Foxconn will have to forget about investing in Tsinghua Unigroup

International relations are hot as chips, and Taiwan cannot afford to empower China

Taiwanese electronics manufacturer and Apple supplier Foxconn will likely be forced to back out of a $800 million investment in Chinese chipmaker and foundry operator Tsinghua Unigroup, thanks to rapidly deteriorating international relations.

The government in Taiwan was already considering fining Foxconn around $835,000 for failing to secure regulatory approval on the investment. But now, reports have emerged that Taiwanese national security officials want the whole thing called off altogether.

"It is clear that now they have elevated this to the national security level, prospects are getting dim," said one person close to the company. "With the soaring tension in the Taiwan Strait, this is looking even more difficult."

Tsinghua Unigroup was founded in the late '80s as a wholly owned business unit of Tsinghua University in Beijing, which is funded by China's Ministry of Education. Tsinghua Unigroup's subsidiaries are involved in mobile chip design, NAND flash manufacturing, IoT, security chips, and IT infrastructure. In 2020, the business venture fell upon hard financial times and was forced to restructure.

While Tsinghua Unigroup has been looking for investors, Foxconn has sought to expand its footprint beyond electronic components into the semiconductor industry. The Taiwanese company even formed a joint venture to build a chip fabrication plant in Malaysia last May and was chasing a similar opportunity in India earlier this year.

But it's no surprise there is alarm as to how a partnership that would empower China's ability to produce chips would affect Taiwan, given the chaos that has ensued after US Speaker of the House Nancy Pelosi visited the island. Pelosi met with semiconductor business leaders as part of the trip, highlighting the rivalry between the US and China over the semiconductor supply chain.

China insists Taiwan is a rogue province that illegitimately defies Beijing by practicing democratic self-governance, and therefore was unhappy with Pelosi's visit. As a show of force, Beijing sent 27 aircraft into the Taiwan air defense identification zone (ADIZ), and conducted live fire exercises by sea in six zones around the island. Cyberattacks were also reported on both Taiwan's Ministry of National Defence and Taiwan's presidential website.

It is widely acknowledged that both Taiwan's strength and allure with China lies in its semiconductor affluence as China is reliant on maintaining a steady stream from chipmakers like Taiwan Semiconductor Manufacturing Company (TSMC).

A 2021 US Army journal paper even suggested if Taiwan was threatened by China, it should credibly threaten to destroy TSMC to force the Middle Kingdom to reconsider.

TSMC chairman Mark Liu argued last week that taking TSMC by force would be a bad move for China as the company relies on international business cooperation and sensitive processes that would be deeply disturbed by an invasion.

Liu also revealed that China comprises about 10 percent of TSMC's business and therefore its absence would cause great economic turmoil for the country.

China has set itself a goal to be at least 70 percent self-reliant when it comes to silicon by 2025, a number it is far from on track at making. While some investment from Foxconn in Tsinghua Unigroup would not instantly make up the difference, it certainly would not hurt Beijing's progress. And any disruption in the world's semiconductor balance in favor of China is not the right move for a calm Taiwan. ®

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