by Brian Hioe

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Photo Credit: Tan Xin Kun/WikiCommons/CC BY-SA 4.0

THE ECONOMIC DEMOCRACY UNION, New Power Party, and other pan-Green groups have in recent times been critical of FoxConn/Hon Hai’s recent investment in China’s Tsinghua Unigroup. 

Specifically, Hon Hai subsidiary Foxconn Industrial Internet, which is 85% owned by Hon Hai, invested 23.9 billion NT or 793.36 million USD in Tsinghua Unigroup, which is a Chinese semiconductor manufacturer. The investment took place through Beijing Zhiguangxin Holding, a consortium fund set up by Wise Road Capital, a Chinese private equity firm. The deal allows Hon Hai a minority stake in Tsinghua Unigroup and is a form of indirect investment, as it took place through a bailout deal. Now, FoxConn Industrial Internet owns 15% of Tsinghua Unigroup through its stake in Beijing Zhiguangxin, which owns 100% of Tsinghua Unigroup. 

Tsinghua Unigroup originates from China’s Tsinghua University and was facing significant amounts of debt. Hon Hai’s 99% ownership of the Xingwei (Guangzhou) Industrial Investment Partnership Limited, which owns 48.91 percent of Shengyue (Guangzhou) Industrial Investment Partnership, and which in turn owns 20.04 percent of Beijing Zhiguangxin is what allowed for the investment. 

Photo credit: Steve Jurvetson/WikiCommons/CC BY 2.0

What is particularly controversial is that Hon Hai’s actions may violate Article 35 and Article 86 under the Act Governing Relations between the People of the Taiwan Area and the Mainland Area. Taiwanese companies require approval from Taiwanese authorities before they invest in Chinese companies. 

Regulators were reportedly only informed of Hon Hai’s intention to apply for investment in Tsinghua Unigroup after the fact. Consequently, Hon Hai may face a 25 million NT fine, and it is to be seen if regulators would act to block the investment. Hon Hai reportedly invested in Tsinghua Unigroup on July 11th and only informed authorities of the action on July 19th. 

For its part, Hon Hai has defended the investment as useful given Tsinghua Unigroup’s strengths in chip design, networking equipment, servers, and switches. Generally speaking, Hon Hai is seeking to expand semiconductor-related holdings and partnerships for its electric vehicle development plans. 

Tsinghua Unigroup was previously viewed as crucial to current endeavors by the Chinese government to realize self-sufficiency in terms of semiconductor manufacturing. This is particularly a sensitive matter for Taiwan, however, seeing as the world is highly reliant on Taiwan for semiconductor manufacturing and Taiwan faces the existential threat of Chinese invasion. 

Namely, the world’s reliance on Taiwan for semiconductor manufacturing increases the incentive for other countries to defend Taiwan from the threat of Chinese invasion. Likewise, China’s own reliance on Taiwan for semiconductor manufacturing is a reason why China cannot so easily invade Taiwan; this also complicates plans for an invasion, in that China would like to take Taiwan with as little disruption to infrastructure as possible. Indeed, quite controversially, western experts have sometimes even proposed that Taiwan complicate Chinese attempts to absorb Taiwan’s semiconductor manufacturing infrastructure by destroying such infrastructure themselves in the event of an invasion. 

Photo credit: Solomon203/WikiCommons/CC BY-SA 4.0

Nevertheless, Taiwan’s strengths in semiconductor manufacturing prove ironic here. Civil society groups such as the Economic Democracy Union played a key role in the 2014 Sunflower Movement, while the NPP rose out of the Sunflower Movement. But while the movement was concerned with the potential effects on Taiwan’s political freedoms from Chinese investment in Taiwan’s service sector industry, these same groups have also taken up the issue of when Taiwanese companies seek to invest in Chinese companies–in a way that could pose geopolitical threats to Taiwan. 

Taiwanese companies, after all, may see it as in their interest to build stronger economic ties with China even if this leads to actions that endanger Taiwan’s political freedoms or geopolitically. There are many Taiwanese companies that have proven all too happy to engage in such behavior, such as companies owned by Tsai Eng-meng’s Want Want Group. Hon Hai may be a matter of particular concern given founder Terry Gou’s longstanding pan-Blue political affiliation. Yet one notes that even countries viewed as having stronger ties to the current pan-Green government, such as TSMC, own and operate facilities in China and key company executives such as Morris Chang viewed China as offering significant economic opportunities for China in the past. The issue, then, proves one that affects a number of Taiwanese companies–who may not have the interests of the Taiwanese public in mind. 

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