TAIPEI, May 30 (Reuters) - Taiwan's newly appointed Economy Minister J.W. Kuo said on Thursday that China's military drills are nothing to worry about and there is healthy interest from foreign firms who want to work with the island's crucial chip sector.

China, which views democratically-governed Taiwan as its own territory, has ramped up its military activities around the island over the past four years, including staging war games last week.

Any conflict over Taiwan would devastate global supply chains, especially for microchips.

Taiwan Semiconductor Manufacturing Co (TSMC) is the world's largest contract chipmaker, the main supplier of the chips powering the boom in artificial intelligence (AI) applications, and a major supplier to companies including Nvidia and Apple.

Kuo, previously a senior executive at TSMC supplier Topco Scientific, told reporters that it is really only TSMC that can produce the chips used for AI.

"Lots of countries have given up - they don't produce AI chips," he said, having taken up his new role last week following the inauguration of President Lai Ching-te.

"So we can see that the whole ecosystem is in Taiwan."

Suggestions about making the chip industry "Taiwan plus one", and spreading out manufacturing to other countries, is not that feasible, said Kuo, whose ministry oversees the development of the chip industry and approves overseas investments.

"This is very, very hard. The technology is all in Taiwan.

"More and more foreign manufacturers want to collaborate with Taiwan," Kuo added. "China's military drills are nothing to worry about, otherwise there wouldn't be so many foreign companies who want to invest in Taiwan."

TSMC is building and opening new factories in the U.S. state of Arizona and in Japan and Germany, but Kuo said those will only produce a small percentage of chips compared with what will still be made in Taiwan, and less advanced ones at that.

Kuo said he had met TSMC Chief Executive C.C. Wei on Wednesday as he was an old friend, just for a chat.

"They are a company that needs the services of the Economy Ministry," Kuo said. (Reporting by Ben Blanchard and Jeanny Kao; editing by Mark Heinrich)