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Last updated: February 16, 2006 2:21 am

UMC fined for illegal investment in China

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Taiwan’s government has fined United Microelectronics, the world’s second-largest contract chipmaker, T$5m (US$155,000) for illegal investment in China’s Hejian Technology.

The fine limits the damage to UMC while its former top executives have been indicted under criminal law in the case

Last month Robert Tsao, former UMC chairman, and two other former senior executives were charged with breach of trust for helping set up Hejian Technology, a chipmaker in China. The move was seen as part of the government’s pledge to tighten regulation of cross-Strait investment.

Prosecutors argued that Mr Tsao violated UMC shareholders’ interests because he used UMC resources to help set up another company without UMC receiving anything in return.

The real issue, however, is that Taiwan restricts investment in politically hostile China, and UMC is seen as the most prominent example of companies’ circumventing the restrictions.

Mr Tsao and other UMC executives claimed that they never invested any money in Hejian. But the former chairman has admitted that he had UMC “assist” in the establishment of Hejian to give it a foothold on the mainland.

After prosecutors started investigating him, he said Hejian had offered UMC a 15 per cent stake in exchange for the past assistance.

The cabinet-level Investment Commission said yesterday that by helping set up Hejian, UMC had violated Taiwanese law.

The assistance – including planning for plant construction, equipment planning, solving of technical problems in production, capacity allotment and accounting – met the legal definition of investment in China, it said.

The fine is a one-off move well below the maximum penalty of T$25m the government could have handed out.

“What we are punishing is past behaviour, so the case is finished after this fine is paid,” said Huang Ching-tang, the commission’s executive secretary.

Mr Huang, however, warned that UMC would meet renewed penalties if it tried to take the stake offered by Hejian.

“Hejian is involved in chip manufacturing with technology more advanced than 8 inch fabrication and 0.25 micron – business fields where mainland investment is banned,” Mr Huang said.

“Unless Hejian stops its activities in these fields, we cannot allow UMC to take the stake.”

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