Taiwan seen tightening rules on China investments

Taiwanese President Chen Shui-bian and the ruling Democratic Progressive Party (DPP) have tightened restrictions on technology investments in China, the U.S.-Taiwan Business Council said in a statement that condemned the apparent shift in policy.

"Domestic political divisions over Taiwan’s relationship with China have resulted in a tightening of regulations and guidelines limiting cross-Strait technology investment," the industry group said. It blamed the policy shift on DPP losses in recent local and county elections.

The Taiwanese government restricts the investments that local technology companies can make in China, often citing the need to protect Taiwanese jobs and to prevent the island's economically important high technology sector from being hollowed out by companies and factories moving overseas.

The policy also reflects the tense political relations that exist between Taiwan and China, despite close economic ties.

Taiwan and China separated in 1949 amid a civil war between Chiang Kai-shek's Nationalist forces and the Communist army, led by Mao Zedong. Today, China views Taiwan as a renegade province and has repeatedly threatened to invade the island if it declares formal independence.

Chinese officials do not hold much affection for Chen, who is seen as sympathetic to the notion of Taiwanese independence. Today, a Chinese government spokesman called Chen a "troublemaker and saboteur of cross-Straits ties and Asia-Pacific peace and stability," according to the official China Daily newspaper.

Despite these tensions, ties between China and Taiwan have warmed considerably in recent years. Chartered flights have been allowed between the two sides during the annual Chinese New Year holiday and restrictions on Taiwanese investments in China's semiconductor industry have eased.

However, the recent trend of easing restrictions on Taiwanese technology investments appears to have been reversed, the U.S-Taiwan Business Council said. In particular, the approval of additional semiconductor manufacturing plants, the transfer of 0.18-micron process technology, and the establishment of chip packaging and testing operations appear threatened by this shift, it said.

If true, this change could affect the plans of companies like Taiwan Semiconductor Manufacturing Co. (TSMC), which operates a semiconductor manufacturing plant near Shanghai that produces chips on 200-millimeter (8-inch) silicon wafers using a 0.25-micron process.

Early last year, TSMC applied for permission from the Taiwanese government to transfer 0.18-micron process technology to its plant in China. However, the company has yet to receive approval for the technology transfer, said J.H. Tzeng, a spokesman for the company, in Hsinchu, Taiwan.

"We will wait until the government gives us approval," Tzeng said, noting that TSMC does not know when such approval might be forthcoming.

Increased restrictions on investments and technology transfers to China serve only to undermine Taiwan's importance in the global technology industry, the U.S.-Taiwan Business Council said. If Taiwan is to remain competitive it must find other ways to resolve the challenges posed by China, it said.

"The economic challenge China poses to Taiwan cannot be solved solely through restricting cross-Strait investment," said Rupert Hammond-Chambers, president of the council, quoted in the statement.