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Foxconn plans to sell its controversial stake in Chinese chip giant Tsinghua Unigroup, but that reportedly won’t stop the Taiwanese government from fining the iPhone supplier for buying shares in the first place.

The Taiwanese electronics maker, formally known as Hon Hai Precision Industry Co., Ltd, said on Friday it will offload its indirect minority stake in Tsinghua Unigroup, which it owns through Chinese Internet subsidiary Foxconn Industrial. According to Bloomberg, the buyer, Yantai Haixiu IC Investment Center, will take a stake of no less than 5.38 billion yuan ($771 million).

That’s how much Foxconn paid for its position in Tsinghua Unigroup, which Taiwan’s government said was a controversial move since the deal was revealed in July.

Not surprisingly, Taiwan is wary of domestic companies investing in China. That’s because Taiwan has faced growing aggression from the Middle Kingdom, which claims the self-governing island nation as its own and has not ruled out using military force to “reunify” the two. Just think of how China sent 27 aircraft into Taiwan’s Air Defense Identification Zone after US House Speaker Nancy Pelosi visited the island in early August, and you’ll get the idea.

Taiwan’s government said Foxconn did not get its approval when the company bought Tsinghua Unigroup’s shares. The investment may also violate Taiwanese law that expressly prohibits high-tech investments between Chinese companies perceived as a national security risk.

Taiwanese government officials were previously reported to be weighing fines of up to T$25 million ($813,749) against Foxconn.

Now Bloomberg and Reuters are reporting that Taiwan may soon face fines despite Foxconn’s announced plan to divest itself of its stake in Tsinghua Unigroup.

“Although the investments were subsequently withdrawn, the fact has already been established that they invested first, and they will be fined,” the source told Reuters.

This is quite a misstep for Foxconn, which has been looking to expand beyond electronic components into the semiconductor industry with fresh investments. In addition to acquiring its stake in Tsinghua Unigroup, the company has formed joint ventures to build chip factories in Malaysia and India, the latter of which will benefit from Foxconn’s recently disclosed $500 million investment.

China is striving to achieve self-sufficiency in semiconductors, which has become increasingly difficult since new U.S. sanctions this year cut the country off from foreign equipment and tools needed to make advanced chips.

Tsinghua Unigroup, a huge conglomerate spun out of Beijing’s Tsinghua University, is a key part of China’s plan, but the company has struggled financially in recent years. This eventually led the state-owned company to receive a $9.4 billion bailout from government-backed Beijing Jianguang Asset Management Co. in April. Ltd after racking up more than $30 billion in debt. ®


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