Taiwan Keeps Door to China Closed for Chip Maker UMC

Taiwan will have to revise chip-industry regulations before United Microelectronics (UMC) can invest in China, an official said Friday.

UMC, the world's second-largest contract chip maker, announced a plan in April to pay US$285 million for an 85 percent stake in He Jian Technology, which was established by former UMC employees in China in late 2001. At the time of the announcement, UMC said it believed having a production base in China was key to increasing profitability and promoting growth at the company.

But old chip investment regulations in Taiwan will keep UMC out of China entirely for now.

Taiwan long ago enacted rules allowing only three Taiwanese chip plants in China that make chips from 8-inch wafers. More modern fabs make chips from 12-inch wafers and are moving toward 18-inch wafers.

All of those factories have been spoken for, therefore UMC will have to wait until regulations are changed before it can complete its purchase of He Jian, according to John Deng, vice minister of economic affairs in Taiwan, speaking at a news conference in Taipei.

"We're working with UMC now, but we have not given them permission yet," he said.

UMC declined to comment.

UMC already owns 15 percent of He Jian through a deal made by UMC executives several years ago in return for advice on how to set up the business.

Taiwanese authorities at the time charged two UMC executives with crimes under laws designed to prevent Taiwanese chip makers or personnel from establishing factories in China or transferring technology there without express permission from the government. The two were acquitted.

At the time the UMC executives faced trials, a pro-Taiwan independence party ruled the government. Now, a Beijing-friendly party reigns in Taipei, but the chip regulations have still not been changed, despite the easing of other rules, including direct commercial flights between Taiwan and China, the first since their 1949 civil war separation.

He Jian operates a factory in Suzhou, China, making chips on 8-inch wafers. The company was profitable from 2005 to 2007, and its operating performance and financial condition remain promising, UMC has said.

The world's largest contract chip maker, Taiwan Semiconductor Manufacturing (TSMC) already operates an 8-inch chip factory in Shanghai, while Taiwanese DRAM maker ProMOS Technologies built an 8-inch factory in Chongqing, a city in southwestern China. Powerchip Semiconductor won approval to build an 8-inch factory in China as well, rounding out the three factories allowed by Taiwanese regulations.

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