Chips, cheap labor bridging the Taiwan
Strait By Mac William Bishop
TAIPEI - In strengthening the economic ties
between Taiwan and mainland China and creating a
peaceful, cooperative dialogue, there is one product
that may have more impact than all of the cross-Strait
meetings and diplomatic initiatives combined: the
semiconductor, the chip.
The semiconductor
industry is the single most important engine of growth
for Taiwan's economy. This is a mixed blessing, as the
industry is known for its intense boom-and-bust cycles,
as chip prices rise and fall quickly in response to
global demand for high-consumption consumer electronics.
By 2010, Taiwan's chip industry is projected to
surpass total revenues of US$60 billion, about
one-seventh of its current gross domestic product (GDP).
The global chip industry is set to grow more than 20
percent this year and about 13 percent next year,
according to a report by World Semiconductor Trade
Statistics.
This rosy outlook has influenced
share prices, as the industry's leaders have seen their
share prices surge an average of 70 percent in the past
year, according to IC Insights Inc statistics, a United
States-based market research firm specializing in the
integrated-circuit industry.
Taiwanese firms
such as Taiwan Semiconductor Manufacturing Co (TSMC),
United Microelectronics Corp (UMC), Powerchip
Semiconductor Corp and Nanya Technologies Corp are
cashing in on the current boom in chip prices and
expanding production capabilities and increasing
research.
This month a group of Taiwanese chip
makers joined together to pool their resources for
semiconductor research and development. The group is
called the Silicon Intellectual Property Qualification
Alliance, and includes Taiwan's two largest makers of
custom-order chips, TSMC and UMC. The companies' shares
together make up about 14 percent of the capitalization
of the nation's main index, the Taiwan Weighted Stock
Exchange Index, also known as the Taiex.
Taiwan chip makers to double spending this
year Taiwanese chip makers are expected to nearly
double spending this year over last from $3.5 billion to
$6.9 billion as they construct new production facilities
and invest in research. Some firms are focusing on
expanding their operations across the Taiwan Strait,
taking advantage of the relatively cheap labor available
in China.
TSMC is a prime example of this
cross-Strait trend. Last Friday, the company received
approval from Taiwan's Ministry of Economic Affairs to
invest almost $900 million in a factory in Songjiang
Science Park in Shanghai. TSMC's share prices finished
Friday's trading up 3.2 percent on the news, helping the
Taiex to close at 6,748.10, a 16-point gain over
Thursday's trading.
The Shanghai factory will
use less advanced technology than the company is using
in Taiwan, as required by law, so that Taiwan can
preserve its own sophisticated technology.
The
deal that TSMC reached exemplifies the ingenuity of
Taiwanese businesses in working around some of the
outdated regulations that restrict investment in China.
In 2002, under pressure from chip makers, the Taiwanese
government agreed to allow the companies to build up to
three factories in China each by 2005 - as long as they
used comparatively less advanced (and less efficient)
eight-inch wafer technology, while maintaining their
advanced 12-inch-wafer-technology operations in Taiwan.
Chips are cut from wafers, which are in effect giant
semiconductor templates. A 12-inch wafer allows a
company to produce almost twice as many chips as it can
make from an eight-inch wafer.
Although the
technology it will be using when the Shanghai plant
starts production - toward the end of this year,
according to a Commercial Times report - is less
efficient than the advanced operations in Taiwan, the
difference in production costs, a result of China's
lower labor costs, will compensate the firm for
decreased efficiency.
Taiwan chip companies
need cheap Chinese labor Although, from a
business person's point of view, this is not a perfect
state of affairs, it is at least a reasonable
compromise. If Taiwanese semiconductor companies are
prevented from accessing the Chinese labor market, they
will eventually be sidelined by companies from less
politically inhibited countries.
In political
circles, Taiwan's perennial whipping boy is the flight
of capital and jobs to China. The issue has occasioned a
lot of invective, but Taiwan need not fear increased
investment across the Taiwan Strait.
What
Taiwan's government should fear is the impact of
ineffective and outdated restrictions on the growth of
its most important industry. So long as the nation
continues its policies of creating a business-friendly
environment for high-tech industries - as it has with
the establishment of its science parks, research
facilities and efforts to attract foreign capital - it
will maintain its position as one of the world leaders
in chip-production manufacturing and research.
In any event, Taiwanese companies will not be
thwarted in their goal of making money, and the
government in Taipei can either profit from cooperation
or suffer from intransigence.
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