VZCZCXRO1964
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1511/01 1840858
ZNR UUUUU ZZH
R 030858Z JUL 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5880
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 8760
RUEHKO/AMEMBASSY TOKYO 8909
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RHHMUNA/USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 TAIPEI 001511 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/TC, EAP/EP 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV KIPR PGOV CH TW
SUBJECT: TAIWAN APPROVES LIMITED CHIP TESTING INVESTMENT IN 
CHINA 
 
REF: 06 TAIPEI 04164 
 
¶1. (SBU) Summary. On June 28, Taiwan's Vice Minister of 
Economic Affairs chaired a joint committee meeting to give 
final approval to the applications of four of Taiwan's 
leading semiconductor packaging and testing firms to invest 
in China.  The four companies' planned investment totals USD 
99.6 million, and their stock prices have risen recently on 
speculation that investment approval was imminent.  Two of 
the four firms could begin operations in China by the end of 
this year, with the other two anticipating starting 
production in the third quarter of 2008.  These cases have 
received considerable media attention as a gauge of how the 
Ministry of Economic Affairs (MOEA) may in future use 'active 
management' mechanisms to facilitate further expansion of 
high-tech investment in China.  It is too early to know 
whether other restricted industries, principally up-stream 
petrochemicals and telecommunications, will be encouraged by 
these approvals to lobby the MOEA's Investment Commission to 
use similar means to open up investment opportunities in 
those sectors.  End Summary. 
 
FOUR LEADING TESTING/PACKAGING COMPANIES TO LAND IN CHINA SOON 
 
¶2. (SBU) In April 2006, Taiwan's MOEA announced the removal 
of simple semiconductor packaging and testing from a negative 
mainland investment list, an announcement that received 
considerable attention at the time.  Subsequently, Advanced 
Semiconductor Engineering (ASE), in a joint venture with 
Suzhou-based NXP Semiconductors, as well as Greatek 
Electronics, Inc. (Greatek), Walton Advanced Engineering, 
Inc. (Walton), and Siliconware Precision Industries Co. 
(SPIC) all submitted applications to invest in China.  The 
investments would be limited to simple integrated circuits 
packaging and testing.  On June 28, MOEA conducted a final 
review of the applications, and subsequently approved all 
four.  ASE (the world's largest chip  packager, whcih 
purchased 60 percent of NXP) plans to invest USD 21.6 million 
in china, while Greatek, Walton and SPIC have stated they 
will invest USD 30 million, USD 18 million, and USD 30 
million, respectively.  ASE and SPIC both already have 
investments in China and expect to begin mainland packaging 
/testing operations by the end of this year.  Greatek and 
Walton could start production by the third quarter of 2008. 
 
FIRMS PROMISE MORE INVESTMENT AND JOBS IN TAIWAN 
 
¶3. (SBU) As a requirement for approval of the investments 
(see para. 4), the firms must provide estimates of the 
amounts they will invest in Taiwan and the corresponding 
number of jobs created.  Reportedly, Siliconware plans to 
invest more than NTD 20 billion (approximately USD 606 
million) in Taiwan and create 6,000 jobs in 3 years, Walton 
will increase domestic investment by NTD 10 billion 
(approximately USD 303 million), creating 100 jobs; and ASE 
plans for an additional NTD 40 billion (approx. USD 1.2 
billion) of investment in Taiwan.  In total, the four 
companies plan to invest NTD 75 billion. 
 
ACTIVE MANAGEMENT AS A MEANS TO REGULATE INVESTMENT 
 
¶4. (U) On December 14, 2006, MOEA announced a policy review 
regarding China-bound investment projects that exceed USD 100 
million (or USD 200 million cumulative value or USD 60 
million for re-investment projects) or are in technologically 
strategic areas, such as construction of wafer foundries, 
thin-film-transistor liquid crystal display (TFT-LCD) panel 
manufacturing, or chip testing facilities.  The resulting 
'active management' guidance related to such high-tech 
investment requires applicants to provide information 
regarding 'counter-balancing' investment in Taiwan, as well 
as the company's global strategy, and the impact on domestic 
employment of its planned investment (reftel).  In addition, 
the measures require applicants to allow the government to 
send lawyers, accountants, or other experts to check Taiwan 
enterprises in China when necessary. 
 
EVERYBODY IS WATCHING 
 
¶5. (SBU) Considerable media attention has been focused on the 
 
TAIPEI 00001511  002 OF 002 
 
 
fate of these four applications, especially since Economic 
Vice Minister Shih Yen-Shiang at a press conference on June 
25 confirmed the applications were under final review. 
Previously the review process had been quite low-profile, and 
contacts at ASE and SPIC expressed their surprise that MOEA 
would make such a public disclosure.  However, an Investment 
Commission source explained the Vice Minister was merely 
stating the facts in the face of media speculation.  Despite 
the apparent interest of MOEA in quelling rumors, the 
announcement set off a spate of stock speculation the same 
day, as investors took the news as an indicator of further 
liberalization of Taiwan investment in China's chip industry. 
 ASE's stock gained 1.48 percent, Greatek's 3.39 percent and 
Walton's 5.09 percent (although SPIC, Taiwan's second largest 
chip testing/packaging firm, declined by 1.79 percent). 
Market analysts characterized the expected approval of the 
four investment applications as a catalyst for capital to 
flow into chip testing and packaging stocks. 
 
COMMENT 
 
¶6. (SBU) Taiwan's 'active management' mechanisms of high-tech 
investment in industries such as small LCD panels and 
integrated circuit testing and packaging appear to have met 
some of the expectations of industry in liberalizing mainland 
investment.  The procedures are designed to give Taiwan 
officials a means to protect Taiwan's economic development by 
ensuring continued domestic investment and nominal job 
creation.  Whether or not the 'counter-balancing' investment 
requirements will actually result in more jobs or real 
economic growth is unknowable at present.  However, the high 
degree of market and media attention accorded these four 
investment applications suggest that industry anticipates 
MOEA will continue to open up additional opportunities for 
Taiwan investment in China.  Currently, much of the 
investment there is not new but rather expansion of existing 
projects or re-investment of profits earned in China. 
Therefore, any channels for new investment will find many 
takers.  There is wide-spread speculation that the approval 
of these chip testing/packaging projects could stimulate 
other industries, such as up-stream petrochemicals and 
telecommunications equipment manufacturing, to seek a similar 
path to invest in China. 
YOUNG