As always in relations with China, how a technology capability is measured and whether officials are rigid or flexible in their interpretation becomes significant. Unlike engineering, policy implementation is not an exact science. However, at first flush, all is enthusiasm for the investment easing which represents a further thawing in Taiwan-China relations.

Why is it good for TSMC and UMC?

In medium term they can make use of lower labor and operating costs as well as being close to system manufacturing sites in mainland China. The lower costs can help TSMC and UMC respond to competition from the likes of Semiconductor Manufacturing International Corp. (Shanghai, China) and Chartered Semiconductor Manufacturing (Singapore), soon to become a part of GlobalFoundries Inc. (Sunnyvale, Calif.).

And, lest we forget, it should also reduce the risk of Taiwanese companies falling foul of their own government. UMC lost its then chairman Robert Tsao and vice chairman John Hsuan in January 2006. This was after being subject to 10 months of investigations into alleged clandestine investment in HeJian Technology Co., Ltd. which runs 200-mm wafer fabs in Suzhou, China, a city west of Shanghai.

The relaxation of investment restrictions is bilateral. So the move could also see government-backed, cash rich, but little-known Chinese companies making plays for the Taiwanese Mittelstand as they try to bulk up to fulfill global aspirations. As such this relaxation of investment limitations is likely to be good for leaders in their respective markets, such as TSMC, UMC and AU Optronics, as the small-and-medium sized enterprises tend to get acquired and the leaders tend to do the acquiring.