SHANGHAI, China — Citing national security and the public interest as reasons for acting, the executive branch of Taiwan's government is seeking to tighten the rules that are intended to control technology transfers off the island, a move that is believed to be targeted at China.

Taiwan's Cabinet approved changes this week in a draft law that would increase penalties for the transfer of "sensitive technology", which includes semiconductor and LCD manufacturing processes, as well as biotechnology and aerospace, among others. Fines levied against companies or individual violators could run as high as $950,000, a three-fold increase. Jail time would be as long as seven years, and more than 10 years for repeat offenders.

Silicon wafer manufacturers, such as United Microelectronics Corp. and Taiwan Semiconductor Manufacturing Co. Ltd., are expected to watch the bill's progress closely, and so will the island's packaging and test community, led by Advanced Semiconductor Engineering and Silicon Precision Industries Co. Both packaging companies have support facilities and hundreds of staff in China waiting for what they hoped would be Taipei's imminent approval to start operations.

The decision to introduce an update to the island's National Technology Protection Law comes at a time of high tension between Taiwan and China, which split apart after a civil war in 1949. Members of the island's independence-leaning government have been upset over the recent confirmation of rumors that UMC helped set up a Chinese foundry, He Jian Technology Corp., by offering management expertise and taking a laissez-faire attitude about the use of its patents by He Jian.

In Taiwan, which is worried about the loss of its core foundry business to political rival China, an investment in Chinese foundries that use 200-mm diameter wafer technology requires a lengthy vetting process, which UMC did not enter into.

The government took action in February, launching a series of raids on UMC offices to gather evidence of alleged investments and other assistance UMC may have given to He Jian. The government then charged UMC with breach of trust, accusing it of flouting the law by playing a major role in setting up He Jian. UMC could face fines of up to $800,000 and its executives could be jailed for up to five years if they are found guilty.

Adding to momentum for tighter technology controls was the recent approval of an "anti-secession" bill by China, which is aimed at warning Taiwan against declaring formal independence.

A Taiwan Cabinet spokesman told media that enforcement of the proposed changes in the technology protection law would be "strict."

The bill must now move to the island's Legislature, which is controlled by an opposition coalition that quashed a similar bill a few years ago through inaction. This time around, however, the opposition coalition has a slimmer majority, holding 114 seats to the ruling party's 101 seats.