Analysis: China's ties with Taiwan chip firms under scrutiny as U.S. trade war heats up
06/11/2018 23:00
* Taiwan's UMC halts R&D with China partner after U.S.
sanction
* China using Taiwan companies, talent to build chip
expertise
* Taipei wary of losing chip technology advantage over China
By Jess Macy Yu and Yimou Lee
TAIPEI, Nov 7 (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. urn:newsml:reuters.com:*:nL3N1XB4YJ
Taiwan firms such as UMC have helped supply China with a
steady pipeline of chip expertise in exchange for access to the
fast-growing chip market there.
China has faced a shortage of integrated circuit (IC) chips
for years. In 2017, it imported $270 billion worth of
semiconductors, more than its imports of crude oil.
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. urn:newsml:reuters.com:*:nL4N1UZ3YA
"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.
TRADE TENSIONS
But the technology transfer between China and self-ruled
Taiwan has raised concerns amid the Sino-U.S. trade war and
escalating tensions across the Taiwan Strait.
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. urn:newsml:reuters.com:*:nL3N1XE03Q
Fujian Jinhua now faces big challenges to reach commercial
high volume production as expected in 2020, industry observers
say. urn:newsml:reuters.com:*:nL3N1XB4YJ
Last week, both UMC and Fujian Jinhua, which was only
founded in 2016, were charged with conspiring to steal trade
secrets from Micron in a U.S. Justice Department indictment.
urn:newsml:reuters.com:*:nL2N1XC1P4
"Taiwanese tech companies need to carefully re-evaluate
their positions and supply chain arrangements as the tension
between the two super powers escalates," Bernstein analyst Mark
Li said.
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.
After visiting Nexchip late last year, researchers from
Taiwan's chip hub, Hsinchu Science Park, said progress at the
Hefei plant was a "breakthrough".
"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)
(Reporting by Jess Macy Yu and Yimou Lee in Taipei;)
((JessicaMacy.Yu@thomsonreuters.com; +886 2 2500-4882;))