UPDATE 2-Taiwan to let chip, LCD makers invest in China
* Allowing firms to buy China rivals seen good for TSMC, UMC
* No timetable yet
* Taiwan also tightening tourism, transport, financial ties
* TSMC, UMC shares extend gains to nearly 5 pct (Adds analyst comments in para 4-6; Updates share prices)
By Argin Chang
TAIPEI, Sept 29 (Reuters) - Taiwan will allow contract chipmakers and flat-panel firms to acquire rivals in China, a government official said on Tuesday, in a move that analysts said will help cement TSMC and UMC's lead in the semiconductor sector.
Taiwan and China have forged closer trade ties since the island's President Ma Ying-jeou took office in May 2008 by signing deals to expand tourism and transportation sectors to each other. A memorandum of understanding to allow greater cross-strait investment in the financial services industry is also expected soon.
Taiwanese firms including AU Optronics (2409.TW) (AUO.N), TSMC (2330.TW) (TSM.N) and UMC (2303.TW) (UMC.N), have urged the government to allow them to invest in mainland China or use more advanced technologies to help cut costs and compete with global rivals, such as those in South Korea.
The official confirmed an Economic Daily report quoting Economics Minister Shih Yen-shiang as saying panel makers and chip companies using advanced 0.13 micron process technology would be able to directly invest in China and buy stakes in mainland rivals.
"This is the direction we're taking, but we don't have a timetable yet," Huang Hsien-lin, a ministry section chief, told Reuters by telephone. "Timing is the most crucial thing. We need to maintain Taiwan's leadership in the technologies."
The government's move was well received by investors and analysts.
At 0340 GMT, the semiconductor sub-index .TSII jumped 2.9 percent, beating the main index's .TWII 1.8 percent rise.
TSMC and UMC the most active issues by turnover and volume, respectively, both extended early gains to climb almost 5 percent.
AU Optronics the world's No.3 LCD maker after South Korea rivals, climbed 2.9 percent.
"If the ban was lifted, it can cement the leadership TSMC and UMC now have, especially for TSMC," said Alex Huang, an analyst at Mega International Securities.
TSMC and UMC are the world's top two contract chip makers, followed by Chartered Semiconductor CSMF.SI.
There had been concerns that TSMC would face challenges after Abu Dhabi-backed Advanced Technology Investment Company (ATIC) said earlier this month that it was eyeing more acquisitions to become a global leader in semiconductor technology by offering to buy Chartered Semiconductor. [ID:nL7610037] ($1=T$32.4) (Additional reporting by Roger Tung; Writing by Faith Hung; Editing by Lincoln Feast)
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