The agreement is a natural extension to a deal two months ago between SST China and another Hua Hong invested company -- Shanghai Hua Hong Integrated Circuit Co. Ltd.

At the time, SHHIC said it would use SST's embedded flash memory technology in ICs for smartcards, which are being promoted heavily and procured by the Chinese government. Smartcards are being used elsewhere in the world to store cumulative medical records and also as a form of citizen identification.

HHNEC is the only 8-inch wafer foundry in China that the government has qualified to make National Identification card ICs, one of the biggest Chinese applications of smart cards.

"The agreement allows us to serve the needs of Chinese semiconductor design houses, from product design and development to manufacturing," said Bing Yeh, president and chief executive officer of SST, in a statement.

Production of SST's products at HHNEC is scheduled to begin in the second quarter of 2003. SST also has a manufacturing agreement with Grace Semiconductor Manufacturing Corporation, which is scheduled to ramp an 8-inch wafer fab next year.