CROSS-STRAIT INVESTMENT: TAIWAN ANNOUNCES

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000025 SIPDIS SIPDIS STATE PASS USTR STATE FOR EAP/TC COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT TREASURY FOR OASIA/LMOGHTADER E.O. 12958: DECL: 01/05/2017 TAGS: EINV ETTC ECON PREL CH TW SUBJECT: CROSS-STRAIT INVESTMENT: TAIWAN ANNOUNCES SEMICONDUCTOR OPENING FOR 0.18-MICRON TECHNOLOGY REF: A. TAIPEI 1481 ¶B. TAIPEI 2919 ¶C. TAIPEI 3926 ¶D. TAIPEI 4164 Classified By: AIT Economic Section Chief Daniel K. Moore, Reason 1.4 d ¶1. (C) Summary: On December 29, 2006, Taiwan announced that semiconductor manufacturers could apply for permission to produce chips with 0.18-micron feature size in the PRC. The move comes after years of lobbying from Taiwan firms. More delays are possible before any firms are actually approved under the new policy. The PRC competitors of Taiwan semiconductor firms already produce chips that are far more advanced than the 0.18-micron technology that has been liberalized. The move represents another long-delayed step forward in the slow progress of cross-Strait economic liberalization under the Chen administration. End summary. 0.18-Micron Liberalization Announced -------------- ¶2. (U) On December 29, 2006, Taiwan's Ministry of Economic Affairs (MOEA) announced that Taiwan semiconductor manufacturers could apply for permission to produce chips with 0.18-micron feature size in the PRC. Previously, Taiwan firms had been limited to producing chips with features no finer than 0.25 microns. Industry welcomed the long-anticipated decision. Taiwan firms have lobbied the Chen administration to open 0.18-micron technology investment for more than two years. Taiwan officials have on several occasions over the last year suggested that approval was coming soon. In mid-November, Mainland Affairs Council (MAC) Chairman Joseph Wu told the press that 0.18-micron investment would be liberalized before the end of 2006 (ref C). The announcement came on the last work day of the year. Further Delays Possible? -------------- ¶3. (U) Some opposition politicians have pointed out that although the announcement has been made, semiconductor manufacturers could still see delays before their applications are approved. After Taiwan announced in August 2002 that it would permit semiconductor manufacturing investment using 0.25-micron technology, Taiwan Semiconductor Manufacturing Company (TSMC) submitted its application in September of that year. The application was approved in February 2003. Powerchip Semiconductor Corporation and ProMOS Technologies Inc. both submitted applications in December 2004 to build 0.25-micron manufacturing facilities. Those applications were not approved until December 2006 (ref D). Taiwan announced in April 2006 that it would permit semiconductor packaging and testing investment, but the first application was not approved until December 2006 (ref B). ¶4. (C) Note: TSMC's website posted a press release on the day of the announcement stating that "the government of Taiwan, R.O.C., approved on December 29 TSMC's application to transfer 0.18 micron generation semiconductor process technology to China for production." However, in a January 5 telephone conversation with AIT, a TSMC spokesman clarified that the government had only approved TSMC's proposal to lift the general ban on 0.18-micron investment, not a specific TSMC application to transfer its technology. MOEA SIPDIS Investment Commission Deputy Executive Secretary Emile Chang affirmed to AIT on January 4 that no Taiwan firms had submitted formal applications for 0.18-micron investment yet. Chang said that the Commission expects to receive applications soon from TSMC and ProMOS. End note.) Still Behind the Curve -------------- TAIPEI 00000025 002 OF 002 ¶5. (U) Taiwan firms are eager to use more advanced semiconductor manufacturing technology in the Mainland. However, 0.18-micron chips are far less advanced than those already produced by PRC competitors. Semiconductor Manufacturing International Corporation (SMIC) of Shanghai has produced 90-nanometer chips, two generations ahead of 0.18-micron technology, since the third quarter of 2006. It plans to begin making 65-nanometer chips, the most advanced technology currently in mass production, during the second half of this year (ref C). Media reports indicate that Applied Materials, a U.S. firm, will supply SMIC with some 65-nanometer technology through its Israel subsidiary. He Jian Technology Corporation, a PRC foundry established with assistance from Taiwan's United Microelectronics Corporation (UMC), which is under investigation by Taiwan authorities for that assistance, already manufactures 0.18-micron chips. The Investment Commission's Chang told us that it is still unclear how the new policy would affect investigations into UMC's relationship with He Jian or UMC's proposal to acquire a stake in He Jian. Comment - Moving a Few Nanometers Forward -------------- ¶6. (C) Liberalization of 0.18-micron technology investment is an important step, which will help Taiwan's semiconductor manufacturers stay competitive in the increasingly important China semiconductor market. It came in the face of Deep Green opposition. Former President Lee Teng-hui voiced his strong objection to the new policy the day after the announcement. However, after repeated delays and with more possible before any venture actually gets approved, the announcement does not represent a dramatic change in the Chen administration's approach to cross-Strait liberalization. As with some previous liberalization measures, the latest announcement came only after more demanding investment approval procedures were announced December 14 (ref D). We will continue to see progress on the lifting of cross-Strait economic restrictions but only at a glacial pace. End comment. WANG