HONG KONG (Reuters Breakingviews) – As China’s navy positions itself off its coast, Taiwan is beefing up its semiconductor defenses. Officials could force Foxconn, formerly known as Hon Hai Precision, to unwind an $800 million deal with a Chinese chipmaker. At the same time, Taipei is taking steps to protect its top engineers from mainland poachers. The world’s largest contract electronics maker raised eyebrows in July when it revealed it owned 20% of former Chinese chip champion Tsinghua Unigroup through a mainland subsidiary. Taiwan’s investment commission, which reviews large deals in China, was furious and authorities were considering fining it up to $25 million, or just $836,000, for failing to obtain necessary approvals, according to Reuters. The dramatic escalation of tensions with Beijing after US House Speaker Nancy Pelosi’s visit to Taipei in August likely doomed the deal. The People’s Republic, which claims sovereignty over Taiwan, has imposed a series of bans on agricultural exports in addition to conducting unprecedented military exercises off the island. Now Taiwan security officials want Foxconn out of the investment, the Financial Times reported https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.ft .com%2Fcontent%2F866467a4 -6627-4356-ac46-6ede989f3d66%3FFTCamp%3Dengage%2FCAPI%2Fapp%2FChannel_Refinitiv%2F%2FB2B&data=05%7C01%7CThomas.Shum%40thomsonreuters.com%7C33ea75f3081a477aa80408da7ff3f132%7C62ccb8646a1a4b5d8e1c397dec1a8258%7C0%7C0%7C637962982955108037 %7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D %7C3000%7C%7C%7C&sdata=PyO7CxC3Aw1c0xwFryr1NaDj2YE%2FKwY5kSFZv6last week Foxconn says the tie-up was misunderstood and promises to abide by the law. Nonetheless, the intervention underscores growing local unease over China’s drive to develop its own technological capabilities to shield itself from US sanctions. Talented workers in Taiwan’s vital $127 billion chip industry, home to world champion Taiwan Semiconductor Manufacturing (TSMC) worth $454 billion, have been frequently hired by Chinese companies over the years. A 2019 study found https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.taiwannews.com.tw%2Fen%2Fnews%2F3829558&data=05%7C01%7CThomas.Shum %40thomsonreuters .com%7C33ea75f3081a477aa80408da7ff3f132%7C62ccb8646a1a4b5d8e1c397dec1a8258%7C0%7C0%7C637962982955108037%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=sAiLy4UKi08%2FUm%2B9wDhefis0oBn5ZFdMUTafNcgEZIk%3D&reserved=0 some 3,000 chip engineers, or 10% of the island’s total supply, have been poached by Chinese companies since 2015. Shanghai-based Semiconductor Manufacturing International (SMIC) has recruited former TSMC executives, including Liang Mong Song, who is now SMIC’s co-chief executive. The government has intensified its efforts to stem the exodus. In addition to strict investment restrictions, Taiwanese companies are not allowed to relocate advanced chip manufacturing to the mainland. In May, authorities raided nearly a dozen mainland businesses operating on the island for hiring local workers without permission, following last year’s ban on recruiting adverts for jobs in China. Taipei is also strengthening its trade secrets law. Additionally, public opinion in Taiwan, especially among young people, has hardened against China, and Beijing’s zero Covid policies have made recruitment even more difficult. It may be dwarfed by the nearby $17 trillion economy, but Taiwan’s tiny tech sector doesn’t seem daunted so far.

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BACKGROUND NEWS

Taiwan’s national security officials want Hon Hai Precision, also known as Foxconn, to cancel an $800 million investment in struggling Chinese chipmaker Tsinghua Unigroup, the Financial Times reported on Aug. 10. citing sources.

Foxconn Chairman Liu Yong-way said in an Aug. 10 post-earnings call that the company would abide by the law and if authorities did not approve the investment, it had a back-up plan. . He did not specify.

Taipei bans companies from building their most advanced foundries in China to ensure they don’t outsource their best technology.

Separately, Taiwanese authorities raided 10 Chinese companies suspected of illegally poaching chip engineers and other tech talent in May. “The illegal poaching of Taiwan’s high-tech talent by Chinese companies has negatively impacted our international competitiveness and endangered our national security,” the Bureau of Investigation said in a statement at the time.

(Editing by Pete Sweeney and Thomas Shum)

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