Taiwanese regulators reportedly will soon issue new regulations to prevent local technology companies from selling their subsidiaries or other assets in mainland China. This is the latest move by the local government to prevent sensitive technologies such as semiconductors from leaking to mainland China.

According to a report from Nikkei Asia, an official from the Taiwan Investment Review Committee revealed that a regulation aimed at protecting valuable local chip technology will be sent to the Executive Yuan of Taiwan for further review on Friday, as early as this year. It will take effect before the end of the year or in January next year.

This new regulation stipulates that when Taiwanese companies plan to sell or dispose of any assets (including factories or subsidiaries) in mainland China to local counterparts or other buyers, they need to apply for approval from the department, because this may involve the transfer of sensitive technology . Current regulations only require companies to notify relevant authorities when conducting such transactions.

It is reported that the current investment of Taiwanese companies in mainland China, including the establishment of local subsidiaries, must be approved by the China Securities Regulatory Commission. However, any change of ownership after the initial investment does not require such approval. At a time when cross-strait relations are becoming increasingly tense, this status quo has raised concerns about technology leaks.

At the same time, the Chinese Taiwan Judicial Department and the Mainland Affairs Commission are drafting new regulations to encourage people not to work for companies on the other side to prevent professionals from divulging trade secrets and key technologies to China, Hong Kong and Macau.

According to this draft, any professionals who have received government funding for their own projects must obtain approval if they want to travel to mainland China. Some technology company executives worry that this scope will be too broad and vague, which may affect the willingness of industry companies to cooperate in government-funded R&D projects and hinder overall technological progress in the future.

In the past few years, many Taiwanese technology companies have sold their subsidiaries in mainland China. Lite-On, a leading power management solution provider, sold 51% of its solid-state drive storage subsidiary in Suzhou, China to Ziguang Group in 2017, and the remaining shares were sold to a local investment company in June this year.

Last year, Catcher Technology, a leading iPhone metal case supplier, sold its factory to Mainland China technology supplier Lens Technology, while iPhone assembler Wistron sold its Kunshan factory in Kunshan to the emerging electronics foundry giant in Mainland China Luxshare Precision.

The global packaging and testing leader ASE Investment Control is the latest example. Earlier this month, the company sold shares of its two subsidiaries in mainland China to Zhilu Capital.

"We have noticed that there are loopholes in the current legal system and need to be repaired," said Lu Chen-hui, a spokesman for the Taiwan Investment Management Commission of China, to Nikkei Asia. "Although Catcher Technology and Wistron have low technology intensiveness, these examples reveal that there may be vulnerabilities for sensitive technology leakage in the future."

Lu Chen-hui said that a dedicated department will be responsible for paying closer attention to transactions involving technologies such as "chip manufacturing, chip packaging and testing, and panels."