Taiwan has turned a wary eye on China’s ambition to boost its semiconductor industry and is tightening legislation to prevent what it says is China stealing its chip technology.

Foxconn, a major Apple Inc supplier and iPhone maker, disclosed in July it was a shareholder of embattled Chinese chip conglomerate Tsinghua Unigroup.

Late Friday, Foxconn said in a filing to the Taipei stock exchange its subsidiary in China had agreed to sell its entire equity stake in Tsinghua Unigroup.

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Taiwan’s Economy Ministry said in response that its investment commission, which has to approve all foreign investments, will ask Foxconn on Monday for a “complete explanation” about the investment.

“As for the fact that the investment was not declared beforehand, the amount will still be calculated in accordance with the formula and the penalty will be imposed in accordance with the law,” it said, without giving details.

Foxconn did not immediately respond to a request for comment.

People familiar with the matter have previously told Reuters that Foxconn did not seek approval from the Taiwan government before the investment was made and authorities believe it violated a law governing self-ruled Taiwan’s relations with China, which claims the island as its own.

In a statement on Saturday before the economy ministry’s, Foxconn said as the year-end approached the original investment had “remained unfinalised”.

Foxconn said that Xingwei, 99% controlled by its China-listed unit Foxconn Industrial Internet Co Ltd (FII) , had agreed to sell its holdings for at least 5.38 billion yuan ($772 million) to a Chinese company called Yantai Haixiu.

Xingwei controls a 48.9% stake in a different entity that holds a 20% stake in the vehicle owning all of Unigroup.

“In order to avoid uncertainties from further delays or impact to investment planning and the flexible deployment of capital, the Xingwei Fund will transfer its entire holding in Shengyue Guangzhou to Yantai Haixiu,” it said.

“After the transfer is completed, FII will no longer indirectly hold any equity in Tsinghua Unigroup.”
Tsinghua Unigroup did not respond to a request for comment.

Taiwanese law states the government can prohibit investment in China “based on the consideration of national security and industry development”. Violators of the law could be fined repeatedly until corrections are made.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, is keen to make auto chips in particular as it expands into the electric vehicle market.

The company has been seeking to acquire chip plants globally as a worldwide chip shortage rattles producers of goods from cars to electronics.

Taipei prohibits companies from building their most advanced foundries in China to ensure they do not site their best technology offshore.