In the debate over the opening up of investments in eight-inch fabs in China, arguments based on different political and professional viewpoints have been presented. All these arguments for and against are accurate. What is needed is a practical approach that balances the overall development of Taiwan's economy with the needs of industry.
Nobel laureate James Heckman criticized Taiwan for placing too much emphasis on politics. He believes that the chances of China's military attacking Taiwan are very low, and that Taiwanese companies investing in eight-inch fabs in China should not present a problem. Heckman also points out that the two sides of Taiwan Strait have already joined the WTO, something that should help facilitate peace in the Taiwan Strait.
Of course, Heckman was speaking strictly from the standpoint of an academic. He makes his argument based on the assumption that the cross-strait relationship is no longer a problem, and the "one China" debate has been muted. However, he does not understand that China is waging a new propaganda war based on economic unification. Taiwanese businessmen have in fact become the tools of propaganda for China.
Taiwan's government should analyze this investment issue from the standpoint of national economic development. However, the Ministry of Economic Affairs is taking the side of individual businesses, while academics call for the governmental not to interfere in investment decisions and to separate political and economic issues. The two camps essentially propose that each business be allowed to make investment decisions freely. These arguments are based on a lack of understanding that government, politics, law, national stability and industry investments are all closely linked. The government plays a key role in the success or failure of industrial development.
On the other hand, the Taiwan Semiconductor Industry Association (台灣半導體協會) supports the "speed management strategy" adopted by the 145 upstream and downstream manufacturers of the semiconductor industry. Under this strategy, these manufacturers have already moved into the market in China. The association believes that the "speed strategy" is the only way for high-technology industries to survive. Sanctions and regulations against investments in China are harmful to the future development of the semiconductor industry because China will become the biggest semiconductor market in the world, so the association thinks.
Lin Hsin-yi (林信義), the vice premier and head of the Council of Economic Planning and Development, says that the government's basic direction is to open up investments for eight-inch fabs in China, but not without regulations. Lin has indicated that the amount of investment allowed in China will be based on the size of the company doing the investing. The total cannot be greater than 20 percent of the market value of the investing foundry in Taiwan. Currently, Taiwan has 23 eight-inch fabs, and three 12-inch fabs.
Taiwan's eight-inch fabs are running at about 70 percent of production capacity, meaning that 30 percent of production capacity is idle. Building an eight-inch fab costs about NT$35 billion. This 30 percent idle capacity, or, in other words, production facilities that cost NT$260 billion, can be put to good use in China. This can be accomplished by the formation of a "strategic alliance" investment company through the merger and acquisition of the 23 fabs in Taiwan.
The TSU questions the timing of the opening up. It also questions the wisdom of exporting technology to China, the possibility of higher unemployment, the draining of Taiwan capital and so on.
The TSU strongly urges a one-year postponement of the opening up to allow the government to carefully re-evaluate the issue and establish an "effective management" mechanism.
China has already obtained 0.25 and 0.35 micrometer technology for etching eight-inch wafers. This means that the export of technology for 0.15 micrometer etching must not be allowed. This will prevent DRAM foundries from rushing to China, as China does not yet have the more advanced technology.
Therefore, only 0.25 and 0.35 micrometer technology can be exported. The best way to manage the transfer of technology across the Strait is to adjust the process to meet the demands of China's home-appliance market, so that Taiwanese firms can have a piece of the market in China. This way there will be no need to worry about Chinese technology catching up with Taiwan's. This would also be compatible with the "no haste, be patient" policy.
The amount of capital in each investment should be limited to around NT$50 billion, while the total number of foundries allowed should be limited to two at most. This is the best way to effectively manage the relocation of semiconductor manufacturers. At the same time, the government should encourage Taiwan's 23 existing eight-inch foundries to upgrade their technology to the production of 12-inch wafers, since the production capability of 12-inch fabs could be up to four times greater.
The key to managing the investments in eight-inch fabs in China is twofold: timing and priority. It is understandable that the semiconductor manufacturers and their upstream and downstream partners are in a rush to leave. This is because they have excess capacity and feel the pressure of high interests rates on loans. These firms should take responsibility for their poor management. This has nothing to do with "speed management" or making pre-emptive moves into the Chinese market.
On the other hand, the government has been unable to implement "effective management." Nor does it seem to understand how many manufacturers may be leaving once investments are allowed. The government should buy itself some time by announcing a one-year postponement of the opening up.
During this one-year period, the government must plan for an "effective management" mechanism. The semiconductor manufacturers also need some time to prepare for the production of 12-inch wafers. The delay would give society at large more reason to feel confident about the government's policy to engage in "active opening, effective management."
Lee Chang-kuei is president of the Taipei Times and a professor emeritus at National Taiwan University.
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