Foxconn Could Be Fined for Investing in Chinese State-Backed Chipmaker Without Regulatory Approval

A motorcyclist rides past the logo of Foxconn, the trading name of Hon Hai Precision Industry, in Taipei, Taiwan on March 30, 2018. Tyrone Siu/Reuters

Taiwanese electronics contract manufacturer Hon Hai Technology Group (best known internationally as Foxconn) could be fined for not seeking regulatory approval for investing in the embattled mainland Chinese state-backed chipmaker Tsinghua Unigroup, Reuters reported.

Hon Hai could face a fine of up to NT$25 million ($835,586) for not first seeking approval for the investment from the Taiwan Ministry of Economic Affairs’ Investment Commission, the wire agency reported citing two sources familiar with the matter on July 15.

Taipei does not allow Taiwanese firms to build their factories for advanced technology in mainland China, and Hon Hai was said to have violated a law regarding Taiwan’s relationship with China, according to one of the sources.

Hon Hai made the investment in the Chinese chip conglomerate through its subsidiary Foxconn Industrial Internet (FII), according to a July 11 statement.

Largest Consumer of Semiconductors

Hon Hai had acquired equity in Tsinghua in the hope of expanding its semiconductor business, wrote Liu Pei-chen, director of Taiwan Institute for the Central News Agency.

The main reason, wrote Liu, is that China is the largest consumer of semiconductors, as its electric vehicle sales grew 209 percent last year and it currently accounts for nearly 50 percent of global electronic vehicle sales revenue.

Liu pointed out that Tsinghua’s Changjiang Storage had initial success in developing NAND Flash and XMC’s NOR Flash, and so Hon Hai expects to expand its memory and wireless network communication chip business with the acquisition.

Industry insiders said that Hon Hai’s current semiconductor manufacturing investments in India, Southeast Asia, and the Hsinchu Science Park, known as Taiwan’s Silicon Valley, are all at an early stage. But Tsinghua Unigroup has a complete semiconductor supply chain, so this would increase Hon Hai’s resources and capacity.

Some commentators have said that the move suggests a shift by Hon Hai to semiconductors away from Original Equipment Manufacturing (OEM) which is declining.

Lai Chung-chiang, convenor of the Economic Democracy Union, told The Epoch Times if Hon Hai uses the money earned from its work for Apple to invest in China’s semiconductor industry, it would create trust issues with the United States government.

Tsinghua Unigoup was taken over by Zhao Weiguo in 2010 and acquired Spreadtrum Communications, a semiconductor company, for $1.78 billion in 2013, and RDA Microelectronics for $910 million in 2014.

Zhao once boasted that he would buy a stake in TSMC and acquire MediaTek, but Tsinghua Unigroup went bankrupt in 2021, as its rapid expansion through mergers and acquisitions led to debt as high as 100 billion yuan ($14.8 billion).