09.06.2001
TSMC, UMC to play the China card

• Development: TSMC and UMC recently went public, under customer pressure, with their intention to migrate production to China. TSMC boldly predicts China will become a center for fab expansion this decade.

• Analysis: China is a potentially huge market. Officially, IC consumption was RMB97.5bn (US$12bn) in 2000, up 78% YoY (actual could run to US$15bn). Less than 5% of demand is met by local production (8 mainly low-end consumer sector fabs). Industry growth in 2001 will slow but likely reach double digits. Customs duties (10%) and VAT (17%, compared to 6% on domestic production) are imposed on IC imported though normal channels, creating an incentive for import substitution.

• Primasia View: We believe the China market will be a key factor pulling the industry out of slump. However, numerous issues need be resolved before a concrete fab expansion plan can be effected, with Taiwan gov’t investment restrictions at the top of the list.