Taiwan is cracking down on Chinese businesses illegally operating on the island, often by concealing their ownership through shell companies registered in other nations or by hiring non-Chinese nationals to put up the company for them. According to the Rest of World, Taiwan’s Cross-Strait Act and other related investment rules and regulations require Chinese businesses to apply for a permit from the government before they can began operating. However, not all can get this coveted approval, especially as political tensions between the island nation and its bigger neighbor has flared up in recent years.

China has been trying to build self-sufficiency when it comes to semiconductors and advanced chips — an endeavor that began in 2015 and was supercharged in recent years by the White House’s efforts to keep Western technologies away from Beijing through trade bans and export controls. Many Chinese companies are trying to stay competitive and build their own technologies by hiring experts and engineers from across the Taiwan Strait, especially those who have experience working in Taiwan’s vibrant semiconductor industry. They’re even trying to attract talent by offering lucrative salaries that are five to ten times higher than average.

However, Taipei considers this a threat to its national security, especially as its “silicon shield” strategy relies on its technological advantage over China to ensure that its allies help defend it in case of an invasion. Taiwan accounts for more than 60% of global semiconductor production and produces about 90% of the most advanced processors — so any disruption would plunge the modern world into chaos. And by building a semiconductor industry that can rival Taiwan's, China hopes to erode Taiwan’s advantage while also ensuring that it can have all the chips it needs without relying on external sources.

The Ministry of Justice Investigation Bureau (MJIB), the Taiwanese equivalent to the FBI, has investigated 166 cases involving illegal Chinese ownership since 2020. Court records reveal that at least 36 of these have resulted in convictions, in which punishment can include prison time of up to three years and fines ranging from NTD 120,000 (USD $3,800) to nearly NTD 25,000,000 (USD $800,000).

Of the 36 companies that been found guilty of violating the Cross-Strait Act, 33 of them were focused on semiconductor research, development, and design. Aside from this, the agency also investigated 67 cases of Chinese companies allegedly stealing trade secrets from Taiwanese companies.

The Chinese companies accused of breaking Taiwan’s ownership law aren’t small entities, either. Some of the businesses that were investigated and raided were said to have connections with tech giant Xiaomi, smartphone brand OnePlus and mother company Oppo, and Semiconductor Manufacturing International Corporation (SMIC), which is China’s most advanced foundry and a direct competitor to Taiwan Semiconductor Manufacturing Corporation (TSMC).

Despite the fear that Beijing is using this technique for economic espionage, Omdia research director Hui He said that “These moves were largely driven by business needs.” Still, former U.S. Department of Defense official Nichol Eftimiades warned, “Is it espionage if I sit there poaching talents? Well, in some places it is. We are dealing with different definitions depending on the country, and it’s a problem.”