Taiwan may relax tough rules restricting mainland Chinese investment in its technology sector by the end of the year “at the earliest”, according to Shih Yen-shiang.

Mr Shih, appointed minister of economic affairs this month after a cabinet reshuffle, said yesterday that the review would also consider whether to allow Taiwanese semiconductor and flat-panel makers to pursue mergers and acquisitions on the mainland and set up more advanced manufacturing facilities than current provisions allow.

The mooted liberalisation comes as China's demand for electronic goods is driving much of the recovery in Taiwan's technology industry.

China's large stimulus package, part of which was aimed at encouraging purchases of appliances and consumer electronics, has been a boon for both Taiwanese and South Korean manufacturers.

Cross-strait investment has long been heavily regulated by both sides, as a legacy of the Chinese civil war that forced the nationalist Kuomintang government to flee to Taiwan in 1949.

Ma Ying-jeou, Taiwan's president, has spearheaded efforts to relax those rules and in May announced the first phase of liberalisation that allowed Chinese investment in 99 sectors of the Taiwanese economy.

However, that did not include the technology industry, which is seen as strategically important because it accounts for a large portion of Taiwan's exports.

This dashed the hopes of Taiwanese companies such as United Microelectronics Corporation, the world's second-biggest contract chipmaker, which wants to raise its 15 per cent stake in Chinese chipmaker Hejian to full ownership.

In an interview with the United Daily News, a local newspaper, Mr Shih said he was open to the idea of allowing semiconductor companies to pursue opportunities in China.

“If mergers and acquisitions become one of the ways to invest into China, a lot of issues will be much easier to deal with,” Mr Shih said, adding: “This is not just aimed at the Hejian case.”