In his first public comments on the case, Tsao detailed parts of UMC's strategy toward HeJian, which he says he hopes will provide a low-risk and politically acceptable means for it to tap China's fast-growing chip industry.
"For UMC, we can have HeJian fight a 'proxy war' amidst the immature mainland market and murky political situation between the two sides without exposing UMC to risk," Tsao said in the statement published in Taiwan newspapers on Friday.
Taipei imposes strict limits on investment in China, fearing economic dependence on a diplomatic and military rival.
Beijing considers self-ruled Taiwan a breakaway province that must eventually be reunited with the mainland and has threatened to attack the democratic island if it declares formal statehood.
Tsao's statement helped push UMC shares 2.51 percent higher in heavy trade on Friday, reclaiming some of the 6.7 percent fall registered after news of the investigation broke on Wednesday.
It was the first time Tsao has specifically named HeJian as a take-over target, although he has mentioned UMC's "proxy war" Chinese strategy in the past.
Prosecutors said they suspect UMC or its executives helped to fund HeJian, illegally transferred technology to the firm and transferred customer orders to HeJian at the expense of UMC's own business, "hollowing out" the Taiwan firm.
Tsao criticised Taiwan's government for hindering chip firms from expanding into China, leaving them a step behind Chinese companies in serving the country's booming semiconductor market.
He also lashed out at prosecutors, saying that they were creating an atmosphere of fear in Taiwan's business community.
"If prosecutors can investigate enterprises and detain personnel whenever they believe that resources and funds were used inappropriately, this will become a form of 'white terror' for managers of enterprises," he added.
Taiwan requires a lengthy regulatory process before allowing its cutting-edge foundries to invest in China. Only UMC's larger rival, Taiwan Semiconductor Manufacturing Co, has obtained approval to open a semiconductor plant in China.
HeJian's chairman, Taiwan citizen and former UMC executive Shyu Jann-hwa, was held by Taiwan prosecutors for questioning and released on T$10 million (US $316,000) bail on Thursday.
"I believe I am innocent. I will do my best to clear my name," Shyu told reporters after walking out of the court. He has not been formally charged with any crime.
Tsao said he hoped his statement would clear up investigators' questions and bring the probe to a close, but was willing to speak to prosecutors personally.
"As of right now, we do not have any plans to search further, but if there is a need for more evidence as the case develops, and the prosecutor makes a decision, that is another matter," said Tsai Chung-yuh, head of the Taipei office of the Justice Ministry's Bureau of Investigation.