Taiwan to Foxconn: Selling stake in Chinese chipmaker? We’ll still fine you

A notable misstep as the iPhone supplier looks to grow its chip-making footprint

Foxconn plans to sell its controversial stake in Chinese chip-making giant Tsinghua Unigroup, but that reportedly won't stop Taiwan's government from fining the iPhone supplier for buying shares in the first place.

The Taiwanese electronics manufacturer, known formally as Hon Hai Precision Industry Co., Ltd, announced on Friday that it would offload its indirect minority stake in Tsinghua Unigroup, which it holds through its China-listed Foxconn Industrial Internet subsidiary. According to Bloomberg, the buyer, Yantai Haixiu IC Investment Center, will take the stake for no less than 5.38 billion yuan ($771 million).

That's how much Foxconn paid for its position in Tsinghua Unigroup, which was a contentious move in the view of Taiwan's government from the moment the transaction was disclosed back in July.

It's no surprise that Taiwan is wary of domestic companies making investments in China. That's because Taiwan has faced increased aggression from the Middle Kingdom, which claims the self-governing island nation as its own and has not ruled out using military force to "reunify" the two. Just consider how China sent 27 aircraft into the Taiwan air defense identification zone after US Speaker of the House Nancy Pelosi visited the island in early August, and you get the idea.  

Taiwan's government has said that Foxconn didn't get its approval when the company bought shares in Tsinghua Unigroup. The investment may have also violated Taiwanese law, which explicitly prohibits high-tech investments among Chinese firms perceived to be a national security risk.

It was previously reported that Taiwanese government officials have been weighing a fine of up to T$25 million ($813,749) against Foxconn.

Now Bloomberg and Reuters report that Taiwan could issue the fine soon, despite Foxconn's stated plan to get rid of its Tsinghua Unigroup stake.

"Even though the investment was later pulled, the fact has already been established that they invested first, and they will be fined," a source told Reuters.

This is quite the misstep for Foxconn, which has been looking to expand beyond electronic components into the semiconductor industry with fresh investments. In addition to acquiring its Tsinghua Unigroup stake, the company has formed joint ventures to build chip manufacturing plants in Malaysia and India, the latter of which will benefit from a recently disclosed $500 million investment from Foxconn.

China has been seeking to achieve self-sufficiency in semiconductors, which has become increasingly difficult as new US-led sanctions this year cut the country off from the foreign equipment and tools it needs to make advanced chips.

Tsinghua Unigroup, a vast conglomerate spun out of Tsinghua University in Beijing, is a key part of China's plan, but the company has struggled financially in recent years. This eventually led the state-owned firm in April to receive a $9.4 billion bailout from the government-backed Beijing Jianguang Asset Management Co. Ltd after accumulating more than $30 billion of debt. ®