U.S. House Speaker Nancy Pelosi’s visit to Taiwan last week may well have inflamed already-strained relations between the U.S. and China and China and Taiwan. But lawyers say local and foreign businesses in Taiwan are not panicking, as they are very familiar with the risks and challenges that come with operating in Taiwan.
“The reaction within Taiwan is actually quite muted as they’ve been putting up with cross-strait stress over the course of 70 plus years,” said John Eastwood, a partner at Taipei-based Eiger, a full-service law firm that also has an office in Shanghai.
Eastwood added that he had not seen any foreign investors or European or American companies taking major steps or making changes in reaction to the military exercises and threats coming out of Beijing.
Pelosi’s visit triggered a series of retaliatory responses from the Chinese government, which sees the growing alliance between the U.S. and Taiwan as a threat. It has since announced unspecified sanctions against Pelosi and her immediate family. Beijing also directed The People’s Liberation Army to conduct military drills, deploying mobile missile launchers and armored vehicles, that encroached on Taiwan’s airspace and territorial waters.
A Chinese Foreign Ministry spokesperson criticized Pelosi’s visit as a “political farce,” saying in a regular state briefing, “It is Pelosi who is grandstanding, but it is bilateral relations and regional peace and stability that will suffer.
But lawyers in Taiwan echoed Eastwood’s sentiment, saying not much has changed in the corporate or business world. One partner at local firm Tsar & Tsai Law Firm told Law.com International that there’s really “no need for panic,” as both local and foreign businesses in Taiwan are “very familiar with the risks and challenges that come with operating in Taiwan.”
Another Taipei-based partner at one of the largest foreign law firms in Taiwan said that while his firm has received some queries from existing clients regarding the current sentiment in Taiwan following Pelosi’s visit, none are making any knee-jerk decisions.
“They know it’s all a political play leading up to the Chinese elections,” the partner said.
What has been increasingly obvious, though, is Taiwan’s increased efforts to protect its assets and businesses.
“Local regulators here have amended regulations in order to defend its local companies from hostile takeovers by mainland Chinese companies,” the Tsar & Tsai partner explained.
In 2020, the Taiwanese government introduced new regulations to tighten the screening of Chinese investments within its borders, joining the U.S. in preventing China from skirting regulations governing investment in sensitive technologies.
Taiwan now only allows Chinese investors to own up to 30% of Taiwanese companies in sectors ranging from electronics components to solar energy, and even those planned investments are screened on a case-by-case basis. The new rules also bar Chinese investors from acquiring those stakes through a third party.
Still, for the U.S., further retaliatory moves from China could be burdensome. China can impose sanctions on more American companies, as it did with aerospace giants Boeing and Lockheed Martin over arms sales to Taiwan earlier this year.
American retailers may also suffer the brunt of consumer boycotts encouraged by the Chinese government, much like retailers Nike and H&M did last year as a result of industry statements expressing concerns about the alleged use of Uyghur forced labor and other human rights abuses in their supply chains.
Nike has moved much of its production out of China to lower-cost countries and now manufactures more footwear and apparel in Vietnam, Indonesia and Cambodia, according to its 2021 financial report.
Despite long-running political tensions, though, China remains Taiwan’s largest trading partner, with bilateral trade rising at least 25% year on year. Last year, the value of trade between the two countries totaled more than $328 billion.
However, lawyers say even Taiwanese companies are now looking to move their mainland China operations and investments out of China, attributing any moves to a combination of China’s zero-Covid policy, the rising cost of labor in the country as well as the strained relationship between the two governments.
“These [factors] are pushing Taiwanese companies to look to put their investments elsewhere as they kind of look to get out of China and put their eggs in a different basket,” said Eastwood.
But most are not likely to completely pull out right away, he said. Instead, they will consider other countries when they have the opportunity to expand a new line. At that point, he explained, they may start switching and moving their molds over to another facility in such countries as Vietnam, Malaysia, Indonesia and India.
One of Taiwan’s most valuable companies is Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for the majority of the world’s most advanced chips. Like other countries, China relies heavily on Taiwan for its semiconductor supplies. But TSMC, too, could move its production elsewhere. It is already building one plant in the U.S.—in Arizona—and one in Japan’s Kumamoto Prefecture. TSMC’s chief executive officer, Mark Liu, told shareholders at the company’s annual meeting in June that it is evaluating whether to build one in Europe as well.
Notably, foreign law firms that do not have offices in Taiwan have benefited from TSMC’s expansive business. In 2020, TSMC Global, a subsidiary of TSMC, completed a $3 billion three-tranche bond offering. Sullivan & Cromwell advised TSMC while Latham & Watkins advised the underwriters. Both firms serviced the deal out of various offices, including Sydney, New York, Hong Kong and Singapore. Sullivan & Cromwell also acted for TSMC on a separate $3.5 billion U.S. Securities and Exchange Commission-registered bond offering earlier this year.
In 2019, Quinn Emanuel Urquhart & Sullivan acted for TSMC on its lawsuits against Globalfoundries in the U.S., Germany and Singapore over patent infringements. Quinn Emanuel also does not have an office in Taiwan.
For the firms that do have sizeable corporate practices in Taiwan—Baker & McKenzie, Jones Day, White & Case and K&L Gates—the country’s global domination for semiconductors, critical components used in most technology, from smartphones to automobiles, is crucial.
Taiwanese silicon-wafer maker GlobalWafers Co. recently announced a $5 billion investment to build a chip plant in Texas. In 2016, White & Case advised GlobalWafers on a $683 million acquisition of a semiconductor subsidiary from American renewable energy company SunEdison, which was represented by legacy BryanCave.
Earlier this year, K&L Gates and Latham advised another Taiwanese semiconductor firm, Silicon Motion Technology Corporation, on its $3.8 billion take-private agreement with American integrated circuits company, MaxLinear Inc., a provider of integrated circuits, which was reprsented by Wilson Sonsini Goodrich & Rosati.
Baker & McKenzie, K&L Gates, White & Case declined to comment. Jones Day did not reply to a request for comments.