Foxconn Is Expected to Shortly Be Fined For Unapproved China Investment

Foxconn, the world's largest contract electronics manufacturer, is likely to be penalized by Taiwan's government for an unauthorized investment in a Chinese chip manufacturer, a source with direct knowledge of the case said Monday.

Taiwan, which Beijing claims as sovereign Chinese territory, keeps a cautious eye on China's ambitions to expand its semiconductor sector and is tightening regulations to prevent China from stealing its chip technology, as it sees it.

Foxconn, a key Apple Inc. (NASDAQ:AAPL) supplier and iPhone manufacturer, reported in July that it was a stakeholder in troubled Chinese semiconductor firm Tsinghua Unigroup, but said late Friday that it will sell the stock. Saturday, Taiwan said it will penalize Foxconn for the investment.

The acquisition had not been approved by Taiwan's government, which must authorize all overseas investments. Taipei also prevents corporations from constructing their most advanced semiconductor foundries in China, ensuring that they do not export their most advanced technologies.

Monday, the Economy Ministry will call Foxconn to confirm the share transaction, a source familiar with the matter told Reuters.

"Even if the investment was subsequently withdrawn, it has been established that they invested first, and they will be penalised," a person who was not authorized to talk to the media said.

"It shouldn't take too long for Hon Hai to be penalized," the insider continued, referring to the formal name of the corporation, Hon Hai Precision Industry Co Ltd.

Reuters earlier reported that the corporation might face a punishment of up to T$25 million (about $813,749)

Foxconn declined to comment.

Tsinghua Unigroup has not provided a response to a request for comment on the withdrawn investment.

According to Taiwanese legislation, the government may restrict investments in China based on "national security and industrial development considerations." Repeatedly fining lawbreakers until adjustments are made is a possibility.

Foxconn has been pursuing the acquisition of global chip manufacturing facilities in response to a global chip shortage that has shaken the automotive and electronics industries. As it develops into the electric car sector, it is eager to manufacture auto chips in particular.