Taiwan to Continue Slow Approach on China Tech Transfer

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Taiwan will continue to take a slow approach in opening the door for its tech sector to transfer technology or build advanced factories in China, the island's leader said Tuesday, despite concern the policy could cause companies on the island to lose out to rivals.

"Usually, our government is on the conservative side, meaning we won't be first," said Taiwan President Ma Ying-jeou, at a news conference in Taipei. "In dealing with the mainland, sometimes we're more cautious," he added.

The island's slow policy has a lot to do with its estranged relationship with mainland China. The two separated in 1949 amid civil war, and China considers Taiwan a renegade province. Beijing has vowed to attack if the island declares formal independence and has thousands of missiles aimed at Taiwan from its southern provinces.

Taiwanese officials fear transferring advanced technology to China that may be used to produce weaponry that could be turned around and aimed at the island. But as relations between the two warm and China opens its market to the world, some executives and analysts fear Taiwanese companies could be left behind.

Late last year, a decision by South Korea to grant LCD giants Samsung Electronics and LG Display permission to build their first advanced LCD factories in China caused an uproar among Taiwanese companies, which rank third and fourth globally behind Samsung and LG Display in the LCD industry. LCD makers want to move to China for several reasons, mainly to supply China's growing LCD-TV market with LCD panels, but also to take advantage of generous investment incentives from Beijing, including tax breaks and low-rent land.

Taipei revised its rules to allow its LCD makers, which include AU Optronics and Chimei Innolux, to build new factories in China in February, months after Seoul's decision.

Some Taiwanese executives believe their natural advantages in China, such as a shared language, Mandarin Chinese, and similar culture, should give them an edge in business dealings in China. But government foot-dragging in the technology sector often negates those benefits.

Taiwan's chip makers, for example, have fretted for years about the government's inhibitive China investment policies. Taipei disappointed some chip makers by leaving in place a ban on building advanced 12-inch wafer factories in China and keeping a limit of three 8-inch wafer plants in place when it revised rules for LCD makers. These rules leave Taiwanese companies behind a number of rivals in terms of the technology their able to use in factories. Semiconductor Manufacturing International (SMIC), China's largest contract chip maker, for example, can produce chips using advanced technology on 12-inch silicon wafers in China, while rival Taiwan Semiconductor Manufacturing (TSMC) is barred from doing so by Taiwanese rules.

"For 12-inch, we're very cautious about that, even though Intel has already set up their plant in Dalian [China] with that," said Ma.

U.S.-based Intel, the world's largest chip maker, has built a 12-inch chip factory in Dalian, China, that will start production in the fourth quarter of this year, company executives have said.

Taiwanese technology transfer works slowly by design. Taipei waits until a technology is already available in China, said Ma, and then checks to see if it is permissible by the Wassenaar Arrangement, a Cold War-era agreement meant to guard against transferring potential weapons-making technologies to countries that posed a threat. "Then, after careful study, we might let them go," he said. "We want to do it step by step."

"In every step, we want to make sure that this will not backfire or hurt Taiwanese interests," he added. "We don't want to be first."

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