Recently, the nation's chipmakers and wafer testing and packaging firms have turned a corner. Wafer testing and packaging firms' orders are lined up all the way into the fourth quarter. Big domestic manufacturers like Advanced Semiconductor Engineering Inc and Siliconware Precision Industries Co have orders through October.
It is important to keep in mind where the chip industry's good fortunes came from. Since 2003, the government has been unjustly labeled as "isolationist" and "conservative" for not allowing domestic wafer testing and packaging firms to move to China. If the government had allowed such firms to move to China four years ago, what would have happened?
Undoubtedly, China today would be blanketed by the Taiwanese companies, whose capacity would have grown exponentially. This in turn would have led to fierce competition and price wars, and ultimately a precipitous drop in profits. Of course, that would have been great for China, but China-based Taiwanese businesspeople would have suffered tremendously.
Given the success of Taiwan's two top chipmakers -- Taiwan Semiconductor Manufacturing Corp and United Microelectronics Corp -- we should thank the Taiwan Solidarity Union (TSU) for spearheading efforts to prevent domestic chipmakers from moving to China in 2002. The output of TSMC's two 12-inch wafer factories has skyrocketed, with chips produced using its cutting-edge 90-nanometer technology comprising 23 percent of revenues.
The success of the nation's original equipment manufacturing (OEM) chipmakers has also fed a recent boost in wafer testing and packaging orders. In retrospect, had there been no protest against chipmakers' plans to relocate to China four years ago, if the Ministry of Economic Affairs (MOEA) had had its way, or if the government had given in to local chipmakers' demands to go to China two years ago, then today China would be sitting firmly atop the global wafer industry.
However, that is not the case today. In fact, China's major chipmaker Semiconductor Manufacturing International Co was in the red this quarter to the tune of US$8.7 million, and experienced a loss of US$14.87 last quarter.
It is not a completely bad thing for manufacturers to move to China. The conditional liberalization of the chip industry in 2002 -- which allowed some firms to open plants in China -- was a success story. Even chipmakers themselves will privately say that such "managed" liberalization was the right way to go.
Building on the success of that liberalization precedent in 2002, the Cabinet recently announced that it will move toward liberalizing wafer testing and packaging services and small-sized panel production. But the MOEA's application criteria are still too general, leading to many problems in implementation. Moreover, the MOEA lacks effective management practices regarding the transfer of certain technologies.
The government need not rush to follow up on the recent Chinese Nationalist Party (KMT)-Chinese Communist Party (CCP) economic forum, for that would only endorse China's attempts to influence Taiwanese politics through economic means. If 45 Taiwanese business representatives can force the Taiwanese government to be more "pragmatic" just by lining up to shake hands with President Hu Jintao (