Election Hints of New Cooperation by Taiwan, China

The new president-elect of Taiwan will be able to start making changes immediately after he takes office on May 20. His party also secured more than a three-fourths majority in Taiwan's parliament earlier this year, giving him a green light to move forward with economic reforms.

Business people already see the writing on the wall. The Taiwan Stock Exchange's main index opened up 6.2 percent Monday morning due to Ma's victory.

Ma plans to work towards creating a common market with China, over time, which could give Taiwanese companies a potent 'home market' to build their brands. The biggest near-term change will be allowing chip makers to transfer better technology to China. Taiwan has tightly controlled chip technology for fear it could be used by China to make weapons.

But Ma pledged to allow Taiwanese companies to use whatever technology the U.S. allows its chip makers to transfer to China. It's a major change. Intel, the world's largest chip maker, has already been granted permission from U.S. authorities to build a 12-inch (300-millimeter) semiconductor factory in China, able to produce chips with 90-nanometer etching technology. Current restrictions in Taiwan only allow chip makers to build old 8-inch chip (200-millimeter) factories using 180-nanometer technology there.

"Taiwanese chip makers will be able to build a foothold in China now," said Rick Hsu, chip analyst at Nomura Securities in Taipei. So far, only Taiwan Semiconductor Manufacturing (TSMC) and ProMOS Technologies have built China plants. New regulations will likely allow them to upgrade their production lines to 130-nanometer or 110-nanometer technology in the near term, which will enable them to grab more business, said Hsu.

United Microelectronics (UMC) will likely be able to work more closely with China's He Jian Technology, a contract chip maker UMC executives advised during its start-up phase. He Jian has tried to pay UMC a 15 percent stake, but Taiwanese regulations have made the transaction difficult. Hsu believes UMC will be able to take this stake in He Jian once Ma is in office.

China will also see benefits. The country has been trying to jump-start its chip sector for years, with little success. Semiconductor Manufacturing International (SMIC), the largest chip maker in China, has had a tough go of the contract chip business. The company's stock has plunged nearly 83 percent since listing in Hong Kong in 2004.

China will likely accommodate changes in Taiwanese investment policies and work to build the economic relationship between the two sides, said Tom Hart, from the Stockholm School of Economics. China wants to draw Taiwan closer economically, and the island can help build Chinese technical expertise in a number of areas.

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