By Catherine Shu From Tech Republic

Alibaba Group’s announcement yesterday that it will launch a non-profit NTD$10 billion (US$316 million) fund for entrepreneurs in Taiwan was overshadowed by a government investigation into its local operations.

During a speech today at National Taiwan University in Taipei to an audience of about 2,000 college students and journalists, Alibaba founder and executive chairman Jack Ma briefly acknowledged the situation.

“It would be strange if after 15 years of being in business we never encountered controversy,” Ma said.

Officials from the Ministry of Economic Affairs claimed that Alibaba Group’s Taipei-based subsidiary had violated investment law by claiming to be registered in Singapore when it is actually based in China. Alibaba said it would work with the government, which is threatening to boot the company out of Taiwan, to come to a resolution.

Ma added “Everyone has a different perspective on Alibaba. In the U.S., we are described as a Chinese company, but in China, the focus is on our foreign business. Now Taiwan is trying to figure out where we originate.”

Alibaba’s Latest Government Run-In

Alibaba Group’s disagreement with Taiwan’s Ministry of Economic Affairs is the latest in a series of disputes with government officials. The U.S. Trade Representative’s office did not remove marketplace Taobao from its list of “notorious markets” (or sites overrun with illegal goods) until 2012.

More recently, China’s State Administration for Industry and Commerce issued a report accusing Alibaba Group of not doing enough to stop the sale of counterfeit items on its sites.

Though the SAIC later backtracked after discussions with Ma, the report was still notable because it is unusual for the Chinese government to be so critical of a successful homegrown company.

At the crux of the Taiwanese government’s beef with Alibaba is exactly where its local business is registered. Alibaba Group says its operations in Taiwan fall under a subsidiary incorporated in the Cayman Islands. Taiwanese officials, however, say that it is based in China, which would subject to another set of investment regulations.

In a statement, the company said:

Alibaba.com Singapore E-commerce Private Ltd. (“Alibaba.com”) is a wholly-owned subsidiary of Alibaba.com Limited incorporated in the Cayman Islands. Alibaba.com set up its Taiwan branch in 2008 as a foreign company in accordance with the regulations promulgated by the authority at that time and has since operated business based on all legal procedures. Concerning the recent questions from the authority, we will actively communicate with related parties to clarify the issues and, if necessary, will take proper actions to protect the legitimate interests of Alibaba.com.

Since Alibaba Group, the parent company of Alibaba.com, went public in the US last September, the authority took a different view about the internal structure of Alibaba Group and deemed it as a mainland Chinese company. We will actively communicate with the authority and provide the required supporting materials to comply with the latest requirements.

Building Bridges

Though the government’s threatened $3,800 fine is tiny and Taiwan, a country of 23 million people, is a relatively small part of Alibaba Group’s global business, the debacle highlights the tense relationship between Taiwan and China, which views the island nation as a renegade province.

Like a similar initiative it recently launched in Hong Kong, Alibaba’s planned Taiwan fund may help it foster goodwill among young Taiwanese people, in addition to getting more small businesses onto its various e-commerce platforms. Last year’s Sunflower Movement, or three weeks of student-led demonstrations against an agreement for more liberal trade between China and Taiwan, underscore the anxiety many people have about how Taiwan will maintain its independence as it tries to build stronger political and economic ties with its much larger neighbor.

During his speech today, Ma said that during its first year, Alibaba Group’s Taiwan fund will focus on food and other agricultural products. Imported groceries and specialty items are an especially lucrative vertical for Chinese e-commerce companies like Alibaba Group and JD.com, thanks to a series of food-safety scandals.

Alibaba Group said it will return profits from successful investments to the fund so it can continue to provide capital to small businesses. Its launch is expected for the second half of this year.

For more on this story go to: http://techcrunch.com/2015/03/03/alibaba-taiwan-fund/