Taiwanese Firm Plans a Foundry in China

SHANGHAI —  With the dust barely settling from the latest feud between Taiwan and its archrival, China, yet another business from the island has announced plans to set up shop on the mainland.

This time, it’s the world’s largest maker of computer chips. Taiwan Semiconductor Manufacturing Co. said this week that it had signed an agreement to build a foundry in Shanghai.

If the move is approved, the company will be the island’s first chip maker to open a plant in China’s emerging high-tech heartland with the Taiwanese government’s blessing.

The announcement follows renewed tension after Taiwanese President Chen Shui-bian riled China this month by calling for a referendum on independence and describing the island and the mainland as “two countries.” Beijing sees Taiwan as a renegade province.

The business deal underscores the growing awareness in Taipei that relations are increasingly defined by new economic opportunities rather than old political rifts.

“It means Taiwan will play the economic card and emphasize economic interests,” said Andrew Yang, secretary-general of the Chinese Council of Advanced Policy Studies in Taipei. “Let’s see if Beijing will respond positively to this gesture.”

The Chen administration has come under greater pressure from Taiwanese businesses in recent months to renew direct trade and postal and transportation links with the mainland. Those ties have been banned since the Chinese civil war more than five decades ago.

With Taiwan struggling to recover from one of its worst recessions in recent memory, island businesses are growing more impatient about politics’ standing in the way of better trade relations with their giant neighbor across the Taiwan Strait.

China is unlikely to negotiate on the issue of direct links unless Taiwan accepts Beijing’s “one-China” policy. But the mainland is already getting many of the economic benefits from indirect ties.

Taiwanese businesses have invested tens of billions of dollars in the Chinese economy since Beijing swung its doors open to the world two decades ago. Millions of Taiwanese live and work in China.

“Both sides are managing the relationship through business and private channels,” Yang said.

This year, Taipei lifted a ban on Taiwanese semiconductor companies’ investing in China, though they are still restricted from producing the most sophisticated chips on the mainland for fear that the island’s domestic industries will lose their competitive edge.

But the rules on investment have long been easy to circumvent. With the Shanghai area striving to become the semiconductor manufacturing hub in the Asia-Pacific region, it has already attracted other Taiwan-affiliated chip makers. Most of them bypassed restrictions by channeling investments through a third country or party.

One of them is Grace Semiconductor Manufacturing Corp., a joint venture between a Taiwanese entrepreneur and the son of Chinese President Jiang Zemin. Another is Taiwan’s second-largest chip manufacturer, United Microelectronics Corp.

“If the No. 2 [chip maker] is here, of course the No. 1 is under pressure to do the same,” said Liu Yifei, a marketing executive at a microelectronics firm in Shanghai. “Otherwise they will lose their customers to their competitor.”

Officials at Taiwan Semiconductor say they are interested in the China market, but not at the expense of their home base.

“We are not setting up there because of the cheap labor and engineers,” said J.H. Tseng, spokesman for the company. “Taiwan is still our major investment place.”

Tseng said a memorandum of understanding between the firm and the Shanghai city government is still subject to approval by Taiwan, which most observers expect.

“There is no reason to hold it back,” Yang said. “Economics will be the only way to stabilize cross-strait relations.”