The Taiwanese government plans to soon give permission for ProMos Technologies and Powerchip Semiconductor to build chip manufacturing plants in China, a U.S. business group said this week, welcoming the move.

   The U.S.-Taiwan Business Council earlier this week said the Investment Commission of Taiwan's Ministry of Economic Affairs (MOEA) indicated its intention to grant DRAM (dynamic RAM) makers Powerchip and ProMos the permission needed to set up factories in China. Permission is expected to be granted by the end of this year for the factories, which will use 200-millimeter wafers to make chips, it said.

In addition, MOEA plans to allow Taiwanese companies to transfer 0.18-micron production technology to their Chinese production plants, the group said. Currently, Taiwanese regulations limit chip makers to using 0.25-micron or older production technology in China. In addition, they cannot produce chips using 300-millimeter wafers, which are more efficient to use than 200-millimeter wafers.

An MOEA spokesman in Taipei could not be reached for comment.Taiwan has heavily restricted semiconductor investments in China, fearing local chip makers, which rank among the largest and most sophisticated in the world, would otherwise move production across the Taiwan Strait, gutting the island's chip industry.

China and Taiwan separated in 1949 during a civil war between the Nationalist army of Chiang Kai-shek and the Communist forces of Mao Zedong. The two sides never reconciled and China has repeatedly threatened to attack Taiwan militarily if the island formally declares independence from the mainland.

With the political standoff and concerns of China's rising economic power, Taiwan's government has moved slowly to allow semiconductor investments in China. So far, only one company -- Taiwan Semiconductor Manufacturing Co. (TSMC) -- has been granted permission to set up a Chinese chip plant -- a factory near Shanghai that uses a 0.25-micron process to make chips on 200-millimeter wafers.