South Korea's Hynix Semiconductor Inc. won approval Wednesday from China's Wuxi City to build a US$2 billion chip plant there with top European rival STMicro electronics (ST).

The deal, which comes after Hynix creditors agreed the plan last week, will be the single biggest foreign high-tech investment in China and allow the chipmakers to tap the country's US$30 billion semiconductor industry.

Analysts said it would also help Hynix reduce the impact of potential punitive duties.

"We're signing an agreement in the provincial capital Nanjing today," said a senior Wuxi government official. "We now need approval from the Central Government. But we've applied, and talked to them. I don't foresee a problem."

Hynix, 81-percent-owned by creditors following several multi-bilion-dollar bailouts, said in a statement to the stock exchange it initially planned to spend US$800 million to build an 8-inch wafer production line in Wuxi, in the wealthy eastern province of Jiangsu.

The chipmakers will then invest US$1.2 billion to construct a 12-inch wafer line.

"We've already begun construction... I reckon we can start up pretty quickly, because everything is ready at our end," the Wuxi official said.

Hynix and ST, Europe's biggest chipmaker, already have a tie-up in the development of flash memory chips used in popular digital cameras, portable music players and camera-equipped mobile phones.

The case for Hynix's foray into China became more compelling after the Japanese government said this month it would begin an investigation that could lead to duties being imposed on imports of Hynix DRAM (dynamic random access memory) chips, analysts said.

Japan's investigation follows moves last year by the United States and the European Union to impose steep duties on DRAM chips made by Hynix, the world's fourth-largest maker of memory chips last year.

The proposed plant would make DRAM chips used for computer memory and flash memory chips in digital cameras and mobile phones, Hynix has said.

(Shenzhen Daily August 20, 2004)