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July 17, 2008 

Taiwan May Relax Restrictions on Chipmakers’ Investments in China

The Government of Taiwan has recently announced that it is considering easing restrictions on chipmakers investments in China. This follows Intel Corp’s 2007 announcement that in 2009 it will begin the production of 12 inch semiconductor wafers in China, and the announcement coincides with Taiwan’s hosting of Applied Materials Inc.’s president and CEO, Michael Splinter.

Taiwan has already authorized two Taiwanese semiconductor manufacturers to build factories in China. Taiwan’s easing of restrictions on investment in China for chipmakers seems to have been influenced by the lack of U.S. restrictions on Intel’s investment in China. President Ma noted the lack of U.S. objection to Intel’s production of 12 inch semiconductor wafers in China, which is particularly important since the U.S. is an active participant in the Wassenaar Arrangement. Though not a participating state in the Wassenaar Arrangement, Taiwan’s President Ma asserts that the principles of the Wassenaar Arrangement will be considered when easing controls on investment in China. Also, Taiwanese officials state that they do not fear losing 12 inch wafer fabrication to China because China lacks the environment for the development of these industries and crucial technologies will remain in Taiwan.

News reports indicate that Taiwan’s Ministry of Economic Affairs plans to relax restrictions on investments by local chipmakers in mainland China in three phases over three months.

1. In July, the ministry will boost the ceiling limit on China investment to 50 percent of the net worth of Taiwanese enterprises from the existing 40 percent.

2. In August, the economics ministry will ease restrictions on the industries Taiwanese enterprises are allowed to invest in China.

3. In September, the ministry will reveal a concrete timetable for liberalizing investment in Taiwan by mainland Chinese enterprises.

It seems that several related factors have led to Taiwan’s proposed easing of restrictions: (1) liberalization of U.S. controls on advanced semiconductor production abroad have put pressure on Taiwan to do the same; (2) concerns expressed by U.S. based Taiwanese chipmakers, such as Applied Materials Inc., when faced with their competition’s utilization of lower production costs in China; (3) Taiwan’s realization that if it wants to continue to attract investment from high tech industries, it must ease restrictions on investment in China; and (4) a desire to enhance relations between Taiwan and China following the establishment of direct flights and tourism.

Considering Taiwanese reports that Taiwanese investments in China have grown 30 percent from 2006 to 2007 to US$9.974 billion, businesses operating in Taiwan will want to keep a close eye on the easing of restrictions for investment in China. Though China lacks the environment and technologies for higher end chip production now, the migration of higher end production to China from other nations, e.g., the U.S., will require Taiwan to adjust its policies and regulations in order to keep its industry competitive.

Editors note: Thanks to a loyal reader for submitting this article.

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