The relaxed rules mean that Taiwan companies can now invest in more advanced production facilities in China as long as they keep higher technologies at home.

Taiwan Semiconductor Manufacturing Co, the world's largest contract chip maker, said it hoped to introduce more advanced technology at a plant in Shanghai producing wafers, or slices of semiconductor material.

"TSMC will submit an application to upgrade the production technology at its China plant to benefit from the new rules," the company's spokesman J. H. Tzeng told AFP.

TSMC hopes to replace the current technology at the plant to enable it to produce smaller and more powerful semiconductors in a bid to match foreign competitors who have already upgraded.

"We are glad the government relaxed the investment rules in China. We'll upgrade our technology to cope with the fierce competition there," the spokesman said.

Under the relaxed rules, Taiwanese flat screen makers such as AU Optronics are also allowed to invest in "fifth-generation" plants in China.

More advanced generations allow production of larger flat screens, in particular for TV use.

Taiwan makers will also be allowed to invest in "sixth-generation" plants or above, on condition that they keep more advanced technologies at home.

"We will soon seek regulatory approval for the new investment. The new rules will no doubt enhance our competitiveness in China by providing better services to our customers there," AU Optronics spokeswoman Hsiao Ya-wen said.

Taiwan's opposition, which favours independence from Beijing, has repeatedly warned against easing controls, fearing closer economic integration will mean job losses as the island loses out to China's relatively cheaper workforce.

But calls for easing controls on investment in the mainland have mounted among Taiwan's high-tech businesses, which point out their competitors from South Korea and Japan have been stepping up activity there.

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