Taiwan's government is considering fining tech giant Foxconn up to T$25 million ($835,600) over its investment in a Chinese chip conglomerate without first getting regulatory approval, two sources briefed on the matter said on Friday.
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Foxconn, the world's largest contract electronics maker, said this week it has become a shareholder in embattled Chinese chip conglomerate Tsinghua Unigroup via a 5.38 billion yuan ($797 million) investment by a subsidiary.
The investment comes as Taiwan turns a wary eye on China's ambition to boost its semiconductor industry and has proposed new laws to prevent what it says is China stealing its chip technology.
Foxconn did not seek prior approval from the Taiwan government before the investment was made and authorities believe it has violated a law governing the island's relations with China, a person familiar with the matter told Reuters.
Regulators are weighing whether to hand Foxconn the "maximum" fine possible, which is $T25 million, due to the large size of the Chinese investment, the person added,
Foxconn referred Reuters to an earlier filing on the stock exchange, saying it will deliver the documents to the Economy Ministry's Investment Commission in the near future.
A second source said Foxconn could be given a fine of between T$50,000 and T$20 million for investing without approval, adding that regulators will scrutinise the investment and deliver a decision after they receive the company's application.
"There's a chance that an approval will be given. If not, Hon Hai will have to withdraw the investment," the person said, referring to Foxconn's formal name, Hon Hai Precision Industry Co Ltd.
Taiwanese law states the government can prohibit investment in China "based on the consideration of national security and industry development." Those violating the law could be fined repeatedly until corrections are made.
Foxconn, best known for assembling Apple Inc's iPhone, is keen to make auto chips in particular as it expands into the electric vehicle market. The company has been seeking to acquire chip plants globally as a worldwide chip shortage rattles producers of goods from cars to electronics.
Taipei prohibits companies from building their most advanced foundries in China to ensure they do not offshore their best technology.
Originating as a branch of China's prestigious Tsinghua University, Tsinghua Unigroup emerged in the previous decade as a would-be domestic champion for China's laggard chip industry.
But the company fell into debt under former chairman Zhao Weiguo, prompting it to default on a number of bond payments in late 2020 end eventually face bankruptcy.
The conglomerate has yet to produce any global leaders in the semiconductor sector.