The government looks set to ease the ban on Taiwan's companies investing in semiconductor manufacturing facilities in China, a possibility that has spread what analysts call irrational alarm throughout the nation.
It all began last year when Taiwan's semiconductor guru Morris Chang (
"It's about time for TSMC to launch operations on the mainland," Chang told an Economic Development Advisory Council (經發會) panel in August last year. Less than a year earlier he said that TSMC would not invest in China for at least four years.
Since then, Chang, along with fellow Taiwan semiconductor manufacturers, has been lobbying the government to loosen restrictions to allow these companies to build factories, or what they call fabs, in China.
Fearing the flight of capital to China, the government has long held restrictions on what industries can and cannot invest in China.
Some government officials and scholars fear that allowing Tai-wanese companies to invest billions of dollars in China to build state-of-the-art integrated circuit-manufacturing facilities would spell economic doom for Taiwan.
"It will create a technology downfall. All industry will close, talent will leave and the science parks will return to their original undeveloped state," cried Vice President Annette Lu (
Taiwan's electronics industry as a whole accounts for about one-third of the country's total manufacturing output, and is responsible for more than half of its exports. Coming from a country where exports account for more than 30 percent of GDP, this is no small matter.
What is at stake is not only new investment in fabs, which can each cost US$3 billion to set up, but the backbone of Taiwan's electronic industry.
"If semiconductor manufacturing goes it will take with it all supporting industry. It would be a fatal blow for Taiwan," said Sam Lin (林錫銘), president of Weltrend Semiconductor Inc (偉詮電子).
The general trend over the past 10 years has been the migration of Taiwan's manufacturing industry to China, where labor and resources are cheaper. Electronics companies say manufacturing in China is as much as one-third cheaper than in Taiwan.
Although semiconductor man-ufacturers had previously said that it would be four years or more before they would invest in China, most now agree that the time has arrived.
"When the Chinese authorities provide incentives like tax breaks as well as sufficient supplies of high-tech personnel and water and electricity, and our competitors start to take advantage of these, we will lose our competitive edge if we do not follow suit," TSMC's Chang told the panel.
Analysts say that from a historical view of Taiwan's manufacturing trends it is only logical that semiconductor manufacturers begin to move.
"To hold them back is futile," said Steve Lin (
Indeed, it would only force them to channel money through a third country, creating greater costs and obstacles for the companies rather than giving them incentives to keep it at home, he said.