There is little more than a month to the presidential and legislative elections due on January 13 in the most flammable geopolitical hotspot of U.S.-China relations, Taiwan.

The outcome is of critical geopolitical importance to Beijing and Washington.

It also matters hugely to investors, given the island's centrality in manufacturing advanced semiconductors and in global supply chains, thanks to two of its flagship companies, Taiwan Semiconductor Manufacturing Corp. (TSMC) and Hon Hai Precision Industry, better known in the United States as Apple-subcontractor Foxconn.


Two weeks ago, Foxconn's founder and former chairman, Terry Gou, withdrew as a presidential candidate. His campaign had ground to a halt in late October after the Chinese government launched tax and land use audits of Foxconn, which employs over 1 million Chinese workers and has major facilities in Guangdong, Jiangsu, Henan and Hubei provinces.


The primary motivation for the audits was political. Beijing feared that Gou, who was running as an independent, would split the pro-Beijing vote with the Kuomintang and hand victory to the Democratic People's Party, which Beijing deems separatist.


Beijing may also have interpreted Washington's expeditious handling of an application by actress Tammy Lai to renounce her U.S. citizenship so she would be eligible to be Gou's running mate as US election interference to be countered.


Not that Beijing is averse to interference of its own; both Google and Meta say they have detected Chinese cyber disinformation operations around the elections on their social media networks.


Corporate Scrutiny
The decision to audit Foxconn ahead of Taiwan's presidential election also exposes the growing conflict between Beijing's domestic and foreign economic policies and its willingness to use economic levers for geopolitical advantage.


At the Third Belt and Road Forum in Beijing in mid-October, President Xi Jinping indicated China's investment environment would become more welcoming to foreign businesses, a message he repeated to Silicon Valley's elite at the ritzy dinner for him during his recent trip to San Francisco during which he met President Joe Biden.


Yet, at the same time, these audits are part of a pattern of greater corporate scrutiny that has led technology companies to move operations away from China and pushed foreign professional services firms to reconsider their presence there.


Most recently, pollster Gallup decided to close all its Chinese offices. Rating agency Moody's has ringfenced its Greater China IT network from its global ones.


While China will remain essential to Apple and other Western multinationals for sourcing and markets, political risks will rise to the companies' operations.


Multinational businesses will face greater fiscal scrutiny from local governments in China as local authorities come under increasing financial pressure and search for new sources of revenue.


Even a Taiwan-owned company such as Foxconn, regardless of how many jobs it generates, is an easier target than a domestic counterpart. Indeed, it is no longer feasible for local governments to treat overseas businesses with largesse and a relative lack of fiscal scrutiny.


In that context, Beijing's assurances of being friendly to foreign businesses will be received with growing skepticism.


Dealing With Disinformation
Questions about the audits' impact on Foxconn are rife in China's social media. Foxconn issued a denial of widely shared posts falsely claiming that the company had to pay RMB180bn (USD25.4bn) in back taxes and hand back land equivalent to 20,000 football pitches to local authorities.


Given that online content regulator the Cyberspace Administration of China pledged in September to assist companies to do more against misinformation and disinformation, how it handles this case will shed more light on the depth of Foxconn's political bind and the potential risks for other foreign firms similarly caught in Beijing's cross hairs.


Apple Implications
Apart from the impact on Foxconn, these events also create further headaches for its leading client, Apple.


In September, reports surfaced that Apple iPhones could not be used in Chinese government departments involved with international affairs, investment and trade or in certain state-owned enterprises and government-adjacent organizations.


The foreign ministry spokeswoman Mao Ning evaded the question when asked about these bans. The latest iPhone model's sales have been sluggish, suggesting a “patriotic” boycott, an ever-present threat for any foreign company selling in China.


In mid-October, Apple CEO Tim Cook visited China, using the opportunity of a board meeting of the Tsinghua University School of Economics and Management, which he chairs, to visit Apple stores and local suppliers, as well as to meet Commerce Minister Wang Wentao.


However, building political capital will be more difficult than in the past due to Apple's increasing efforts to diversify manufacturing. It is in the process of transferring one-quarter of its production to India.


Western restrictions against Huawei's hardware and other Chinese devices are extensive. It is, therefore, not surprising that China is retaliating in kind, although its limitations on iPhones are less stringent.


Similarly, renewed reports have emerged about restrictions on Tesla vehicles in sensitive locations for fears that they are genuinely vehicles for U.S. espionage.


Outlook
China is increasingly capable of import substitution in all major technologies except the most advanced semiconductors.


Consequently, foreign, especially U.S.-made, devices and hardware will face growing difficulties as Beijing mandates domestic alternatives in “sensitive areas”—an ever changing and expanding category.