Taipei may rethink China policy due to ASE offer

Taipei may have to rethink its China investment policies in the wake of an offer by a foreign group to buy the world's largest chip assembly company, Taiwan's Advanced Semiconductor Engineering (ASE).

Part of the attraction of the deal is that by changing ownership, the company would cease to be Taiwanese, and therefore be allowed to invest in China as it pleases, pundits say.

The trouble for many Taiwanese chip makers in recent years has been the tight leash Taipei keeps on technology investment bound for political rival China.

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

The deal for ASE, a $5.5 billion offer from a consortium led by the private equity firm Carlyle Group, would be a huge positive for ASE, transforming it into a foreign entity and allowing it to build chip assembly plants in China, according to Fubon Securities.

Currently, ASE has no chip assembly investments in China, despite the fact that earlier this year Taipei gave a green light to chip makers to invest in low-end chip assembly. Despite the apparent opening, not a single application has been approved by Taipei, and companies remain unsure of how to proceed with such investment. Analysts argue that the approval process remains very much subject to politics in Taiwan, due mainly to the rivalry with China.

A foreign takeover such as the one Carlyle and ASE are discussing would remove such political pressures and put China investments on the fast track. Indeed, the embattled former chairman of chip foundry giant United Microelectronics, Robert Tsao, was quoted by local media as saying the possibility of such buy-outs excited him, and that UMC would welcome similar offers.

Tsao is a prime example of the difficulties Taiwanese tech companies and executives face when investing in China. He and another key UMC executive resigned early this year after being indicted by Taiwanese prosecutors over their alleged role in the establishment of Chinese chip maker, He Jian Technology (Suzhou). The court case is still being heard.

The government began investigating UMC over He Jian a few years ago, and fined UMC for failing to apply for permission to work with He Jian.

Taipei has also leveled fines on UMC and He Jian executives. Tsao and his colleagues maintain that they have done nothing wrong.

For its part, the government plans to review the possible ASE deal over its potential impact on the Taiwan Stock Exchange, since the company would likely be de-listed if it is purchased by Carlyle. Economics Minister Chen Ruey-long on Monday said Taipei needs to keep on top of the issue in case it becomes a trend, because such purchases could have long term effects on the economic development of the island.

The review has nothing to do with China policy, he said.