Foxconn's China Probe Deepens as Founder Eyes Taiwan's Presidency

Editors Note: Join CNN's Meanwhile in China newsletter for an insightful exploration of the country's growth and its global implications.

State media reports reveal that Foxconn, a major supplier for Apple, is currently under investigation by Chinese authorities in Taiwan.

The investigation is carried out weeks after Terry Gou, the founder, declared his candidacy for the presidency of Taiwan, emphasizing that he will not succumb to pressure from Beijing, despite his significant business ventures in China. Although it remains uncertain if the investigations are linked to Gou's presidential bid, analysts suggest that this development will cause concern among foreign businesses operating in China.

Foxconn's key subsidiaries in Guangdong and Jiangsu, where its major factories are located, were recently audited by tax authorities, as reported by the state-owned Global Times on Sunday. The company's land utilization in Henan and Hubei provinces was also investigated by the natural resources ministry, as per anonymous sources cited in the report. In a statement sent to CNN, Foxconn emphasized that adhering to the law is one of its fundamental principles.

"We will actively collaborate with the relevant units on the associated tasks and activities," it stated.

Foxconn,also recognized as Hon Hai Precision Industry, operates iPhone manufacturing facilities in Guangdong and Henan, including the largest one in the city of Zhengzhou.

The Shanghai-listed unit of the company, Foxconn Industrial Internet, experienced a sharp decline of 10% on Monday. Likewise, the parent company Foxconn Technology, listed in Taipei, saw a decrease of over 2%.

Amidst increasing pressure on foreign businesses, the Chinese authorities reportedly conducted a raid on the Shanghai office of GroupM, an international advertising agency owned by WPP.

Amid a crackdown on international consulting firms due to national security concerns, concerns about rising risks including raids and detentions are growing. In the world's second-largest economy, Japanese officials recently disclosed that a Japanese national working for Astellas Pharma was formally arrested by China. The individual had been previously detained on suspicion of violating the criminal and anti-espionage laws of the country.

"China's persistent crackdown on foreign business operations remains a source of unease for the investment community," remarked Brock Silvers, the chief investment officer at Kaiyuan Capital, a private equity firm. "At a critical juncture where China's economy desperately needs to regain the trust of investors, policy measures are only adding to the uncertainty surrounding its overall investment appeal."

Skyscrapers stand at the Lujiazui Financial District at sunset on May 8, 2023 in Shanghai, China.

VCG/Visual China Group/Getty Images

China's economy is growing again. So why are investors getting out?

Upcoming election

Foxconn, one of the largest contract manufacturers globally, produces a wide range of products for various clients, such as Apple, including smartphones and electric vehicles. However, the company does not have its own brand for selling products. Established in China in 1988, it has become one of the biggest private employers in the country.

In August, Terry Gou, the self-made billionaire and founder of Foxconn, declared his candidacy as an independent candidate for Taiwan's presidential election, which is set to take place in January.

Asked about how he intends to handle pressure from Beijing considering his extensive experience in conducting business in China, Gou firmly stated that he would not "comply with their directives." During a press conference in Taipei, Gou responded to the scenario presented by stating, "If the Chinese Communist regime threatens to seize Hon Hai [Foxconn]'s assets unless I abide by their commands, I would willingly accept it."

Terry Gou, Foxconn founder, announces bid for Taiwan presidency during a press event in Taipei on August 28.

According to him, Beijing would not pose a threat to Foxconn considering the massive global implications involved. He mentioned that Foxconn has a significant number of shareholders worldwide, which include prominent investment firms and pension funds.

Which country, investment firm, or company in the world would be willing to invest in China if the CCP dares to seize Foxconn's property? Furthermore, Gou emphasized that the company is a crucial supplier to numerous significant Western firms, and if it were to close down, it would result in a significant supply chain crisis.

He asked how the Chinese government can justify its position to companies worldwide, especially considering the current state of the economy. Gou is currently ranked below Lai Ching-te from the ruling party, Hou Yu-ih from the Kuomintang, and Ko Wen-je from the Taiwan Peoples Party in the polls.

Beijing asserts its ownership over democratically governed Taiwan and has exerted pressure on the island to submit to its rule. However, the current government of Taiwan considers itself a de facto independent nation.

According to a statement made by Zhang Wensheng, a professor at Xiamen University in China, Foxconn has enjoyed advantages from the favorable policies established by Beijing. (Source: Global Times)

"While benefiting from China's growth and experiencing rapid development on the mainland, Taiwan-funded companies, such as Foxconn, are expected to embrace their corresponding social responsibilities and actively contribute to the promotion of peaceful cross-strait relations," Zhang emphasized to the news outlet.

Another raid

Several internationally recognized companies have faced investigation in the country recently.

Multiple media outlets have reported that Chinese authorities conducted a raid on GroupM's Shanghai office, which is a subsidiary of the largest advertising agency in the world, resulting in the detention of a high-ranking executive.

The news was first reported by The Financial Times on Friday. The following day, the Shanghai police released a statement announcing the detention of a senior executive from an advertising agency, along with two additional individuals. The statement mentioned that they were under suspicion of accepting bribes.

Although the company was not named by the police, the state-owned Economic Observer indicated that the statement was referring to GroupM.

The firm declined to comment.

The crackdown came despite repeated calls from Chinese leaders to welcome more foreign investment to boost the countrys slowing economy.

Silvers pointed out that China outwardly welcomes foreign capital, but only on its terms.

"Now also faced with a structural slowdown, investors are re-thinking their China exposure," he said.