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Taiwan will conditionally open low-end chip testing and packaging, and small-size flat panels for investment in China in a minor relaxation of restrictions on cross-Strait investment.

The new rules, which take effect immediately, appear tailor-made for two planned acquisitions involving manufacturing assets in China.

Taiwanese companies may now apply for government approval to invest in the low-end parts of chip testing and packaging. And in certain labour-intensive stages in the manufacturing of flat panel displays smaller than four inches – those used in mobile phones and other handheld gadgets – in China, the government said.

Government officials said the flat panel rules were worked out in response to requests from Toppoly, a niche flat panel maker which is merging with the small-size display operations of Philips. The deal has been held up because Taipei’s ban on investment in flat panel making in China bars Toppoly from taking over Philips’ China assets.

Separately, Advanced Semiconductor Engineering (ASE), the world’s largest chip testing and packaging company, has lobbied the government to lift its ban on mainland investment in the sector because the company intended to take over a Philips testing and packaging facility in China.

However, it is understood that after the government took almost two years to respond, this acquisition is now no longer a priority for ASE.

ASE is interested in taking over Global Advanced Packaging Technology (GAPT), a packaging and testing company in Shanghai set up by a Taiwanese investor, once this becomes legal. However, a senior government official yesterday said this would still not be possible under the new rules because GAPT’s technology is too advanced.

Even those companies that apply under the new rules will be subject to tight scrutiny, as they will have to prove that their move is part of overall investment plans which also strengthen operations in Taiwan, part of a cross-border merger involving mainland assets or will greatly enhance their global position in the industry. “We encourage our companies to globalize, not to move to China,” said Joseph Wu, head of the cabinet-level Mainland Affairs Council.

The new rules are the first relaxation of investment restrictions since the government softened a ban on semiconductor investments in China in 2002.

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