The Office of the US Trade Representative has since 2006 periodically published a blacklist of companies it calls “notorious markets,” which it deems responsible for large-scale intellectual property rights infringements. Last year’s list included online shopping platforms Taobao and Shopee.
Why are such companies allowed to operate in Taiwan?
Under Article 3 of the Measures Governing Investment Permit to the People of the Mainland Area (大陸地區人民來台投資許可辦法), a company incorporated in a third area, that is somewhere other than Taiwan or China, must still register as a “mainland-funded company” if Chinese investors hold more than 30 percent of its shares or have controlling power over the company.
According to the Ministry of Economic Affairs’ Investment Commission, Shopee does not meet the definition of a “mainland-funded company.” Although Tencent is the biggest shareholder of Shopee’s Singaporean parent company, Sea Ltd — holding 39.7 percent of its shares — Tencent is not regarded as fully Chinese-funded, since Chinese investors only hold about 60 percent of its shares.
Chinese investment in the Singaporean company amounts to only 23.82 percent, which falls short of the threshold. Consequently, Shopee can operate in Taiwan without registering as a Chinese-funded company.
However, the commission’s definition of a “mainland-funded company” is problematic. In this example, although some of Tencent’s shares are owned by non-Chinese investors, Chinese investors undoubtedly have control over the conglomerate. Tencent should therefore be defined as 100 percent Chinese-controlled rather than 60 percent.
Since Tencent has an almost 40 percent stake in Shopee’s holding company, it would put the company over the threshold.
Second, even if Tencent is defined as just 60 percent “mainland-funded,” Sea’s other major shareholders deserve attention.
Although Sea’s founder, chairman and chief executive officer Forrest Li (李小冬), and chief operating officer Ye Gang (葉剛), hold Singaporean citizenship, they are originally from China. Li and Ye hold a total of 45 percent of Sea’s shares, so their ownership alone exceeds 30 percent, without taking Tencent into account.
No matter how the ownership is calculated, Sea is a Chinese-funded company that has its headquarters in Singapore. According to newspaper reports, some of Sea’s shareholders are Taiwanese. Maybe that is why it got waved through.
Taobao Taiwan’s entry into the Taiwanese market is another dubious case. The commission curiously allowed it to be set up by the Taipei branch office of Claddagh Venture Investment — a company incorporated in the UK with a stated initial capital of just US$1.
An even bigger concern is how Claddagh obtained the license to brand its Taiwan business as Taobao Taiwan. Considering that it even calls itself Taobao, how could it not be regarded as a Chinese-funded company?
The authorities need to look into whether the defining criteria of a Chinese-funded company are too lax.
The ministry’s initial decision to give Shopee the go-ahead was based on the so-called “30 percent” clause, but setting the defining criterion at 30 percent is obviously too lax.
The Legislative Yuan or the ministry should amend the regulations by cutting the 30 percent limit to 10 percent, or even 5 percent.
Liu Ming-te is an associate professor at a university.
Translated by Julian Clegg
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