China is strongly motivated to develop its own thin-film transistor (TFT) LCD and wafer foundry industries, and hopes it can gain production technology and managerial know-how from Taiwan. In order to please China, President Ma Ying-jeou’s (馬英九) government has decided to sign an economic cooperation framework agreement (ECFA) with Beijing as soon as possible.
Last month, restrictions on Taiwanese companies establishing TFT-LCD plants in China using 6.5 generation technology and above were relaxed. Firms were also allowed to invest in 12-inch wafer fabs and establish operations for mid to high-level integrated circuit testing and packaging.
This will spur the relocation of the two main pillars of Taiwan’s electronics industry to China. Once an ECFA is signed, Taiwan’s electronics industry will fade away and as many as 750,000 workers will face unemployment.
The only restriction the Ma administration placed on this opening up of Taiwan’s electronics sector was that the production technology for wafer fabs in China lags two generations behind Taiwan’s. While it may sound like this seeks to minimize the loss of Taiwan’s cutting-edge technology to China, it is in fact a sure way to hand over technological know-how to China.
To use the example of Taiwan Semiconductor Manufacturing Co (TSMC) and its investment in China’s Semiconductor Manufacturing International Corporation (SMIC), SMIC has announced that it has already started using 45 nanometer process technology like TSMC does, so does this mean that TSMC will not be allowed to invest in SMIC in future?
In addition, there is a two-generation gap between Taiwan’s United Microelectronics Corp (UMC) and China’s Hejian Technology, which UMC wishes to acquire.
If this happens and Hejian increases its production technology to the same level as UMC’s, does that mean UMC will have to pull out of Hejian? Of course it won’t. So in reality, the two-generation gap in technology is just to dupe the public.
Many have stated that once an ECFA takes effect, trade tariffs between Taiwan and China will drop sharply. However, cutting tariffs will not be beneficial to Taiwan’s exports of electronic components to China because most electronics products now exported from Taiwan to China, like semiconductors, are already almost tariff-free. The average rate is 0.58 percent.
That means Taiwanese businesses will not lose much at all if an ECFA isn’t signed, while the passage of an ECFA would not really help them expand their business in China.
Even more worrying is that once an ECFA is signed, Taiwanese businesses will be able to invest even more in China’s high-tech industry than they do now. Because of industrial clustering, middle and upstream LCD and IC manufacturers will make big moves into China. For example, when Taiwan’s PC and notebook businesses were allowed to start production in China in the 1990s, manufacturers quickly moved to China. This caused the loss of hundreds of thousands of jobs in Taiwan.
The IC design industry has the highest value-added industry in Taiwan, so inevitably design development and staff will flow to China, causing the gradual death of the domestic electronics industry.
The knowledge and experience accumulated by Taiwan’s electronics sector will cease to exist here. What industries will we be left with to provide employment in Taiwan and what sort of production technology will allow us to engage in high value-added industries?
Chien Yao-tang is a member of Taiwan Thinktank.
TRANSLATED BY DREW CAMERON
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