A merged Chinese-Taiwanese flag. Image: iStock/Getty Images
Taiwan has strict limits on Chinese involvement in Taiwan companies. Photo: iStock/Getty Images

Online marketplace Taobao Taiwan said Thursday it will shut down its service at the end of the year after being told by the government to register as Chinese.

The move comes as relations between Taipei and Beijing have grown increasingly strained as the island looks to maintain its distance from the Asian superpower.

The company said it had decided to stop taking new orders around noon Thursday before officially going off-line on December 31 after “prudent evaluations”. 

Taobao Taiwan is registered as a foreign company through its operator – UK-registered Claddagh Venture Investment – but Taiwanese authorities deemed that it was in effect controlled by Chinese e-commerce giant Alibaba. 

The island’s Investment Commission in August fined Claddagh Tw$410,000 (US$13,700) for violating local law governing Chinese investments and gave it six months to rectify the situation or withdraw its investment.

The commission started the probe after a former lawmaker claimed it was illegally operating on the island because it shared the same platform with Alibaba-owned Taobao.

Under Taiwan’s regulations, a company is considered a Chinese investment if a Chinese entity owns more than 30 percent of its shares or has “effective control” over its operations. 

The commission ruled that Claddagh is in effect controlled by Alibaba, even though it holds less than 30 percent of its shares. 

Taiwan has stricter rules on investments from mainland China compared with other foreign countries, reflecting the lingering hostilities between the two sides, which split in 1949 after a civil war. 

China still claims democratic self-ruling Taiwan as part of its territory awaiting reunification, by force if need be. 

It has stepped up pressure since President Tsai Ing-wen came to power in 2016 as she rejects its view that the island is part of “one China”. Tsai, who views Taiwan as already independent won re-election in a landslide in January. 

The commission last year rejected a bid by a Hong Kong-led consortium to build a twin skyscraper in Taipei citing national security concerns, arguing the company was too heavily influenced by Beijing.