Local regulator rebukes chip unit of Tsinghua Unigroup for violations of overseas investment rules
- UniIC has been scolded for making investments in Hong Kong-based subsidiary without approval from provincial DRC
- Company has been ordered to punish ‘people responsible for the relevant issues’ and to strengthen compliance procedures
A subsidiary of Tsinghua Unigroup, the state-backed Chinese chip maker, has been named and scolded by a local regulator for violations of overseas investment rules, signalling Beijing’s increased scrutiny of investment activities.
UniIC, a memory chip design company based in Xian, capital of northwestern Shaanxi province, was named and criticised by the provincial Development and Reform Commission for making total investments of US$7.75 million in its Hong Kong-based subsidiary without gaining prior approval from the agency, according to a recent notice published on the official website of the agency.
The investment was made in three separate tranches between 2016 and 2019 to Hong Kong Huaxin, which was founded by UniIC in 2013. Although UniIC had reported to the local commerce and foreign exchange departments before the deals, it did not submit similar filings to the economic planning agency, leading to violations of foreign investment regulations in China, according to the local agency.
The company was ordered to punish “the people responsible for the relevant issues”, “strengthen corporate compliance and make written commitments”, according to the regulator. “[We] hope that all the enterprises that make overseas investments will earnestly learn the lessons and effectively strengthen the management of overseas investment projects,” it added.
Analysts said it was not uncommon for Chinese companies to skip the economic planning agency when they make overseas investments as the commerce authority and foreign exchange administration are the traditional regulators.
“There are a large number of such cases that have only gone through the procedures of the commerce and foreign exchange agencies, but have not gone through the procedures of the Development and Reform Commission,” Wang Zhiyi, director of the Cross-border Finance Research Institution in China, said in a commentary published last week.
The companies were able to make investments without review from the economic planning agencies as China had “a very loose regulatory environment” for overseas direct investments around 2014, but “these issues have surfaced now after the Development and Reform Commission published a notice”, he said.