HONG KONG, Oct 24 (Reuters Breakingviews) – Taiwan-based iPhone maker Foxconn looks stuck between a rock and a hard place. Chinese media reported on Sunday that authorities had carried out multiple tax- and land-use investigations at subsidiaries of $43 billion Apple (AAPL.O) supplier Hon Hai Precision Industry (2317.TW), also known as Foxconn, rattling investors and hurting the company’s shares. Taiwanese and foreign firms are welcome to expand in China as the probes are just meant to safeguard market order, insisted the Global Times, the state-run newspaper that broke the news. But onlookers across the Taiwan Strait and beyond may feel differently.
Taiwanese group Foxconn is China’s largest private-sector employer with nearly 800,000 staff. Thanks to its contribution to the Chinese economy, which includes creating jobs, the manufacturer has for years been enjoying tax breaks and favourable levies on land usage.Reuters Graphics
Misuse of such favours is not completely out of the question. If found guilty, Foxconn could suffer the fate of Taiwan’s biggest petrochemical group, Far Eastern Group, which was fined about $65 million after a similar investigation in 2021, which also led to its chairman proclaiming his opposition to Taiwan’s independence in a local newspaper article.
The probe could be totally legitimate. Yet, coming less than 100 days ahead of Taiwan’s presidential election in January, it is difficult to see surprise tax raids on Foxconn as having no geopolitical implications. Founder Terry Gou, who stepped down as company chair in 2019, is campaigning to run as an independent candidate on the self-ruling island, which China claims as its own territory. His candidacy may divide the opposition camp, thus favouring the independence-leaning Democratic Progressive Party, which Beijing loathes.
For multinationals, the tax audits expose Foxconn’s difficulty in navigating the global business environment as tensions across the Taiwan Strait escalate. The company, which derived 70% of its revenue from China as of March, is moving production abroad to address pressure from global clients who want to de-risk from China. It’s also looking to start making electric-vehicle components in places like Vietnam to lessen its dependency on Apple. But as long as the People’s Republic remains its main revenue source, Foxconn must also convince Beijing that it is sticking to China’s economic and political agenda.
Striking the balance isn’t easy. Foxconn has no real levers to push back on potential higher compliance costs that may stem from the investigations. For global onlookers anxious to reduce their Chinese dependency, Foxconn could be the most telling case on the true cost of reshoring.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add chart.)
CONTEXT NEWS
Chinese authorities have carried out multiple inspections at subsidiaries of $43 billion Taiwan manufacturer Foxconn, a major supplier of Apple’s iPhones, over tax and land usage, the Global Times, a Chinese state-run newspaper, reported on Oct. 22 citing sources. The on-site inspections involved key subsidiaries of Foxconn across several provinces, the newspaper said.
The audits come less than three months ahead of Taiwan’s presidential election in January 2024 and amid Foxconn’s drive to expand its production outside China. Foxconn’s founder Terry Gou, who stepped down as company chief in 2019, is running as an independent candidate in Taiwan’s upcoming presidential election.
Shares in Foxconn Industrial Internet, a Shanghai-listed subsidiary of Foxconn, were down 4% at 0200 GMT on Oct. 24 after plunging 10 percent, its daily limit, the day before. The Taipei-listed shares in Foxconn, also known as Hon Hai Precision Industry, were down 2%.
Editing by Lisa Jucca, Thomas Shum and Katrina Hamlin
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