Long-term effects may have serious implications

Lee Yuan-tseh (李遠哲), president of Academia Sinica uses the migration of eight-inch wafer foundries to China as an example of something that required extensive and rational public debate in Taiwan. But how should rational debate on public policy be conducted? The answer lies in using empirical evidence and the public good as central points of reference.

The semiconductor industry is one of Taiwan's principal industries. It centers on the made-to-order manufacturing of silicon wafers. Upstream it involves IC design. Downstream it involves packaging and testing. The industry has an aggregate production value of more than NT$700 billion (US$20 billion) a year and employs 94,000 people. The prospect of such an industry moving overseas impels us to consider the impact on the overall economy and society.

According to data from the Industrial Economics and Knowledge Center of the Industrial Technology Research Institute (工研院經資中心), if the policy restricting the establishment of eight-inch wafer foundries in China were lifted today, then by 2005 the output value of Taiwan's IC industry would be NT$217.9 billion lower than could otherwise be expected, and the industry would employ 18,000 fewer people. The output value of China's IC industry and the number of people it employs would increase by the corresponding amounts. In other words, the two sides of the Taiwan Strait are engaged in zero-sum competition in the IC industry. It is not a mutually beneficial division of labor in which the two sides have complementary strengths.

From the perspective of business alone, it makes no difference where production takes place. But the IC industry drives Taiwan's economic development. If the effects on other industries are considered, the impact of an industrial migration will be far greater than the above sums suggest, and the burden will be borne by society at large. The government will not be able to stand idly by.

Some people believe that since eight-inch wafer technology is not the exclusive preserve of Taiwan, if Taiwanese companies don't go to China, manufacturers from other countries will. Indeed, during the past 10 years, the Netherlands, Canada and Japan have invested in made-to-order wafer foundries in China. But none of them has been very successful. The foundry built jointly by China's Hua Hong and Japan's NEC, for example, is still incapable of competing with Taiwan's foundries, even though it uses 0.2 micron manufacturing equipment.

Some have deliberately played down Taiwan's supremacy in the industry. In fact, Taiwan's made-to-order silicon wafer industry dominates the world, accounting for 77 percent of global production value. It is way ahead of second-placed Singapore. Taiwan's advantage doesn't lie in equipment, but rather in its unique, innovative techniques and management ability as well as the cluster effect of the Hsinchu Science-based Industrial Park.

China has introduced incentives to attract industry professionals from Taiwan in a bid to clone Taiwan's industrial strongholds and attract core technologies. It has made progress with this strategy. Richard Chang (張汝京), a former high-ranking officer with Taiwan Semiconductor Manufacturing Corp (TSMC 台積電), set up the Semiconductor Manufacturing International Corp (SMIC, 中芯) in Shanghai -- and lured Taiwanese engineers to China with high salaries. [Editor's note: An investigation has been launched recently into the possible theft of wafer-making technologies by another former TSMC employee who crossed over to SMIC.]