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United Microelectronics (UMC) has the chance to legalise its ties with a Chinese chipmaker only if it limits these to less advanced process technologies, a senior Taiwanese government official said on Thursday.

The remarks were widely seen as a proposal for talks with Robert Tsao, former UMC chairman, next week.

The move indicates the government is seeking solutions to the conflict over the involvement of UMC, the world’s second-largest contract chipmaker, with Hejian, a contract chipmaker in China that was set up by former UMC executives.

Mr Tsao was charged with breach of trust on Monday for having given UMC technology and management resources to Hejian for free without UMC shareholder approval.

Under the pressure of the investigation, he announced last year that Hejian had offered UMC a 15 per cent stake in exchange for the past “assistance”, and asked the government to advise on how this stake could be legally taken.

Mr Tsao resigned from his chairman’s post just hours before the indictment to protect the company from the fallout of his struggle with the authorities.

However, in the wake of the judiciary’s move against Mr Tsao, the government is taking administrative steps against UMC aimed at terminating illegal ties between the company and Hejian.

“UMC will be given the opportunity to apply for retroactive government approval of past mainland investments or technological co-operation after they pay the upcoming administrative fine,” Huang Ching-tang, executive secretary of the cabinet-level Investment Commission, told the FT. “However, this chance applies only to business ties in areas the government has opened already.”

In UMC’s case, technological co-operation or investment involving process technology more advanced than 0.25 micron – a term defining the width of the smallest circuit wires on a chip – is excluded from these areas, he added. “0.18 micron belongs to the banned categories,” he said.

Taiwan’s government allows its chipmakers to apply for investment in China only for facilities that use process technology less advanced than 0.25 micron. But 0.18 micron has already become the mainstream with Chinese semiconductor companies. According to Hejian’s website, the Suzhou-based chipmaker also has 0.18 in mass

If these rules were to be applied strictly in the UMC case, the government’s proposal appears unrealistic. But observers said the government could demand UMC to promise that it will bring certain orders now served by Hejian back to its own fabrication plants in Taiwan.

The Investment Commission sent Mr Tsao a letter on Tuesday asking him to come in for questioning within 10 days, Mr Huang said.

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