Shares in Taiwan’s Hon Hai Precision fell a second day, losing 2.2% to close at a near nine-month low, as speculation swirled following the reported start of a tax and land use investigation into the mainland China operation of one of Apple’s largest suppliers.
Hon Hai, better known by its trade name Foxconn, has lost more than 5% of its value in the past two days at the Taiwan Stock Exchange, eating into the fortune of its billionaire founder Terry Gou, who has been running as a long-shot independent candidate in Taiwan’s presidential election in January.
Beijing claims sovereignty over Taiwan, a self-run democratic economy of more than 22 million. Gou stepped down in 2019 as Hon Hai chairman, ran for president in 2020 after saying he was inspired by a sea goddess, and lost in the Nationalist Party primary. This year, Guo has promised to seek peace with Beijing but deep business ties on the mainland have attracted criticism for conflict of interest that he has sought to deflect.
The tax investigation, coming less than three months before election day in Jan. 13, seemingly hurts Gou’s already slim chances against the governing Democratic Progressive Party and opposition’s two leading candidates. Tsai Ing-wen, Taiwan’s current president, can’t seek a third term for her Democratic Progressive Party, or DPP, due to rules that limit her to two four-year terms. Tsai ranked No. 17 on the latest Forbes list of the World’s 100 Most Powerful Women published earlier this year. Besides Gou, the other three main candidates are the DPP’s Lai Chin-te, Nationalist Party’s Hou Yu-ih and Taiwan People’s Party Ko Wen-jie.
Politically, bad news for 73-year-old Gou is likely to reduce the opposition field of candidates that Beijing sees are China-friendly, according to Gallup Market Research Taiwan pollster Tim Ting. At this point, the DPP candidate – Taiwan Vice President Lai – remains the favorite to win, Ting said in a telephone interview from Taipei today. Taiwan’s opposition is “in chaos,” he said.
Yet economic as well as political and legal factors may also loom in Beijing’s calculus. Taiwan, the world’s No. 22 economy and a supplier to many of the world’s largest electronics manufacturers, remains an important source of capital and jobs at a time when China’s economy has been struggling and heightened geopolitical tension between Washington and Beijing has led many global companies to “de-risk” supply chains from the mainland.
Taiwan technology companies, like others, have been increasing their investments outside of the mainland. India, for instance, has attracted investments from large Taiwan tech businesses including Hon Hai and Pegatron, among others. Against that backdrop, China’s high-profile probe of Hon Hai can be interpreted as an effort to keep the Taiwan company’s huge existing projects in place there, according to Windson Chen, a popular Taiwan political commentator. Apple CEO Tim Cook was just in China this month and met with Vice Premier Ding Xuexiang.
DPP’s presidential candidate Lai yesterday criticized Beijing for pursuing Hon Hai in the heat of the election campaign, reportedly saying the mainland should “cherish” Taiwan companies. Hon Hai has so far said that it will cooperate with mainland authorities. Gou is still worth $6.7 billion on the Forbes Real-Time Billionaires list today and ranks as Taiwan’s third richest man.
The investigation into Hon Hai wasn’t the only one reported in the past week. Current and former executives in Shanghai at advertising firm WPP were reportedly detained for bribery. Earlier this year, U.S. due diligence firms were raided by security officials, shaking business confidence among foreign companies in the country.
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