Taiwan looks to tighten investment rules for China

Taiwan is looking to tighten regulation of Chinese investment in its companies over fears that Beijing could obtain access to sensitive data and technologies.

The government is compiling an “inventory” of legal and illegal Chinese stakes in the economy and is planning to close loopholes that threaten national security, senior government officials told the Financial Times.

The push mirrors the US’s recent move to tighten national security review procedures of foreign investments to guard against China.

Legal experts have long advised the Taiwanese government to follow Washington’s example. The effort has gained urgency as Tatung, a Taiwanese group that handles sensitive government and military data, is mired in a fight for board control with investors who management and activists believe are backed by Chinese money.

Wang Kuang-hsiang, a local construction magnate and one of the company’s three largest investors, is seeking to replace Lin Kuo Wen-yen, a member of the founding family, as chairman at the annual general meeting on Tuesday. Mr Wang denies the claims.

Mr Wang said he had reported the origin of the money he invested in Tatung to the financial regulator two years ago. “There is no such thing as a problem with Chinese money,” he said in a statement emailed to the FT.

But local media have covered every twist and turn of the struggle for control over the century-old company, depicting it as a matter of national security.

Legal experts have cited the controversy at Tatung to urge additional safeguards against clandestine Chinese investment, arguing it represented a unique national security threat for the country. China claims Taiwan as its territory and threatens to invade if it resists unification indefinitely.

Carol Lin, director of the research centre for financial regulation and corporate governance at National Chiaotung University, said under existing rules Chinese investors could hide by masquerading as other foreign investors. She said the government lacked the necessary powers to punish those who did so.

In response to the debate, the government intends to amend its investment review procedures. A senior national security official told the FT that the government would be given more powers to investigate whether funds from Hong Kong or third countries are actually Chinese investors in disguise. The official said that the protection of critical infrastructure would be made a priority.

“We will also conduct background checks of all companies working on public contracts, and tighten controls on the flow of people to protect our cutting-edge technology,” he said.

Chinese companies have repeatedly been accused of stealing technology of multinationals through executives and engineers from Taiwanese chip companies.

The government is considering barring such people from visiting China during and for a certain period after their employment if they deal with high-end technology.

Alternatively, important companies such as Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, could be asked to incorporate such a ban in non-competition agreements with relevant staff, the official said.