Taiwan to restrict tech companies’ sales of China assets
Taiwanese regulators will soon have new powers to block domestic tech companies from selling off their subsidiaries or other assets in China, the latest move by Taipei to prevent the leak of sensitive technologies, including semiconductors, to the mainland.
Taiwan’s Ministry of Economic Affairs said it was revising current regulations to require Taiwanese companies to seek approval if they planned to sell or dispose of any of their assets, plants or subsidiaries in China to their Chinese counterparts or other local buyers, as such a move could involve the transfer of sensitive technologies. Current regulation only requires Taiwanese companies to notify authorities of such transactions.
A set of revised regulations, which are designed to protect Taiwan’s valuable chip technologies, was due to be sent to the Executive Yuan for further review on December 17 and would take effect before the end of this year at the earliest or in January, an official with the Taiwan Investment Commission told Nikkei Asia.
Currently, Taiwanese companies’ investments in China, including setting up subsidiaries there, must be approved by the commission. Any change of ownership after the initial investment, however, is not subject to such approval, which raised concerns of technology leaks amid growing tensions between China and Taiwan. Beijing views the island — a big hub in the global chip supply chain — as part of its territory and has not ruled out taking it by force.
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The Ministry of Justice and the Mainland Affairs Council, meanwhile, are drafting new regulations to prevent professionals from leaking trade secrets and critical technologies to “foreign counterforces” in places such as China, Hong Kong and Macau, in an elevating effort to discourage people from working for companies across the strait.
Any professionals whose projects were once funded by the government will have to seek approval if they want to travel to China, according to a draft version of the regulations. Some tech executives are wary that the scope of the new regulations will be too wide and vague, which could affect industry’s willingness to collaborate in government-funded research and development programmes and hinder overall future technology advancement.
The stricter scrutiny comes as many Taiwanese tech companies have sold their Chinese subsidiaries over the past few years. Lite-On, a leading power management solutions provider, sold 51 per cent of its solid-state drive storage subsidiary in the Chinese city of Suzhou to Tsinghua Unigroup in 2017 and the remaining stake to a local investment firm in June this year.
Leading iPhone metal-casing supplier Catcher Technology sold its factories to Chinese tech supplier Lens Technology last year, while iPhone assembler Wistron sold its factories in Kunshan to Luxshare, an emerging Chinese contract electronics manufacturing giant.
ASE Technology Holding, the world’s biggest chip-packaging and testing service provider, is the latest example. The Taiwanese company earlier this month sold stakes in two of its Chinese subsidiaries to Wise Road Capital, a Chinese private equity firm that recently became involved in rescuing embattled Chinese chip conglomerate Tsinghua Unigroup. Wise Road’s $1.4bn takeover bid for South Korean chipmaker Magnachip Semiconductor was dropped last week owing to stricter US government scrutiny over the deal due to national security concerns.
“We have noticed that there’s a vulnerability in the current legal system that needs to be patched,” Investment Commission spokesperson Lu Chen-hui told Nikkei Asia. “Although the cases of Catcher and Wistron are less technology-intensive, it reveals that there’s a loophole for possible sensitive technology leakage going forward.”
A dedicated ministry team will be tasked with looking more closely at transactions that involve technologies surrounding “chipmaking, chip packaging and testing, and panels”, the official said.
The administration of President Tsai Ing-wen has been tightening its screening of Chinese investments in Taiwanese companies to protect sensitive technologies and has banned staffing companies from listing job openings for sensitive industries, such as semiconductors, that are located in China.
A version of this article was first published by Nikkei Asia on December 15, 2021. ©2021 Nikkei Inc. All rights reserved