By Jess Macy Yu and Yimou Lee
TAIPEI (Reuters) - Washington's decision to cut off U.S. supplies to a Chinese chip-maker spotlights mounting tensions over China's drive to be a global player in computer chips and the ways in which Taiwan companies are helping it get there.
Shut out of major global semiconductor deals in recent years, China has been quietly strengthening cooperation with Taiwan chip firms by encouraging the transfer of chip-making expertise into the mainland.
Taiwan chip giant United Microelectronics Corp (UMC) <2303.TW> last week halted research and development activities with its Chinese state-backed partner Fujian Jinhua Integrated Circuit Co Ltd, following the U.S. move.
At least 10 joint ventures or technology partnerships have been set up in the last few years between Chinese and Taiwanese firms, according to industry experts, luring Taiwanese talent with hefty salaries and generous perks.
"Such companies will need to also take care to ensure no patent or IP infringement is involved as the U.S. has export control means to restrict support of critical technology," said Randy Abrams, an analyst at Credit Suisse in Taipei.
Among the most valuable cross-strait partnerships for China would be ones that strengthen its foundry services and memory chip production. Those two sectors require much-needed help from overseas firms due to the complexity of the manufacturing technologies and intense capital requirements, analysts have said.
China has aggressively used "market-distorting subsidies" and "forced technology transfers" to capture traditional and emerging technology industries, Brent Christensen, the director of America's de facto embassy in Taipei, told a business gathering in late September.
"These actions are harming the United States' economy, Taiwan's economy, and other economies."
Taiwan is one of the largest exporters of IC globally and many worry the island could lose a key economic engine to its political foe.
Taiwan's government views the island's chipmakers' cooperation with China cautiously and has implemented policies to ensure Taiwan's most advanced technology is not transferred.
"When businesses go to the mainland to invest in wafer production, they must accept controls including one that requires the manufacturing technology to be a generation behind," the economics ministry's industrial development bureau said in a statement to Reuters.
INTELLECTUAL PROPERTY CONCERNS
Cooperation between UMC and Fujian Jinhua came under scrutiny last month, when the U.S. government put the Chinese company on a list of entities that cannot buy components, software and technology goods from U.S. firms amid allegations it stole intellectual property from U.S.-based Micron Technology. Fujian Jinhua denied the allegations.
Fujian Jinhua now faces big challenges to reach commercial high volume production as expected in 2020, industry observers say.
While China will need at least six years before it can catch up in chip manufacturing, according to some estimates, the scale of its chip-making abilities is already seen as a threat in other parts of the chip supply chain.
Barely 2-1/2 years after breaking ground on a 12-inch wafer plant in China, Nexchip, a joint venture between the Chinese city of Hefei and Taiwan DRAM maker Powerchip, started producing 8,000 wafers a month. Wafers are thin pieces of material, usually consisting of silicon, used to make semiconductor chips.
Nexchip's main goal is to produce liquid crystal display driver ICs for flat-panel makers.
Using Powerchip's resources and Taiwanese talent, which make up a quarter of its 1,200 employees, Nexchip is helping reduce China's reliance on foreign chip suppliers.
With an aim to become "the world's No.1 chipmaker for display drivers," Nexchip plans to build three more 12-inch wafer plants and ramp up its monthly production to 20,000 wafers by 2019, according to a person with direct knowledge of the matter.
"This will likely increase Taiwan firms' needs to invest in the China market, and it will be a test for the (Taiwan) government's industrial policy."
($1 = 6.9602 Chinese yuan renminbi)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)