Foxconn to Face Fine for Unauthorized Investment in China Soon

TAIPEI (Reuters) – Foxconn, the largest contract electronics manufacturer in the world, is expected to face a fine from the Taiwanese government for making an unauthorized investment in a Chinese semiconductor firm, according to a source familiar with the matter on Monday.

Taiwan has been cautious about China’s ambitions to enhance its semiconductor industry and is tightening regulations to prevent what it perceives as technology theft from its chip sector.

In July, Foxconn, a significant supplier for Apple and a maker of iPhones, revealed its ownership in the struggling Chinese chip conglomerate Tsinghua Unigroup. However, the company announced on Friday that it would divest from this stake. Subsequently, the Taiwanese government indicated it would impose a fine on Foxconn for this investment.

Taiwan requires all outbound investments to be approved by the government and prohibits firms from establishing advanced chip manufacturing facilities in China to safeguard sensitive technology from being relocated offshore.

The source informed that Taiwan’s Economy Ministry plans to reach out to Foxconn on Monday to confirm the sale of the shares.

"Even though the investment was later rescinded, it is already established that they invested initially, and they will incur a fine," the source, who was not authorized to speak publicly, revealed.

"It should not be long before Foxconn faces repercussions," the source added, referring to Foxconn’s official name, Hon Hai Precision Industry Co Ltd. According to previous reports, fines could reach as high as T$25 million (about $814,000).

Foxconn has not provided any comments on the issue. However, its shares rose by 1% on Monday, outperforming the broader market, which concluded with a 0.7% decline.

Tsinghua Unigroup has not commented on the divestment.

Under Taiwanese law, the government can prohibit investments in China for reasons related to national security and industry development. Violators of this law may face repetitive fines until they comply with regulations.

Foxconn has been actively looking to acquire chip manufacturing facilities globally amid a widespread chip shortage affecting various sectors, including automotive and electronics, and has shown particular interest in producing automotive chipsets as it ventures into the electric vehicle market.