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China’s ties with Taiwan chip firms under scrutiny as U.S. trade war gets hot

TAIPEI (Reuters) – Washington’s decision to reduce off U.S. supplies to a Chinese chip-maker spotlights mounting tensions over China’s drive becoming a global player in computer chips along with the ways that Taiwan firms are helping it arrive.

Shut from major global semiconductor deals lately, China has become quietly strengthening cooperation with Taiwan chip firms by encouraging the change in chip-making expertise on the mainland.

Taiwan chip giant United Microelectronics Corp (UMC) <2303.TW> yesterday halted research and development activities having a Chinese state-backed partner Fujian Jinhua Integrated Circuit Co Ltd, following U.S. move.

Taiwan firms such as UMC have helped supply China having a steady pipeline of chip expertise in exchange for accessibility to fast-growing chip market there.???

China has faced lack of integrated circuit (IC) chips for a long time. In 2017, it imported $270 billion property value semiconductors, a lot more than its imports of crude oil.

At least 10 joint ventures or technology partnerships are already set up in of late between Chinese and Taiwanese firms, based on skillfully developed, luring Taiwanese talent with hefty salaries and generous perks.

“Such companies will need to also make sure to ensure no patent or IP infringement is involved as the U.S. has export control ways to restrict support of critical technology,” said Randy Abrams, an analyst at Credit Suisse in Taipei.

Among quite possibly 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 assist of overseas firms mainly because of the complexity from the manufacturing technologies and intense capital requirements, analysts have said.

TRADE TENSIONS

But we’ve got the technology transfer between China and self-ruled Taiwan has raised concerns amid the Sino-U.S. trade war and escalating tensions through 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 small 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 many worry this tropical isle could lose an integral economic engine for the political foe.

Taiwan’s government views the island’s chipmakers’ cooperation with China cautiously and it has implemented policies to make sure Taiwan’s most sophisticated technology is not transferred.

“When businesses visit the mainland to purchase wafer production, they should accept controls including one demands 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 received scrutiny last month, should the U.S. government position the Chinese company using a directory of entities that cannot buy components, software and technology goods from U.S. firms amid allegations it stole ip from U.S.-based Micron Technology. Fujian Jinhua denied the allegations.

Fujian Jinhua now faces big challenges to get to commercial high volume production not surprisingly in 2020, industry observers say.

Last week, both UMC and Fujian Jinhua, that was only founded in 2016, were arrested for conspiring to steal trade secrets from Micron inside of a U.S. Justice Department indictment.

“Taiwanese tech companies ought to carefully re-evaluate their positions and supply chain arrangements for the reason that tension backward and forward super powers escalates,” Bernstein analyst Mark Li said.

While China will need as a minimum six years before it might get caught up in chip manufacturing, according to some estimates, the shape of its chip-making abilities is definitely seen as a threat in various parts with the chip logistics.

Barely 2-1/2 years after breaking ground using a 12-inch wafer plant in China, Nexchip, a joint venture relating to the Chinese payday loan lenders Hefei and Taiwan DRAM maker Powerchip, started producing 8,000 wafers a month. Wafers are thin fecal material material, usually comprising silicon, employed to make semiconductor chips.

Nexchip’s main aim is always to produce live view screen driver ICs for flat-panel makers.

Using Powerchip’s resources and Taiwanese talent, that will make up one-fourth of that 1,200 employees, Nexchip is helping reduce China’s reliance on foreign chip suppliers.

With an attempt to become “the world’s No.1 chipmaker for display drivers,” Nexchip wants to build three more 12-inch wafer plants and expand its monthly production to 20,000 wafers by 2019, as outlined by anyone with direct perception of the situation.

After visiting Nexchip late not too long ago, researchers from Taiwan’s chip hub, Hsinchu Science Park, said progress with the Hefei plant would have been a “breakthrough”.

“This would increase Taiwan firms’ is required to put money into the China market, and this will turn into a test for the (Taiwan) government’s industrial policy.”

(Reporting by Jess Macy Yu and Yimou Lee in Taipei)

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