Taiwan relaxes rules on chip and LCD investments in China

Taiwan moved forward with new guidelines on technology investments in China on Wednesday, announcing an easing of rules that could help its chip and LCD panel makers compete in China.

The move by Taiwanese officials follows a similar relaxation of regulations in South Korea. Late last year, two of South Korea's biggest LCD screen makers said they had finally won government clearance to build advanced LCD factories in China. Taiwanese companies have lobbied for a similar easing of strict technology investment rules for the past several years, without success until now.

The new regulations will allow chip makers and LCD screen makers in Taiwan to invest in advanced factories in China, a potential victory for consumers if the move leads to lower prices for chips and LCD screens.

Taiwan, in particular, has moved cautiously to allow companies to invest in or transfer advanced technologies to China. The island takes great pains to adhere to U.S. regulations regarding technology transfer to China and other nations flagged as a danger under the Wassenaar Arrangement. The Arrangement was written in the Cold War era as a way to guard against transferring technologies that could be used in weapons-making to countries that posed a potential threat. The U.S. and other countries still require companies to apply for permission to build high tech factories or sell advanced components to China and other nations.

The changes in the new Taiwanese regulations were, however, less than companies had hoped for.

Chip makers from Taiwan will be allowed to apply for government permission to buy or take stakes in Chinese chip factories, according to the new regulations. Investments may only be made in companies that use chip technology at least two generations behind technology being used in Taiwan.

This regulation opens the door for Taiwan Semiconductor Manufacturing (TSMC) and United Microelectronics (UMC) to take investments in two chip factories in China. TSMC settled a court case with China's Semiconductor Manufacturing International (SMIC) in which TSMC could eventually receive up to a 10 percent stake in SMIC, while UMC has waited for permission to seal an agreement to buy China's He Jian Technology.

The government said the ban on Taiwanese companies building their own factories, beyond the three 8-inch wafer plants already approved, remains in place. Chip makers in Taiwan have been lobbying the government to allow them to build factories with at least similar technology to factories in China owned by U.S., European and South Korean rivals. The new rules leave them behind, considering the U.S. has approved a 12-inch wafer plant project for Intel in China.

In LCD panels, new Taiwanese regulations will allow companies to build a total of three factories in China that are either 6th generation or more advanced technologically, but the factory must be at least one generation behind their most advanced factory in Taiwan. LCD technology generations refer to the size of the glass sheets used in the factories. Later generations use larger sheets of mother glass, from which several display panels are then cut. The most advanced LCD factories currently in operation are 10th-generation plants. A Taiwanese company with a 10th-generation factory, for example, would be limited to building a 9th-generation plant in China.

The government also imposed a spending limit of NT$50 billion (US$1.56 billion) per year on all China-bound investments by any LCD maker, meaning companies would have to manage their investments in all kinds of LCD-related factories such as module factories, panel factories and more. Taiwanese companies will also have to match any investment in China with a similar investment in Taiwan, the regulations say.

The Taipei government may have limited the options for Taiwanese companies. South Korea's Samsung plans to build a 2.6 trillion won (US$2.23 billion) 7.5-generation factory in China, while LG Display said it will form a venture to build an 8th generation LCD plant in China for as much as US$4 billion.

Copyright © 2010 IDG Communications, Inc.

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