Neil Bush and the Chicoms


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waterdog
December 18, 2003, 06:30 PM
http://www.asia.businessweek.com/magazine/content/03_50/b3862062.htm

A Bush In Hand Is Worth...A Lot

ASIAN BUSINESS

A Bush In Hand Is Worth...A Lot
The President's brother is working for a chipmaker with powerful ties to Beijing

The executives at Grace Semiconductor Manufacturing Corp. know a thing or two about guanxi, the web of connections that fuel so much of business in China. The Shanghai-based company was co-founded by Jiang Mianheng, the son of former Chinese President Jiang Zemin. The other co-founder is Taiwan-born Winston Wong, whose father Y.C. Wang runs petrochemical maker Formosa Plastics and is probably the island's most powerful businessman. That's not to say the two don't have pretty solid credentials: Wong founded Nanya Technology Corp. in Taiwan, while Jiang has a PhD in physics from Drexel University in Philadelphia and is vice-president of the Chinese Academy of Science. But as they set out to raise the billions of dollars needed to start a semiconductor company, their true-blue bloodlines didn't hurt.

So it should come as no surprise that Grace last year hired a certain Neil Bush. After all, he's the son of the former President and brother of President George W. Bush. Neil Bush's retainer with Grace, which pays him $400,000 in stock annually over five years, came to light during Bush's divorce proceedings in Texas. Although the 48-year-old Bush admitted in a divorce deposition that he has little knowledge of semiconductors, his family tree offers plenty of Washington guanxi -- not unlike Jiang and Wong.

So just what has Neil Bush done for Grace? Even the company seems a bit unclear on that point. According to a contract that was filed with Bush's divorce papers, Grace hired him as a consultant. Grace, however, says Bush is a director -- and officials decline to say anything more about his role. Nobody has accused Grace or Bush of doing anything illegal, and Grace says Bush didn't help the company obtain permits this year to import sensitive equipment from the U.S. used to etch silicon wafers. "Neil played absolutely zero role in getting these licenses," says Daniel Y. Wang, Grace's chief financial officer. Bush didn't return phone calls to the Texas companies he runs, Ignite! Inc. in Austin, and Crest Investments in Houston.

Still, there is little doubt that Grace could use a bit of help in its dealings with the U.S. Grace is one of many Chinese and Western companies that would benefit from a repeal of controls on the sale of tech equipment that Western countries fear could be used by the Chinese military. These restrictions, known as the Wassenaar Arrangement after the Dutch town where the pact was signed in 1996, require equipment vendors and their prospective Chinese customers to get government approval for sales of advanced technologies.

For years, Wassenaar has been a headache for Chinese chipmakers. While China has the expertise to produce low-end chips, when it comes to making more advanced -- and more profitable -- semiconductors that use ultrathin circuits, Grace and other Chinese companies have to rely on imported equipment. Wassenaar is designed to keep gear from falling into the wrong hands by ensuring that governments screen all potentially sensitive sales to mainland companies. Some high-end technology "can be exported, but with a lot of delay and a lot of paperwork," says Dorothy Lai, an analyst with market watcher Gartner Inc. in Hong Kong. For instance, semiconductor manufacturing equipment maker Applied Materials Inc. helped Grace get permits for its recent purchases of etching gear.

BIG AMBITIONS
For its part, Grace is planning an expansion that may need a stamp of approval by U.S. authorities. The company hopes to build a second semiconductor plant in Shanghai capable of churning out chips from wafers 12 inches in diameter -- which require the most advanced manufacturing gear available, and for which Grace's vendors would need a permit. To fund the expansion, Grace plans a $350 million private placement of shares, and is considering a public offering. So far, Grace has raised $1.3 billion from various investors, including $55 million from two international private equity funds. The company, which only began commercial production in September, expects to be making 10,000 wafers per month by yearend, and 27,000 by December, 2004. Grace is clearly an ambitious company -- but one that knows a bit of guanxi can be as important to success as a roomful of engineers.


By Frederik Balfour and Bruce Einhorn in Hong Kong, with Kate Murphy in Houston


waterdog

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