China has cost advantages over Taiwan for chip makers

China has significant cost advantages over Taiwan in constructing and operating semiconductor fabs, the Electronic Business News quoted industry insiders as saying yesterday.

"Construction costs in Shanghai are 35 percent less expensive overall than those in Taiwan," said Richard Chang (張汝京), president of Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) at Semicon China, a meeting of semiconductor industry experts.

"The water supply is 60 percent less expensive ... bulk gas costs are 30 percent lower than Taiwan."

Chang, who formerly worked as president of Worldwide Semiconductor Manufacturing Corp (世大半導體), also said China's power supply was far more reliable than in Taiwan, where he said his former company suffered frequent blackouts from the country's over-burdened power grid.

The Hsinchu Science-based Industrial Park (新竹科學園區), where much of Taiwan's semiconductor industry is located, suffered 40 power disruptions last year, costing local manufacturers hundreds of millions of New Taiwan dollars in lost productivity.

Taiwan Power Co (台電), the nation's state-run power monopoly, has been working on a new power system to guard against future blackouts.

In addition to deriding Taiwan, Chang boasted about next year's prospects for his company. He said SMIC should have no trouble running at full capacity during the present economic downturn, as Chinese microchip producers have been able to cover just 14.5 percent of China's demand, a figure he quoted from the Central China Information Department.

Furthermore, Chang expects the need for microchips in China to increase further, as explosive demand from the country's booming contract manufacturers require ever more semiconductors.

Location, however, might not be as important as the chairman of SMIC made it sound.

At a conference held earlier this year, Taiwan Semiconductor Manufacturing Co (台積電) Chairman Morris Chang (張忠謀) said that moving to China was not important right now.

He said that today, 75 percent of TSMC's customers are overseas, in Europe, the US and Japan. Even if all of Taiwan's notebook and PC firms -- 25 percent of his customers -- move to China, he can supply them from his semiconductor plants here in Taiwan.

Indeed TSMC, the largest made-to-order chipmaker, rebutted claims by its biggest rival, United Microelectronics Corp (聯電), that it's encouraging workers to shift to China, the Chinese language media reported yesterday, citing TSMC President Tseng Fan-chen (曾繁城).

The report said TSMC also won't change its plans to invest in Taiwan, though the government must do its best to avoid interfering with company policy.

TSMC's Chang also pointed out a move to China would make little sense to his firm in terms of technology. TSMC is working on the latest technology, while firms in China are limited to older machinery. Demand for chips in China is mainly for consumer goods and other low-tech items.