AU Optronics Corp. (AUO) has received invitations from local governments in China to set up a panel manufacturing facility in the mainland as Taiwan's biggest maker of liquid crystal displays weighs options to meet growing demand from the region, an executive said Thursday.

Paul Peng, executive vice president of AU Optronics, said, however, the company would make the LCD plant investment only after the Taiwan government relaxes restrictions for doing so.

Taiwan currently only allows panel makers to invest in flat-panel television or module assembly plants in China and forbids more technologically sensitive flat-panel manufacturing facilities investments overseas.

The Chinese cities that have lobbied for AU Optronics' investment include Guangzhou and Shenzhen in Guangdong province; Fuzhou in Fujian province; as well as Shanghai, Kunshan, Chongqing, Nanjing and Hefei, he said.

However, AU Optronics hasn't made a decision on the location or the technology it plans to use in China.

"We also need to think about what the opportune time is to open panel plants in China," Peng said on the sidelines of a conference. "Is it good timing now with so many companies all entering at the same time?" Peng said.

His comments came after South Korea's LG Display Co. (LPL), the world's biggest LCD panel supplier by sales, said last week it plans to build a panel manufacturing plant in southern China using advanced eighth-generation technology. The announcement was followed by Samsung Electronics Co., which also said it's interested in building a flat-panel manufacturing plant in China.

Also last week, Chinese flat-panel maker BOE Technology Group Co. (000725.SZ) said it will build an eighth generation manufacturing facility in Beijing with total investment of CNY28.03 billion ($4.1 billion.)

Peng said the company began increasing shipments to China since late last year in anticipation of weakening demand from Korean and Japanese vendors that have been its largest buyers. He also expects rising demand from China will be able to offset potentially reduced orders from an unprecedented agreement between Samsung Electronics Co. (005930.SE) and LG Electronics Inc. (066570.SE) to purchase LCD panels from each other from the end of this month.

AU Optronics' LCD TV panels purchased by Chinese branded TV makers is expected to account for 20% of the company's overall TV panel shipments this year, up from around 8% last year, Peng said.

That percentage is set to rise even more next year to over 25%, he said.

According to market research firm DisplaySearch, China will become the world's largest LCD TV market in the world, surpassing North America and Western Europe by 2012, when 39.4 million units of LCD TVs are expected to be sold in the mainland, compared with 13.4 million units in 2008.

The company is growing its business in China thanks in part to warming cross-strait relations after China-friendly Ma Ying-jeou was elected president of Taiwan in early 2008. Chinese TV makers, led by the China Video Industry Association, said in June they would increase their commitment to buy flat panels from Taiwan worth $4.4 billion from around $2 billion planned originally.

Peng said Taiwanese panel makers' shipments to China so far have not been able to fully meet the demand from Chinese vendors and may not be able to fulfill the entire $4.4 billion worth of orders mainly because of an industrywide glass shortage that was exacerbated by earthquake damages in Corning Inc.'s (GLW) Japan facility.

The executive said he expects glass shortages to result in a decline of 5% to 10% in its utilization.

-By Joy C. Shaw, Dow Jones Newswires; (86-21) 6120-1200; joy.shaw@dowjones.com