Foxconn Faces Tax and Land Use Probes Amid Founder’s Presidential Bid

Foxconn, the world’s largest contract electronics manufacturer and Apple’s most important partner, said it will cooperate with Chinese authorities on investigations, following a report that officials are conducting tax audit inspections and reviewing land use of Foxconn subsidiaries.

Foxconn, officially known as Hon Hai, makes the vast majority of iPhones at factories in China. The company has also been expanding its presence in other sectors, such as electric vehicles, cloud computing and semiconductors.

Foxconn Faces Tax and Land Use Probes Amid Founder’s Presidential Bid
Foxconn Faces Tax and Land Use Probes Amid Founder’s Presidential Bid

According to state media Global Times, multiple offices of Foxconn’s subsidiaries across China have been subjected to tax audits and on-site investigations into land use. The report did not elaborate on the reasons or the scope of the probes.

“Legal compliance everywhere we operate around the world is a fundamental principle of Hon Hai Technology Group (Foxconn). We will actively cooperate with the relevant units on the related work and operations,” the company said in a statement on Sunday.

Foxconn’s Taipei-listed shares fell 3.29% in early Monday morning trade. Foxconn Industrial Internet, a major Shanghai-listed subsidiary, plunged its 10% daily limit — its biggest loss on record. Luxshare Precision Industry, a Foxconn rival based in China, gained as much as 4.9%.

Terry Gou’s political ambitions may be a factor

The investigations come as Foxconn founder Terry Gou bids to become Taiwan’s next president. Gou announced in August that he was entering Taiwan’s 2024 presidential elections as an independent candidate after again failing to secure the nomination for the main opposition Kuomintang party earlier this year. He dropped a previous presidential bid in 2019 after the KMT selected a different candidate as its nominee.

Gou stepped down as Foxconn chief in 2019 and resigned as a company board member in September. He is one of Taiwan’s richest men, with a net worth of $7.6 billion, according to Forbes.

China claims that Taiwan is part of its territory and has not ruled out the use of force to reunify the island. Beijing has also increased its military and diplomatic pressure on Taipei, which rejects Beijing’s sovereignty claim and maintains its own government, military and foreign policy.

Some analysts have speculated that China may be targeting Foxconn to send a message to Gou or to undermine his popularity in Taiwan. Gou has said he supports the “1992 Consensus”, an agreement that both sides belong to “one China” but with different interpretations. However, he has also criticized Beijing for its “one country, two systems” proposal for Taiwan and called for dialogue and mutual respect.

China rattles foreign firms with arrests and investigations

Foxconn is not the only foreign company that has faced challenges in China recently. Over the weekend, Bloomberg reported that an executive and two former employees of WPP, one of the world’s biggest advertising companies, have been arrested in China. The government also detained a local employee of a Japanese metals trading company in March, according to the Nikkei newspaper. And this month, a court formally charged an Astellas Pharma executive on suspicion of espionage.

China often does not explain the actions taken by its regulators publicly, leaving companies with operations in the country guessing at the ultimate goals of the government. Given the Communist Party’s immense power, that opaque approach to oversight of the economy has unsettled foreign executives.

China is also struggling through a housing crisis, as property giant Evergrande teeters on the brink of default. President Xi Jinping and his administration have been trying to signal support for the private sector, seeking help in stabilizing the world’s second-largest economy. However, perceptions of the party’s economic stewardship have suffered during years of Covid lockdowns and a brutal crackdown on the technology industry, including Alibaba and co-founder Jack Ma.

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