Taiwan is moving towards a major revision of the restrictions placed on local semiconductor companies with regard to their investments in mainland China and is likely to remove many of the hurdles they currently face, a senior government official said in an interview.
The revision, which is due in September, comes hot on the heels of the March election of Ma Ying-jeou as president of Taiwan and mirrors his philosophy of freeing up restrictions on trade between the two countries, said Chen Chao-yih, director general of Taiwan's Industrial Development Bureau, in an interview in Tokyo on Tuesday.
Taiwan is home to some of the world's largest chip makers -- Taiwan Semiconductor Manufacturing (TSMC) is the biggest contract chip maker, while Advanced Semiconductor Engineering (ASE) is the largest chip packaging and testing company. The companies are among the pillars of the island's economy but they currently face a number of restrictions when it comes to investing in mainland China.
The restrictions are in place to guard against the loss of jobs, taxes, intellectual property and business from Taiwan to mainland China, where wages are considerably lower. Taiwan's government has to-date granted permission for just three 8-inch chip plants to be built in China by its semiconductor companies and has totally banned the construction of fabrication facilities (fabs) that use the more advanced 12-inch silicon wafers.
That is likely to change in a big way in the September revisions.
"For the new regulations, which are not finalized yet, it seems to me that 8-inch wafer [fabs] will not be restricted anymore," said Chen. He noted that Taiwan is already home to almost twenty 12-inch fabs, several are currently under construction and around another 15 are planned so placing restrictions on the older technology doesn't seem to make sense anymore.
"The investment in 12-inch wafer facilities is quite active in Taiwan so maybe it's not necessary to control the 8-inch wafer investment in mainland China. For 8-inch wafers, I think it's relatively clear that the Taiwan government is not going to have any further restrictions," he said.
The revision could also open the door to some investment in 12-inch fabs in China, said Chen. The government will follow the Wassenaar Arrangement, an international treaty on export of goods and technologies that could have military use, in regard to investment by local companies in mainland China but Chen noted that "this is a review process" and "doesn't necessarily prohibit" the transfer of advanced technologies required at 12-inch fabs.
"So we will review the technologies and see the individual cases to decide whether we allow or not," said Chen.
Discussions surrounding 12-inch investment and transfer are yet to be completed, he stressed, but the government will likely want to see a technology gap between investments by a company in Taiwan and China.
"It means, if the investment in Taiwan is two generations better than mainland China then it should be OK," he said. "Thirdly, we might encourage the investor to have a relevant investment in Taiwan to ensure job opportunities in Taiwan."
While semiconductor fab investment is a major issue for Taiwanese IT companies when it comes to investing in mainland China, the government will also look at other areas including chip packaging and testing.
"I would expect restrictions will be released totally, hopefully totally, to this sector," said Chen. "So far we are number one in packaging and testing so if they can have a good business opportunity in mainland China, why not?"
Taiwan still might require companies have a relevant investment in Taiwan to keep strong links with the island, he said.
"And the third part for semiconductor is IC design. I would expect we will allow our industry to take advantage of the human resources in mainland China and I would think we will try to relax the restrictions," he said.
When the new regulations are in place, Chen expects the result will be a stronger local industry.
"By this kind of relaxation, we are not aiming to help mainland China," he said. "We are aiming to help our industry grow bigger and that will make Taiwan's economic strengths even stronger."