Lenovo leads the way with Taiwan subsidiary

Lenovo, the world's third-largest personal computer maker after its acquisition of IBM's PC business, is to become the first Chinese company to legally establish a subsidiary in Taiwan.

This demonstrates the waves that mainland businesses are making with their buying spree even on the de facto independent island which is still trying to shut them out.

According to Taiwan government officials, Lenovo has applied for and will be granted approval to convert into a subsidiary a one-man company which was registered in Taipei more than three years ago and did not have any legal links to Lenovo.

The Chinese company had made the move to “legalise its presence here” on the occasion of transferring the PC business of IBM Taiwan to Lenovo, said a senior official at the Mainland Affairs Council, Taipei's cabinet-level China policy body.

The Taiwan government still clings to a ban on mainland investments on the island for the fear that its politically hostile neighbour could take control of its economy. Legislation passed two years ago allows Chinese companies to invest in Taiwan in principle, but the government does not intend to pass detailed regulations any time soon which would allow an overall opening in practice.

However, after Lenovo's acquisition of IBM's PC business, the PC division of IBM Taiwan, which makes up most of the US group's business on the island, needed to be transferred to Lenovo. “This will be approved as a special case, but it will not create a precedent for any future Chinese investments here whatsoever,” said Chang Min-pin, a senior official at the cabinet's Investment Commission.

But the emergence of an existing Lenovo presence on the island has put the government under greater pressure. Essence Technology was set up by Lu Jianjun, a US citizen, through the British Virgin Islands in 2001.

The MAC official said Essence's nature as a one-man company made it impossible to claim that the company had any legal or financial links to Lenovo but the company had in fact acted as Lenovo's procurement arm in Taiwan.

Government officials said Lenovo's application to put the company under its own name along with the IBM restructuring, meant it had managed to find a soft spot with the government. “We cannot possibly allow them in through one company and ban them through the other,” he said.

Earlier this year, IBM Taiwan received government approval to transfer its PC business to a newly established company held by a Netherlands-based holding whose shareholdings will be transferred from IBM to Lenovo. Mr Chang said the Investment Commission would give the green light next Thursday or in its next meeting in mid-August.