China’s government is investigating mainland bases of Taiwanese contract manufacturer Foxconn (2317. TW), a major supplier of Apple’s (AAPL.O) iPhones, for tax and other compliance reasons, two sources close to the company confirmed on Monday. The investigation, first reported on Sunday by the Communist Party-affiliated Global Times tabloid, said some of Foxconn’s key subsidiaries in China were the subject of tax audits and that the country’s natural resources department had conducted on-site investigations of its land use at sites in Henan and Hubei provinces.
The source close to Foxconn said they believed the paper disclosed the probe for political reasons tied to Taiwan’s upcoming elections. It follows Foxconn founder and chairman Terry Gou’s decision in August to run for president, resigning his seat on his company’s board. Analysts say Gou is seen as a China-friendly candidate with a similar stance to the Kuomintang, the main opposition party in Taiwan. The tycoon’s candidacy is likely to divide the island’s pro-independence opposition, potentially helping secessionist ruling Democratic Progressive Party candidate Lai Ching-te win the election, according to analysts.
China has pressured Taiwan to accept its claim that the self-governed island is part of the mainland and says companies like Foxconn should comply with Chinese law. Previously, Beijing has taken action against other foreign businesses that operate in the country for alleged non-compliance, including oil giant Chevron (CVX.N).
Neither the source close to Foxconn nor the Global Times responded to requests for comment on Monday. In a statement on Sunday, the company said it would cooperate with relevant departments. It added that legal compliance was a “fundamental principle” of its operations everywhere and that it will continue to do so in the future.
The company, formally known as Hon Hai Precision Industry Co Ltd, employs hundreds of thousands in China and is often lauded by Beijing for its success there. However, it has been moving its production to other countries in recent years as it tries to diversify its manufacturing base and protect itself from rising labor costs. The first source at the company said they viewed the Chinese probes as a warning, saying, “They want you to take their side or leave.”
Zhang Wensheng, deputy dean of the Taiwan Research Institute at Xiamen University, told the Global Times that tax inspections and land use investigations are normal market supervision activities that all enterprises should cooperate with. He added that if any enterprises have violations, they should admit them and step up rectification. The Global Times is an affiliate of the Chinese Communist Party-controlled state-run China Daily newspaper. The newspaper, widely regarded as the most influential in the country, has a nationalistic tone. It was founded in 1949, and its website says it aims to promote the Chinese nation’s culture and social values. Subscribers can access Asia Supply Chain and dozens of other titles in our news database.