166 Investigations, 36 Convictions: Taiwan’s Six-Year Hunt for Hidden Chinese Chip Labs

In the spring of 2020, a 32-year-old chip designer in Hsinchu took what looked like a great job. The company, Blue Ocean Smart System, was American. The work was an ambitious AI chip design project. The salary was $120,000, roughly double the Taiwanese industry average, enough to cover private elementary school for his two kids. Then he started noticing that he had never actually spoken to an American coworker. The people in his weekly meetings, the ones he was handing his engineering code and chip designs to, were all in Nanjing.

In August 2021, Taiwanese investigators raided the company. They alleged the Hsinchu operation was a locally registered front for the Nanjing firm of the same name (the Chinese name differed by exactly one character) and that it had no permission to operate in Taiwan at all. The Taiwan office was shut down. That was one case out of 166.

The number Taiwan had not published

Taiwan's Ministry of Justice Investigation Bureau, the island's rough equivalent of the FBI, gave Rest of World figures it had never made public: 166 technology cases investigated over the past six years for allegedly concealing ties to China. All 166 are complete, and the MJIB says more investigations are still running. Over the same period it also closed 67 China-related trade secret probes in the tech sector.

The conviction count comes from somewhere else. Rest of World pulled public court records for 36 of those cases from Taiwan's judicial database, and all 36 ended in convictions for running a tech business in Taiwan without approval under the Cross-Strait Act. Thirty-three of the 36 were companies doing R&D or chip design. Read 36 as a floor rather than a total, because Taiwanese cases do not appear in the public record until a judgment is handed down.

When the MJIB opened its special operation into Chinese-linked investment in the tech sector in 2020, it assigned all 2,000 of its investigators to it. Available data suggests the campaign peaked in 2021, when it raided 100 companies in a single year. The bureau has not released enough detail to say whether the drop since then means fewer violations or fewer raids.

How you hide a chip lab in Hsinchu

Under the Cross-Strait Act, a Chinese company needs government approval before it can operate in Taiwan, whether it wants to sell bubble tea or design processors. So the workaround, according to Cheng Lun Huang, a senior supervising prosecutor at the Hsinchu District Prosecutors Office, is to stop looking Chinese on paper. Register as some other country's foreign entity. Put a non-Chinese person's name on the filing.

The first big raid in the Tai Yuen Hi-Tech Industrial Park, in May 2021, hit a Taiwan-registered company tied to Chinese networking equipment maker Gongjin Electronics. Prosecutors said Gongjin had already tried to register properly and been rejected over alleged ties to the Chinese military, so it came back through a foreign investment structure with a Japanese national listed as its representative while the operating money still came from China. The MJIB's own press release says SMIC, China's most advanced foundry, set itself up in Taiwan as a Samoan company.

The names get bigger from there. Prosecutors alleged that in 2019 a Xiaomi co-founder directed two former Xiaomi executives to stand up a separate smartphone chip development operation in Taiwan, recruiting more than two dozen local engineers, with Xiaomi's Beijing subsidiary covering the research and compensation costs. In 2024 both executives, one of them a former CFO of Beijing-based Xiaomi, were convicted of illegal business operations. Xiaomi has not publicly responded to the allegations. Then last November, a court document revealed an arrest warrant for OnePlus founder Pete Lau over an unauthorized software R&D outfit that prosecutors say had recruited more than 70 engineers in Taiwan and had been running since 2014. Two Taiwanese citizens were charged with operating it on his behalf. Lau, who is also senior vice president and chief product officer at Oppo, did not respond to Rest of World's requests for comment.

Almost none of the companies named in these cases have said anything publicly. VeriSilicon is the exception. After Taiwanese authorities raided its Taiwan subsidiary in 2022, founder and CEO Wayne Dai told Chinese media the office only did sales work and had never employed engineers or operated chip testing equipment.

The offer

None of this works without engineers who say yes, and the pitch has been very good. "Almost everyone in the industry would know or have heard of people who were approached or worked for Chinese companies," John Chen, a board director at Taiwan-listed chip design company MicroIP, told Rest of World. Chen has spent close to four decades in semiconductors. "Salary offers often involve five times that in Taiwan," he said. "I have heard it later even went up to 10 times."

