Taiwan’s Foxconn faces China tax probe, seen as politically motivated.

Two people close to Foxconn (2317. TW), a significant supplier of Apple’s (AAPL.O) iPhones, acknowledged Monday that the company is subject to a tax investigation in China. They claimed that they believed a state-backed tabloid had published the investigation for political reasons related to Taiwan’s impending elections.

China’s state-backed Global Times newspaper said on Sunday that the country’s natural resources department had undertaken on-the-ground investigations into the usage of land by Foxconn firms in the provinces of Henan and Hubei, among other places, and that several of the company’s important Chinese subsidiaries were the subject of tax audits.

Due to the delicacy of the situation, the two sources asked to remain anonymous. They claimed that Chinese authorities had audited several corporations recently, but according to their belief, only Foxconn’s investigation had been made public.

According to the sources, the audits are taking place as Foxconn tries to increase manufacturing outside of China less than three months before Taiwan’s presidential election.

Taiwan’s administration routinely charges Beijing with trying to use military or economic pressure to alter the results of its elections to achieve a result favorable to China. Taiwan is a territory that China claims as its own.

Terry Gou, the creator of Foxconn and the last CEO of the business, is running for president as an independent.

By running, Gou would split the opposition vote, perhaps securing a victory for current Vice President Lai Ching-te, who is currently ahead in the polls, The Global Times said in an English-language article late on Sunday.

Beijing hates Lai because it sees him as a separatist. He claims Beijing has rejected his offers of dialogue, and Beijing alone can decide Taiwan’s destiny.

Gou’s decision to run for office “is likely to further split the island’s opposition camp, and this will ultimately favor secessionist ruling Democratic Progressive Party candidate Lai Ching-te,” the Global Times cited unidentified analysts.

IMPROVEMENT OUTSIDE OF CHINA

The Chinese government has made no formal announcement on the audits of Foxconn.

Local officials in the provinces of Henan, Hubei, Guangdong, and Jiangsu, who the Global Times claimed were carrying out the audits and investigations, did not immediately reply to faxed requests for comment from Reuters.

Previously known as Hon Hai Precision Industry Co Ltd, Foxconn employs hundreds of thousands of people in China and is a significant investor there. Beijing frequently cites Foxconn as an example of Taiwanese investors’ success in the nation.

The business has been working hard to diversify its production base outside of China, and the first source told Reuters that they saw the audit as a “warning” to Foxconn.

Their economy is struggling. Seeing big corporations like us go to India is a warning,” the person claimed.

They demand that you choose a side. The first source stated, “You may either stay with us or go.

The audit was “unexpected” and “relatively unusual,” according to the second source.

In a statement released on Sunday, Foxconn stated that adhering to the law was a “fundamental principle” of its business practices and that it would “actively cooperate with the relevant units on the related work and operations.”

Foxconn declared it had no more comments on Monday.

Requests for a response from China’s Taiwan Affairs Office were not immediately fulfilled. The Taiwanese government assisted Foxconn, but Premier Chen Chien-jen did not specify how.

On Monday, the price of Foxconn shares fell 2.9%, outperforming the decline of the broader market (.TWII) of 1.2%.

Election on “WAR OR PEACE”

Gou, the wealthy creator of Foxconn, has fallen behind in the polls despite waging a prominent presidential campaign.

He claims that only with his broad professional and social connections in China and the United States can he keep the peace after the island’s dominant Democratic Progressive Party (DPP) brought the region to the verge of conflict with China through its antagonistic policies.

Huang Shih-hsiu, a spokeswoman for Gou’s campaign, directed inquiries about the Foxconn investigation to the business, noting that Gou was no longer on the board and was now merely a stakeholder.

But today, the Foxconn investigation is a political topic.

When questioned about the Foxconn investigation on Monday, Hou Yu-ih, the presidential candidate for Taiwan’s largest opposition party, the Kuomintang, which has framed the election as a “war or peace” vote, stated that Taiwan corporations fear the most instability between Taiwan and China.

The DPP candidate Lai, who is now in the lead in the polls, said the Chinese news on the inquiry was “unexpected” and “regretful” in his speech at a rally on Sunday.

On Monday, DPP spokesperson Chang Chih-hao stated that “Taiwanese businesses have always contributed to China’s economic development.”

“However, the Chinese communists often use Taiwanese businesses as a bargaining chip for political pressure or election interference against Taiwan.”