Taiwan may unwind a $800 million chip deal with Chinese company

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As the Chinese navy postures off its coast, Taiwan is beefing up its semiconductor defences. Officials may force Foxconn, formally known as Hon Hai Precision, to unwind an $800 million deal with a Chinese chipmaker. At the same time Taipei is moving to protect its top engineers from mainland corporate poachers.

The world's largest contract electronics maker raised eyebrows in July when it revealed it owned 20% of China's erstwhile chip champion Tsinghua Unigroup via a mainland subsidiary. Taiwan's investment commission, which reviews large deals into China, was irate, and authorities were considering fining it up to T$25 million, or just $836,000, for failing to secure necessary approvals, according to Reuters.

The dramatic escalation of tensions with Beijing after U.S. House of Representatives Speaker Nancy Pelosi visited Taipei in August has probably doomed the deal. The People’s Republic, which claims sovereignty over Taiwan, slapped a series of bans on agricultural exports in addition to conducting unprecedented military drills off the island. Now, Taiwan’s security officials want Foxconn to walk away from the investment, the Financial Times reported last week. Foxconn says the tie-up has been misunderstood and promises to follow the law.

Nevertheless, the intervention underscores growing local unease over China's push to build up its own technological capabilities to insulate itself from U.S. sanctions. Talented workers in Taiwan's vital $127 billon chip industry, home to $454 billion global champion Taiwan Semiconductor Manufacturing (TSMC), have been frequently hired away by Chinese companies over the years. A 2019 study revealed some 3,000 chip engineers, or 10% of the island's total supply, have been poached by Chinese firms since 2015. Shanghai-based Semiconductor Manufacturing International (SMIC) has snapped up former TSMC executives including Liang Mong Song, who is now SMIC’s co-chief executive.

The government has stepped up efforts to stem the outflow. On top of strict investment curbs, Taiwanese companies are banned from offshoring advanced chipmaking to the mainland. In May, authorities raided read more nearly a dozen mainland firms operating on the island for hiring local workers without approval, following last year's ban on recruiting advertisements for jobs in China. Taipei is also tightening up its Trade Secrets Act.

Moreover, public opinion in Taiwan, particularly among the youth, has hardened against China, and Beijing's zero-Covid policies have made recruitment even harder. It may be dwarfed by the $17 trilion economy next door, but tiny Taiwan’s technology sector seems unintimidated so far.