Tue, Jan 22, 2002 page17

• Chipmakers may receive big fines

  AHEAD OF THEIR TIME If Taiwan Semiconductor and United Microelectronics purchased land in China, they may be slapped with a NT$5 million government fine

  • By Dan Nystedt / STAFF REPORTER
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  The nation's two largest chipmakers could face fines of up to NT$5 million if reports they have purchased plots of land in an industrial park near Shanghai turn out to be true, the vice chairman of the Mainland Affairs Council (MAC) said yesterday.

  "If it is true ... then the law says that the penalty is between NT$3 million to NT$5 million," said John Deng (鄧振中), vice chairman of MAC. "I think we would need to have very concrete evidence before any action is taken."

  Taiwan law currently bars local chipmakers from investing in China, though government officials are considering allowing companies to set up older technology chip plants capable of etching chips on 8-inch round silicon wafers.

  According to local media reports, both Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電) purchased space for 8-inch wafer plants in a high-tech industrial park in Suzhou, China, an hour west of Shanghai.

  Spokespeople at both companies declined to comment on the reports.

  "Even if it is true, how do our laws see this? Generally speaking, the determination depends largely on whether they send the money," Deng said. While it is not illegal for a Taiwanese company to buy or rent land in China, it is against the law to dump capital into semiconductor factories there.

  Deng also said an announcement on whether or not to allow local chipmakers to build plants in China is not expected soon.

  "The whole Cabinet is currently being reshuffled, so ... I can't give you a date," Deng said.

  Part of the trouble with allowing companies to build chip-making facilities in China is concern over the outflow of capital from Taiwan to China, Deng said. Technology is another issue.

  Companies worldwide are barred from exporting high-tech chipmaking equipment to China due to the Wassenaar Arrangement -- an agreement reached among 33 nations including Japan, the US and most of Europe -- to ensure machinery useful to make both commercial and military products is kept out of the hands of rogue nations.

  As the originator of the chip industry, the US takes the lead in the chip equipment industry. Deng said Taiwan will follow whatever rules the US lays down as far as technology exports to China is concerned, and may even maintain more stringent laws if it is deemed vital to Taiwan's interests.

  Currently, technology chipmaking equipment which allows the etching of chips below the tiny 0.25 microns -- 1,000 times thinner than a human hair -- are barred from export to China.

  US manufacturers are working to change this law in order to take advantage of the growing China market.

  "China represents a huge potential market for semiconductor equipment that is predicted to grow from US$1 billion in 1999 to US$4 billion in 2003. In light of these factors, the Semiconductor Equipment and Materials International (SEMI) has a long history of pressing for free trade and open market access to all major markets for SEMI members," said a statement by SEMI, an industry group that represents more than 2,400 member companies whose combined sales average US$100 billion per year.

  Taiwanese chipmakers are pressing to be allowed access to China so they can take advantage of a market that only produces 20 percent of the chips it needs. Production costs, including land, labor and utilities are also a factor -- in China they will be between 3 percent and 5 percent less expensive, according to Chris Hsieh, chip analyst at ING Barings.

  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.
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