were as much a consumer society as Los Angeles.

The brain drain of the first three decades was reversed in the 1990s, and Taiwan even started attracting foreign talents.

Countless cities have tried to copy the structure and method of Silicon Valley: Hsinchu was perhaps the first one. In 1973 Shien-siu Shu, the former head of National Tsinghua University, was appointed Minister of Science and Technology, and established the Industrial Technology Research Institute (ITRI). In 1976 Shu proposed to create a science and technology park that would replicate the fundamental mechanism of Silicon Valley, and he located it in Hsinchu, near Tsinghua and near National Chiaotung University (viewing them as the Stanford and Berkeley of Taiwan). Chung-mou "Morris" Chang (aka Zhongmou Zhang), the veteran executive of Texas Instruments, was hired to lead ITRI in 1986. Following a clue from Electronic Design Automation (EDA), pioneered at UC Berkeley, which enabled the separation of design and manufacturing of chips, ITRI split its design and fabrication divisions: one became the United Micro-electronics Corporation and the other (in January 1988) Taiwan's Semiconductor Manufacturing Company (TSMC), run by Chang in person. The Taiwanese government was the main "venture capitalist" who invested in both. TSMC was technically a joint venture with Dutch multinational Philips and also had private investors. Its original goal was to provide fabrication services to Taiwanese startups that couldn't afford to build their own factory due to the rising costs of wafer fabrication facilities. In 1990 TSMC inaugurated its first fully-owned semiconductor wafer fabrication plant on the campus of ITRI. There had been companies that offered the same services before, but they usually made more money making their own chips, and frequently copied the chips of their customers. Chang decided that TSMC would only manufacture chips for others, and never design its own. He thus pioneered the "foundry model" that rapidly changed the shape of the semiconductor industry and TSMC soon became the world's biggest chip manufacturer. Chang advertised a business model that encouraged startups to remain "fabless" and use instead TSMC factories. From the beginning the idea appealed also to the existing big chip factories that were unable to compete with the Japanese. For the first year Jim Dykes was the CEO of TSMC under Chang (chairman of the board). Dykes traveled to San Francisco to speak to potential investors and delivered a famous speech titled "The Four Little Dragons of the Orient and an Emerging Role for Semiconductor Companies" in which he explained that the scary big dragon was Japan and the four little dragons were Korea, Singapore, Hong Kong and Taiwan (note that China wasn't even mentioned back then), and that Taiwan was enjoying a period of renaissance.

1985 was the year of the first crisis of Silicon Valley's semiconductor industry, brought about by cheaper Japanese products. The Japanese government, via the Ministry of International Trade and Industry (MITI), had sponsored a project headed by Yoshio Nishi at Toshiba for Very Large-Scale Integration (VLSI) with the primary goal of conquering the memory chip (DRAM) market. By 1985 Japanese firms had gained 70% of the DRAM market. Intel, AMD and Fairchild had to exit the DRAM market. In 1981 USA manufacturers had enjoyed a 51.4% share of the world's semiconductor market, whereas Japanese companies had 35.5%. In 1986 the situation had been reversed, with Japan's share reaching 51% and USA companies reduced to a 36.5% share. Thousands of hardware engineers were laid off in Silicon Valley. Intel sent the first large order to TSMC already in 1988. TSMC saved Intel and, one by one, all the other silicon corporations. They all became fabless semiconductor companies: AMD, Apple, ARM, Broadcom, Qualcomm, Nvidia... TSMC's business plan literally saved Intel and the other chipmakers of Silicon Valley.

The team of TSMC added many other returnees such as: Lih-shyng "Rick" Tsai aka Lixing Cai in 1989 (he had graduated from Cornell in 1981 and then worked for eight years at Hewlett-Packard), Mong-song Liang in 1992 (who had studied at UC Berkeley from 1978 under Chenming Hu and graduated in 1983 and then worked for a decade at AMD), Shang-Yi Chiang in 1997 (who had studied at Princeton University in 1969 and graduated from Stanford in 1974 and then worked at Texas Instruments and HP), and Chenming Hu himself in 2001.

In 1988 Taiwanese corporations like Foxconn started using mainland China for cheap labor the way the US corporations had done in the 1950s with Taiwan. The physical manufacturing of electronic goods moved to Chinese cities like Zhengzhou, where its largest manufacturing facility opened in 2010.

In the 1990s tiny Taiwan replaced the USA as the world's largest producer of computer components (motherboards, monitors, keyboards, etc) and even of laptop computers. In 1996 Taiwanese firms manufactured 32% of the world's laptops (50% in 2000, 80% in 2007 and 94% in 2011). While Japan had created a computer industry that was largely independent of the US counterpart, Taiwan's computer industry was closely integrated with the USA. But Taiwan's success story turned out to be Silicon Valley's success story: it didn't create a competitor, it created a collaborator. By 1992 Intel was the world's largest semiconductor company.

One can wonder if the success of Silicon Valley would have been possible without the diligent work of Taiwanese chip makers, i.e. how much Silicon Valley owes to Taiwan. In a sense, Chang deserves to be considered co-founder of Silicon Valley with the likes of Fred Terman and William Shockley.