Chipmakers may receive big fines

Local chipmakers also fear being left behind. US-based Motorola Inc, Japan's NEC Corp and a Taiwanese entrepreneur have already set up chip plants in China. Semiconductor Manufacturing International Corp (中芯半導體), run by Richard Chang (張汝京), whose company in Taiwan merged with TSMC, is already working on advanced manufacturing processes prohibited in China by US law.

These companies hope to mop up China's excess demand and keep new market entrants at bay.

"We all see the benefits for the companies to invest in China," Deng said.

"Whether there will be a large capital outflow [from Taiwan and] how to take care of these technology issues" are questions officials in Taiwan are still wrestling with.