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November 10, 2006 11:01 am

Taiwan chipmakers freed for China

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Taiwanese chipmakers will gain government approval before the end of the year to use the same level of technology as their international competitors in their factories in China, it emerged Friday.

The Taipei government’s long-awaited move to relax restrictions on the operations that its semiconductor companies run on the Chinese mainland is intended to prevent companies such as Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker, from losing global market share.

In 2002, Taiwan ended a total ban on semiconductor investments in China and said it would allow a limited number of chipmakers to move some more mature manufacturing capacity to the mainland.

TSMC set up an 8-inch chip plant in Shanghai under those rules. However, the rules still limit its production in China to chips of 0.25 microns and above – a technology level behind the mainstream 0.18 micron size that has now been adopted by most Chinese chipmakers even though they are technologically years behind their Taiwanese peers.

The micron figure describes the width of the smallest part of the transistor on a chip. The more advanced the chip, the smaller the micron number.

As reported by the FT in August, Taiwan’s government agreed this summer to relax technology restrictions on chip investments in China. However, the new rules have not yet been implemented.

The Ministry of Economic Affairs has now adjusted its guidelines and finished discussions with other government institutions, said Huang Ching-tang, executive secretary of the MOEA’s Investment Commission.

Mr Huang said applications by Powerchip and ProMOS two of Taiwan’s largest memory chipmakers, to set up fabrication plants in China were likely to receive approval under the relaxed rules before the end of the year.

When Taipei partly opened chip investments in China, it set the current 0.25 micron rule in accordance with what was then the mainstream technology and followed the standards of the Wassenaar Arrangement, a multilateral agreement on export controls for conventional arms and dual-use goods and technology.

However, over the past few years, process technology has progressed much faster than the Taiwanese government’s opening of cross-Strait economic exchanges, so that 0.18 microns have become mainstream technology for Chinese chipmakers.

Since semiconductor manufacturing is not a labour-intensive industry, Taiwan’s chipmakers are not seeking to cut costs by moving to the mainland. But as the Chinese market is growing fast, they increasingly feel the need to service customers in China directly.

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