TAIPEI -- A group led by the sons of China President Jiang Zemin and Taiwanese plastics tycoon Y.C. Wang have formally announced a joint chip venture that will build an 8-inch wafer fab in Shanghai.

The chip venture, reportedly called Grace Semiconductor Ltd., is planning to compete in the pure-play silicon foundry business against the likes of Taiwan Semiconductor Manufacturing Co. (TSMC), United Microelectronics Corp. (UMC), and Chartered Semiconductor Manufacturing pte Ltd., according to sources at this week's Semicon Taiwan trade show in Taipei.

In the short term, though, Grace Semiconductor will present no serious challenge to TSMC and UMC in Taiwan or Chartered in Singapore, noted silicon foundry observers. Shanghai-based Grace is initially planning to produce 35,000 eight-inch wafers a month in a $1.6 billion fab. Construction will start on the fab in late 2000 or early 2001, with production slated to begin in 2002, according to sources.

Grace Semiconductor actually disclosed the formation of the company in June, but the joint venture made its official announcement this week. A spokesman with the Grace T.H.W. Group in Guangzhou, a southern city in China, also confirmed the plans during a phone interview with SBN.

Leading the venture are Jiang Mianheng, who is the son of China President Jiang Zemin, and Winston Wang, the son of Taiwanese tycoon Y.C. Wang. Winston Wang is also the president of Grace T.H.W., a Taipei-based supplier of materials for printed-circuit boards and other products.

Winston Wang will serve as the president of Grace Semiconductor, but neither he nor Grace T.H.W. will hold a stake in the Shanghai chip venture in order to avoid breaking Taiwan laws.

The Taiwan government, which imposes a limit of $50 million per project in China, also bans local companies from making direct investments in high-end semiconductor plants and other facilities for "critical" industries.

Winston Wang himself is no stranger to the electronics business. In the 1980s, he led his father's company, the Formosa Plastics Group, into the electronics age by moving into the PCB and related businesses. In 1995, he led the effort to form Nanya Technology Corp., one of Taiwan'sfirst merchant DRAM makers.

Then, in the late-1990s, however, he was involved in a scandal, an event that prompted Y.C. Wang to fire his son while forcing him to leave Taiwan and live in the United States for a year.

With little or no interest to rejoin the Formosa Plastics Group, Winston Wang was reportedly interested in setting up a foundry company in Silicon Valley in California, but he had to scrap the plan after failing to come up with the funding. Upon his return to Taiwan, he set up Grace T.H.W., and at one time, was even considering a plan to set up a foundry venture on the island.