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Chinese subsidies for Foxconn and Want Want spark outcry in Taiwan

Million dollar handouts are legal but raise questions over Beijing influence

Taiwan's face-off with China: This island known as Shiyu, or Lion Islet, sits just off the coast of the Chinese mainland, but is part of Taiwanese-ruled Kinmen county.    © Reuters

TOKYO/TAIPEI -- Foxconn, the Taiwanese Apple supplier whose China-friendly founder is making a bid for the presidency, and media owner Want Want are among major companies from the island receiving hundreds of millions of dollars in subsidies from Beijing, raising questions about Chinese influence in the economy.

Uni-President China Holdings and Tingyi Holding, two leading beverage and instant noodle companies, have also received substantial grants, research by the Nikkei Asian Review shows.

The grants to these companies, made over several years, amount to a significant portion of net profit generated over the same period; more than half, in the case of one Foxconn subsidiary, 12% for Uni-President China and 11% for Want Want, which runs major China-leaning Taiwanese newspapers and TV stations.

In several cases, Chinese funding rose substantially in the years after Taiwan's pro-independence Democratic Progressive Party won back the presidency in 2016.

The grants are not illegal, but they will spark controversy after Terry Gou, founder of Foxconn, two weeks ago announced his intention to run for the presidency in January if he is chosen to represent the China-friendly Nationalist Party, or Kuomintang, in the election. The funding will intensify suspicion over China's links to many of the island's most influential business empires. The government last week said it would look into whether China's funding could be used to influence local politics.

Gou's potential opponent, former Premier William Lai Ching-te of the ruling DPP, has already demanded that the founder of the company formally known as Hon Hai Precision Industry explain whether he is "able to represent the interests of Taiwan while running businesses in mainland China."

Many Taiwanese companies receive funding from the Chinese state. Taiwanese tech groups Pegatron, Quanta Computer, and Compal Electronics have all received tax breaks and incentives in China. Like many countries Beijing uses such measures to encourage investment from foreign companies, not just from Taiwan. But companies listed in Taiwan do not have to reveal the scale of government grants, while those trading on Hong Kong or Chinese exchanges -- such as Want Want China Holdings and certain Foxconn units -- are required to make such disclosures.

Research carried out by the Nikkei Asian Review shows that subsidies and grants since 2006 to two of Foxconn's listed subsidiaries operating in the mainland came to at least $433.98 million over 12 years.

At least since 2006, FIH Mobile -- maker of Android phones for several Chinese brands and Finland's Nokia -- has received $221.96 million, roughly 60% of its aggregate net profits during the same period. The level of funding increased noticeably after 2016, from $17 million in 2015 to $66.6 million last year.

Another mainland unit, Foxconn Industrial Internet pocketed 1.429 billion yuan ($212 million) over the last 4 years, more than 2% of its aggregate net profits. The period is shorter, as the company only went public in Shanghai last May. FII supplies industrial robots and equipment for communication and cloud-computing for Apple, Amazon, Dell, Cisco and HP, as well as China's Huawei Technologies and Lenovo Group.

FII's latest annual report also reveals that government grants under the name of "corporate support fund" increased by 47% in 2018 to 493 million yuan.

Foxconn did not respond to questions from Nikkei about the grants by the time of publication. However, on Thursday it issued a statement amid a growing outcry over Beijing's funding of Taiwanese companies. Foxconn said its mainland subsidiaries had "legally won industrial development incentive benefits and not violated any laws related to the cross strait relationship" in Taiwan. The company stressed that receiving grants like this in China was "normal" for all investors.

Want Want -- which sells crackers and soft drinks in China in addition to its ownership of Taiwan's China Times, Commercial Times, CtiTV News, and China Television -- has also defended the funding of its Chinese business.

Taiwan's largest newspaper Apple Daily reported last week that Want Want China Holdings had accepted 15.26 billion New Taiwan dollars ($495 million) in subsidies from China since 2007.

Research by Nikkei shows that Want Want China has, in fact, been taking subsidies at least since 2004, bringing the total to $586.7 million up to last September. According to the prospectus issued for its Hong Kong listing in March 2008, subsidies included "incentives for contributing to employment and economic development in particular localities, value-added tax and other tax rebates and other incentives."

Immediately after Apple Daily's first report appeared, Want Want stressed the grants had been provided by "local governments for attracting investment" regardless of nationality and had been audited every year by certified accountants.

Uni-President China Holdings, another early bird investor in China and a leading maker of soft drinks and instant noodles in the country, has received government grants, at least since 2004, amounting to 957 million yuan. The accounts show a big jump in 2017 to 135.86 million yuan from 43.28 million yuan a year ago. A spokesperson of its Taiwanese parent Uni-President Enterprises told Nikkei that the company had nothing to hide.

"The Chinese government hopes to attract big companies to go there and invest more locally so they offer good investment terms... it's not only to Uni-President, but to companies that their authorities think could create value," he said.

Want Want's archrival in both instant noodles and packaged drinks, Tingyi Holding, also benefits from sizable grants, amounting to $379 million from 2008, according to traceable public disclosures.

Ma Xiaoguang, spokesman of China's Taiwan Affairs Office, said on Wednesday that the Chinese government had always "encouraged and supported Taiwanese companies to invest and grow their business in the mainland."

He said that the subsidies were about providing "equal treatment to share opportunities to develop in the mainland."

The Taiwanese government confirmed that it was not illegal to accept subsidies in China. "Taking subsidies or rewards from the Chinese government does not violate Taiwan's laws," Chiu Chui-Cheng, deputy minister of Taiwan's Mainland Affairs Council, told Nikkei. "What we are concerned about is if the money comes with political agenda against Taiwan," the official spokesman for Taipei's China policy added.

Chiu said the government had no evidence that Beijing had interfered in Want Want's media operations, although it was "closely monitoring" the situation.

Nevertheless, there is skepticism in many quarters over stronger economic ties with the mainland, since businesses are viewed as likely target of China's United Front policy. The policy, which is conducted under the direct command of the Communist Party Central Committee, aims to win support for Beijing among influential individuals and organizations in certain countries.

Nikkei staff writers Lauly Li, Cheng Ting-fang, and Kensaku Ihara in Taipei contributed to this story.

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