Taiwan to Fine Foxconn for Unauthorized China Investment

Taiwan’s government on Saturday said it would fine Foxconn, the world’s largest contract electronics maker, for an unauthorized investment in a Chinese semiconductor maker, even though the company had announced it would sell its stake.

Taiwan is wary of China’s ambitions to boost its own semiconductor industry, and is tightening its laws to prevent China from claiming it is stealing its own chip technology.

Foxconn, a major Apple supplier and iPhone maker, announced in July that it is a shareholder in the beleaguered Chinese semiconductor conglomerate Tsinghua Unigroup.

Late Friday, Foxconn said in a filing with the Taipei Stock Exchange that its Chinese subsidiary had agreed to sell its entire stake in Tsinghua Unigroup.

Taiwan’s economy ministry said Taiwan’s investment commission, which must approve all foreign investments, will ask Foxconn for a “full explanation” of the investment on Monday.

“Regarding the fact that the investment was not declared in advance, the amount will still be calculated according to the formula and penalties will be imposed according to the law,” he said without giving details.

Foxconn did not immediately respond to a request for comment.

People familiar with the matter previously told Reuters that Foxconn did not seek approval from the Taiwanese government before the investment was made, and that officials have cut ties with Taiwan, which it claims to be its own. He said he believed he was violating the governing self-government law.

Foxconn said in a statement Saturday before the economy ministry that its initial investment “remains unconfirmed” as the year-end approaches.

According to Foxconn, 99% of Xingwei is controlled by its Chinese-listed subsidiary Foxconn Industrial Internet Co Ltd., which has agreed to sell its stake to a Chinese company called Yantai Haixiu for at least $772 million.

Xingwei controls a 48.9% stake in another entity that holds a 20% stake in Unigroup’s all-owned vehicles.

“In order to avoid further delays, impacts on investment plans and uncertainties caused by flexible deployment of capital, the Xingwei Fund will transfer all of its holdings in Shengyue Guangzhou to Yantai Haixiu,” it said. “Once the transfer is complete, FII will no longer indirectly hold shares in Tsinghua Unigroup.”

Tsinghua Unigroup did not respond to a request for comment.

Taiwanese law says the government can ban investments in China “based on considerations of national security and industrial development.” Violators of the law may be fined repeatedly until remediation is made.

Foxconn, whose full name is Hon Hai Precision Industry Co. Ltd., is keen on manufacturing automotive chips, especially with the expansion into the electric vehicle market.

The company has sought to acquire chip factories around the world as a global chip shortage has unsettled producers of products ranging from automobiles to electronics.

Taipei bans building state-of-the-art foundries in China to keep companies from placing their best technology overseas.

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