Taiwan considers allowing 12-inch fabs in China

* Taiwan mulls 12-inch fabs, LCD plants in China

* Economics ministry to complete evaluation in July

* Taiwan also to open more investments to China companies

TAIPEI, June 6 (Reuters) - Taiwan is considering allowing its companies to set up advanced wafer fabs in China, government officials said on Saturday, which would be welcomed by chipmakers and comes amid signs of closer ties between the two economies.

Taiwan has been stepping up trade ties with China since President Ma Ying-jeou took office in May 2008, especially in the tourism and transportation sectors, which the island's government hopes will boost the recession-hit economy and corporate competitiveness.

"We are not ruling out allowing our 12-inch wafer fabs to go to China. The economics ministry is currently evaluating this plan," Ma Ying-jeou said in a statement after meeting Applied Materials Inc (AMAT.O) president and CEO Michael Splinter.

"We can't just look at China as a factory. It is also a market (in which) we hope our products will have a share," he said.

The move will likely benefit companies such as Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) (TSM.N) and United Microelectronics Corp (2303.TW) (UMC.N), the world's top two contract chip makers.

Duh Tyzz-jian, director general of the economics ministry's industrial development bureau, said his department aimed to complete the evaluation in July, but declined to elaborate.

The Economics Daily quoted unidentified sources as saying the government was inclined to expand the scope of Taiwan's investments in China in the technology and petrochemicals sectors, such as allowing them to set up plants to make LCDs.

Now Taiwan's companies can only set up low-end eight-inch fabs and basic LCD assembly plants in China. Petrochemical companies can only produce limited downstream products on the mainland.

By 0254 GMT, the electronics sub-index .TELI rose 0.8 percent, in line with the main TAIEX index's 0.9 percent gain.

Besides opening up more investments to China, Taiwan will also allow more Chinese money to enter the island.

Earlier this week, the cabinet proposed a list of 100 sectors to be opened to Chinese investments, which will be finalised and announced at the end of June.

The list consists of sectors mainly in the traditional and services industries, as well as infrastructure.

During the week, Taiwan's top telecoms operator Chunghwa Telecom Co Ltd (2412.TW) (CHT.N) said it would lay an undersea cable with the mainland's dominant fixed-line phone company China Telecom Corp (0728.HK) across the Taiwan Strait. (Reporting by Lee Chyen Yee)