By Yimou Lee and Ben Blanchard
TAIPEI (Reuters) -Foxconn, a major supplier of Apple's iPhones, is facing a tax probe in China, two sources close to Foxconn confirmed on Monday, saying they believed it was disclosed by a state-backed paper for political reasons tied to Taiwan's upcoming elections.
On Sunday, China's state-backed Global Times tabloid said some of Foxconn's key subsidiaries in China were the subject of tax audits and that China's natural resources department had conducted on-site investigations on land use by Foxconn enterprises in Henan and Hubei provinces and elsewhere.
The two sources, who declined to be named due to the sensitivity of the matter, said several companies which they did not name had been audited by Chinese authorities in recent months, but they believed only Foxconn's probe was made public for political reasons.
They highlighted the audit comes less than three months ahead of Taiwan's presidential election and amid Foxconn’s diversification drive to move some production out of China.
Chinese authorities in Henan, Hubei, Guangdong and Jiangsu did not immediately respond to faxed requests from Reuters seeking comment on audits of Foxconn.
Foxconn, formally called Hon Hai Precision Industry Co Ltd, employs hundreds of thousands of people in China and is a major investor there, regularly hailed by Beijing as an example of the success of Taiwanese investors in the country.
The first source told Reuters they viewed the audit as a "warning" to Foxconn, which has been shifting some of its production lines including those for iPhones from China to India.
"Their economy isn't doing well. It is a warning, seeing major companies like us moving to India," the source said
"They want you to take a side. You either stay with us, or leave," the first source said.
It could not be a coincidence that the audit was made public by a state-backed news outlet just as Foxconn founder Terry Gou bids to be Taiwan's next president at January elections, the source said.
The second source said the audit was "unexpected" and relatively "unusual".
The Global Times, known for its nationalistic tone, did not give details of the tax or land use probes, which have not been officially announced by any Chinese government department.
Foxconn said in a statement on Sunday that legal compliance was a "fundamental principle" of its operations everywhere, and that it would "actively cooperate with the relevant units on the related work and operations".
On Monday, Foxconn said it had no further comment.
China's Taiwan Affairs Office did not respond immediately to a request for comment.
Foxconn's billionaire founder Gou, who no longer has a role in the company's day-to-day operations and stepped down as company chief in 2019, is running as an independent candidate for president though he is at the bottom of polls.
He has accused Taiwan's ruling Democratic Progressive Party (DPP) of taking the island to the brink of war with China by its hostile policies and that only he, with his extensive business and personal contacts in China and the U.S., can maintain peace.
Gou's campaign spokesman Huang Shih-hsiu referred questions on the Foxconn probe to the company, saying Gou had four years ago handed over running the company, no longer sat on the board and was only a shareholder now.
Taiwan Premier Chen Chien-jen offered the government's help to Foxconn, while Economy Minister Wang Mei-hua said her ministry had already been in touch with the company.
Speaking at a campaign rally on Sunday, Taiwan Vice President Lai Ching-te, the DPP's presidential candidate and leading the polls, said the Chinese report on the investigation was "unexpected" and "regretful".
"So I hope all our people can support Hon Hai, support Taiwanese companies," he said, in comments carried by Taiwanese television stations.
Foxconn shares tumbled as much as 3% on Monday. The broader market was down around 1%.
(Reporting by Yimou Lee and Ben Blanchard; Additional reporting by Shanghai Newsroom; Editing by Jacqueline Wong, Edwina Gibbs and Sonali Paul)
