CENTRAL TAIWAN SCIENCE PARK BELIES HOLLOWING-OUT

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004083 SIPDIS SIPDIS STATE PASS USTR STATE FOR EAP/TC COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT TREASURY FOR OASIA/LMOGHTADER USTR FOR STRATFORD, ALTBACH E.O. 12958: DECL: 12/07/2016 TAGS: ECON EINV EIND CH TW SUBJECT: CENTRAL TAIWAN SCIENCE PARK BELIES HOLLOWING-OUT REF: TAIPEI 4029 Classified By: AIT Economic Deputy Section Chief Timothy D. Neely, Reas on 1.4 b/d ¶1. (C) Summary: The Central Taiwan Science Park (CTSP) in Taichung has been remarkably successful at attracting large-scale investment from leading high-tech firms. Total investment since the park was established in 2002 has reached US$49 billion. It is the site of Corning Inc.'s largest capital investment in the world and a major center of flat-panel display manufacturing. Taiwan's semiconductor manufacturers have recently announced ambitious plans to expand operations there. The success of the park belies concerns about Taiwan's industrial "hollowing-out" as factories move to the Mainland and shows that high-tech firms continue to expand on the island. Taiwan authorities should focus less on restricting investment in the PRC and more on improving Taiwan's investment environment as in CTSP and the other science parks in Taiwan. End summary. Filling Up Fast -------------- ¶2. (U) The Central Taiwan Science Park (CTSP) in Taichung has been remarkably successful at attracting large-scale investment. Taiwan's newest science park, its establishment was formally approved by the Taiwan authorities just in September 2002. The first phase is 95 percent occupied, and the second phase, approved in January 2004, is 53 percent full. Even more impressive, the third phase, approved in June 2005, is already 99 percent full. To date, 279.4 hectares out of a total of 309.1 available hectares have been leased. Eighty-three firms have leased space in CTSP with investments totaling NT$1,585 billion (about US$49 billion). As of September 2006 employment in the park had reached more than 15,000. Total revenue for firms in the park is projected to reach NT$120 billion (US$3.7 billion) in 2006 and is projected to double in 2007. Corning Betting Big on Flat-Panels and Taichung -------------- -- ¶3. (C) Among the nine foreign firms that have invested in CTSP, Corning Display Technologies is by the far the largest. The wholly-owned subsidiary of Corning, Inc. is the largest U.S. investor in Taiwan. The CTSP plant, which opened in September 2005, cost US$1.5 billion to build and is Corning's largest capital investment worldwide. According to David Blevins, Engineering Manager for the Taichung facility, more than half of Corning's global revenue comes from the display technologies unit and more than half of that unit's revenue comes from Taiwan. Blevins refused to provide further details but made it clear that Corning's current strategy relied heavily on the success of its venture in Taichung. ¶4. (C) Corning's main customer at CTSP is AU Optronics (AUO),Taiwan's largest thin-film-transistor liquid crystal display manufacturer. AUO is currently the world's third largest TFT-LCD manufacturer and could rise next year after the acquisition of Quanta Display, Inc. AUO Chairman K.Y. Lee recently told AIT Director Young that its facilities in Taichung would soon be the company's largest (reftel). Blevins explained to AIT that Corning will expand to meet AUO's demand. He said Corning had adequate space in CTSP to triple its capacity. Burgeoning Semiconductor Cluster -------------- ¶5. (U) With early investment from TFT-LCD manufacturers and their suppliers, CTSP at first appeared to be primarily an operations center for that industry alone. In 2006, firms in the TFT-LCD industry will account for 90 percent of the park's total revenue. However, semiconductor manufacturers have recently announced ambitious plans to invest in the park. As of this year, cumulative investment figures for semiconductor manufacturers at NT$795 billion (US$25 billion) have TAIPEI 00004083 002 OF 002 exceeded investment by TFT-LCD industry firms at NT$774 billion (US$24 billion). There are already three 12-inch wafer semiconductor manufacturing facilities, or "fabs," in Taichung with two more under construction. Each 12- inch wafer fab costs up to US$3 billion to construct. Taiwan Semiconductor Manufacturing Company (TSMC), Powerchip Semiconductor and ProMOS Technology have plans for another eight 12-inch fabs on the drawing board. ¶6. (C) With this level of investment CTSP will likely soon surpass the older Southern Taiwan Science Park (STSP) in Tainan to become Taiwan's second largest semiconductor cluster after Hsinchu. ProMOS has its most advanced facility in CTSP, the first plant in Taiwan to produce 90-nanometer dynamic random access memory (DRAM) chips. With three plants on the drawing board in addition to one under construction, Powerchip plans to make Taichung its largest center of operations. Powerchip Investor Relations Manager C.W. Chin told AIT/T that when the four fabs are complete they will produce 240,000 12-inch wafers per month. He said the firm believes the facility will be the largest DRAM production center in the world. Powerchip announced on December 7 that its fab currently under construction in Taichung would be the first phase joint venture with Elpida Memory Inc., a Japanese DRAM producer. Each firm is investing US$700 million in the venture. Why in Taichung? -------------- ¶7. (C) One of the most important advantages of CTSP for high-tech firms is the relative low cost of land. According to CTSP Deputy Director General Chiang Chuan Chuan, land is CTSP leases for NT$12 to NT$14 per square meter per year, much lower NT$50 in the Hsinchu Science Park, Taiwan's oldest science park. CTSP has attracted tenants and high levels of investment more quickly than STSP, founded seven years earlier. Chiang explained that this is due in large part to the superior location of the Taichung park. With only a one-hour drive from Hsinchu, where many of the firms have their headquarters, high- tech executives and employees can easily travel back and forth between the two locations. Chiang also highlighted Taichung human resources advantages with more than a million people in the city and an additional 1.5 million resident in Taichung County. In addition, he noted favorable living conditions and good water and power supplies. A Model for Success -------------- ¶8. (U) The science park model has proven incredibly successful for Taiwan. The Hsinchu Science Park founded in 1980 was the center for the economic transformation of Taiwan into a high-tech world power. Tainan's STSP did not attract tenants at the breakneck pace of CTSP but has nonetheless also succeeded at creating a new center for high-tech industry in Taiwan. Total sales for the park reached almost US$11 billion in 2005. CTSP shows how the model can be replicated to attract new investment. Comment - Hollowing Out or Making Room -------------- ¶9. (C) With cranes and construction everywhere, a drive through CTSP feels like a visit to a boom town. Considering all the hand wringing in Taiwan about industrial "hollowing-out" as manufacturing facilities head to Mainland China, the view at CTSP is refreshing and revealing. Taiwan's high-tech firms continue to grow and invest in Taiwan. They are not investing here because Taiwan's restrictions prevent them from going to the PRC. Instead, they are expanding in Taiwan because they see a positive investment environment and believe they can make money here. That won't change if the government lifts restrictions and permits them to grow in the Mainland as well. Rather than focusing on "active management" polices that restrict invest in the Mainland, Taiwan should be working on improving Taiwan's investment environment as it has done successfully with CTSP. YOUNG