Taiwan allows three chip investments to China

Move marks significant easing of regulations for its technology industry and a sign of improving ties with China

The Taiwan government gave a formal stamp of approval on three major China-bound chip investments on Wednesday.

Three of the island's chip makers may now move forward with their plans to build two 8-inch (200 millimeter) chip plants in China, and one investment in a Chinese chip assembly company, the Taiwan Investment Commission said in a statement.

The easing is seen as a major breakthrough for Taiwan and China. For the Taiwanese technology industry, it's a sign the government may be warming up to allowing more investments in political rival China. For China, it could reinvigorate a chip industry that has slowed over the past few years as major chip makers such as Semiconductor Manufacturing International Corp. (SMIC) posted a string of money-losing quarters.

The move also represents a goodwill gesture by Taiwan to China. The two remain enemies after splitting in 1949 amid civil war. Taiwan fears China could use chip technology to bolster its military capabilities against Taiwan. Despite the strained relationship and tough investment rules, China remains the favored destination for Taiwanese investment due to their shared language and culture, and China's lower costs and huge potential market.

The government okayed a $410 million plan by memory chip maker Powerchip Semiconductor Corp. to build an 8-inch factory in China. It approved a similar plan for ProMOS Technologies Inc., but for the slightly smaller amount of $365 million.

Advanced Semiconductor Engineering Inc. (ASE), the world's largest chip assembly company, received approval to invest $60 million in a low-end chip assembly company based in Shanghai, Global Advanced Packaging Technology Ltd.

The announcement fell short of expectations. Companies have been lobbying the government for years to allow them to transfer 0.18 micron chip production technology to China, but such an opening will have to wait. Powerchip and ProMOS were both given the go-ahead for 0.25 micron production technology.

Taiwanese chip makers have argued that they work at a disadvantage in China, since Chinese companies such as SMIC and He Jian Technology (Suzhou) Co Ltd. are already using 0.18 micron and even more advanced production technologies. The most advanced technology in commercial use worldwide is 0.065 micron technology (also known as 65-nanometer). A micron or nanometer is a measurement used to describe the microscopic sizes that transistors and other features are etched on chips.

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world's largest contract chip maker, has lobbied the government for over two years on the 0.18 micron issue. Chinese chip makers are already using the technology, and even finer manufacturing processes including 0.13 micron and 90-nanometer technologies.

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