The engineer at Blue Ocean Smart System was not recruited by a spy. He was offered a good salary by what he was told was an American company, and he took it, and he stayed because he liked the work. Vincent Huang, an attorney at Taipei law firm WHP who has represented more than a dozen clients summoned for MJIB questioning, said the hard part for some of them was proving they had no way to check whose money was actually behind their employer.

Hui He, who leads Omdia's semiconductor research in China, argues the whole framing is off. Chinese firms opened offices and hired locally in Taiwan, South Korea and the United States because they needed the products and the markets, she told Rest of World. "They were all abiding by market principles," she said. "Many Western and Taiwanese semiconductor companies are also still operating in China and hiring locals, isn't it?" Beijing has been less measured. In 2022, Taiwan Affairs Office spokesperson Ma Xiaoguang called the raids politically motivated and accused Taiwan's ruling party of "smearing and intimidating mainland enterprises in Taiwan."

Why the charge is usually paperwork

"Whether a company has obtained the required approvals is usually pretty clear," prosecutor Huang told Rest of World. "The threshold for proving a trade secrets violation is much higher." His office prosecutes roughly 70% of its illegal-Chinese-operation cases and roughly 20% of its trade secret theft cases. Unpermitted operation is a document you either have or you do not. Proving somebody walked out with a process node is a different job entirely.

The penalties have been climbing anyway. Taiwan raised the maximum fine for unauthorized mainland investment from NT$600,000 to NT$25 million in 2019, according to the Mainland Affairs Council. In 2022 it tightened both the Cross-Strait Act and the National Security Act, and the latter now criminalizes theft or unauthorized transfer of designated "critical technologies" with sentences of up to 12 years and fines up to NT$100 million, about $3.1 million. The Hsinchu District Prosecutors Office alone has charged around 60 cases involving nearly 190 individuals, more than any other prosecutor's office in Taiwan.

Where your GPU comes from

Taiwan makes more than 60% of the world's semiconductors and around 90% of the most advanced ones. The phone in your pocket, the GPU in your desktop, and the racks of accelerators running whatever AI model you used this morning all trace back through Hsinchu. Taiwan's own security strategy leans on that fact. The silicon shield theory holds that as long as Taiwan remains indispensable to advanced chipmaking, the rest of the world has a concrete reason to care what happens to it.

That is why Taiwan treats a knockoff company on an industrial park street as a national security problem. Taiwan's National Security Bureau published a report in April warning that China keeps using "indirect channels" for "talent poaching, technology theft, and the acquisition of controlled goods" to get at advanced chipmaking know-how and "break through international technological containment."

Still going

The sweeps have not stopped. On August 5 the MJIB announced a fresh one, and per Taiwan News it covered 17 China-funded companies, 64 locations searched and 114 people questioned between July 13 and August 4. Named in that round were IC designer Goke Microelectronics, display chip designer Shenzhen Torey Microelectronics, battery maker CosMX and Aosheng Technology, a carbon fiber composites firm. CosMX's permit for a Taiwan representative office was revoked by the Ministry of Economic Affairs. Rest of World counted 18 technology companies raided in that announcement.

Nicholas Eftimiades, a former US Defense Department official who tracked Chinese economic espionage and is now a senior fellow at the Atlantic Council, thinks the rest of the world has mostly missed this. He told Rest of World the technique appears to be "more specific to Taiwan, at least as far as semiconductors go." He added: "I think the U.S. has got its hands full trying to wrestle with the theft that happens within its own borders." He wants Washington coordinating policy with Taiwan on it, because the money at stake is not small. "It has consequences," he said. "The problem is we lose trillions of dollars in wealth."

Hui He thinks the poaching itself has slowed in the last three to five years, partly because of tighter rules in the US and Taiwan, partly because China's own chip talent pool has finally started to fill in. Experts still put China three to 10 years behind TSMC at the leading edge.

As for the engineer, he got approached again after leaving Blue Ocean Smart System, by another small chip design shop he could not find much information about. He passed. "I made up my mind to not join startups or companies that risk falling into a gray area involving Chinese investments," he told Rest of World. He eventually took a job at an American chip design company, and this time he checked first.