Ministry of Economic Affairs officials again delayed a decision on easing Taiwan's semiconductor industry to invest in China yesterday. Currently, such investments are barred because of economic and national security considerations.
The government fears local plants will close and lay off workers as the industry moves to a nation that has never renounced the use of force against Taiwan.
A report published earlier this year by the National Security Bureau, Taiwan's equivalent of the US' Central Intelligence Agency, said that the government should use "all means at its disposal to stem the flow of high-tech investment to China" because local investors would become the political pawns of Beijing.
The chip industry is particularly sensitive. Sophisticated computer chips are used in a wide range of military hardware -- most importantly missile guidance systems. This is a major reason the US government bans the sale of the latest chipmaking equipment to China.
Despite such hazards, local chipmakers are moving forward with investment projects across the Strait. China's vast and rapidly expanding market potential, cheap land and labor, along with the fear of losing out to competitors who are already there, is prompting entrepreneurs to pressure the government to liberalize current investment restrictions.
Toshiba and Sony, for example, farm out notebook PC production to Taiwan. At the same time, they are building new notebook factories in China. Once these factories become operational, orders for Taiwan manufacturers are likely to be reduced.
As a result, Taiwan is considering a plan that will limit chipmaking investments in China to older technology, such as chip etching on eight-inch wafers using 0.25 micron processes and other less-advanced technology.
The Taipei Times sought input from chip companies, analysts and government officials on this contentious issue. Following are excerpts:
Myth: Opening the chip industry to China will cause a hollowing out of the local industry.
Reality: Nearly all of Taiwan's major chipmakers plan to continue investing in Taiwan with the latest technology semiconductor manufacturing plants.
Nanya Technology Corp (南亞科技) said it will build its first 12-inch wafer factory in Taiwan as are the world's top two contract chipmakers, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電). TSMC has already announced it will spend NT$700 billion (US$20 billion) to build six of the plants over the next several years.
Moreover, analysts point out that the semiconductor manufacturing industry has migrated at least three times since it began: from the US where it began, to Japan, then to South Korea, Taiwan and Singapore.
In all of these places, chip manufacturing operations continue to thrive.
The industry will move again by 2005, to China, according to analyst estimates.
Myth: Taiwan's chipmakers need to shift production to China to remain competitive.
Reality: This is a half-truth. Chipmakers in Taiwan can be broken down into two categories, DRAM producers and chip foundries that manufacture semiconductors on a made-to-order basis.
Memory chipmakers cannot shift production to China until laws in the US are changed to allow specialized chipmaking equipment to be imported into the country. Because of concerns over US national security, high-tech chipmaking processes below 0.25 microns are barred from export to China.
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