TAIPEI Alibaba Group Holding (BABA.N), which is awaiting regulatory approval for a $45 million fund it is participating in, has promised the Taiwanese government it will not take board seats at local firms the fund invests in, a source with direct knowledge of the matter said.
The fund is being raised by China Development Financial Holding (CDF) (2883.TW), one of the island's biggest financial holding firms, and the Chinese e-commerce giant is planning to take a 29.99 percent stake.
The deal has yet to be approved by Taiwan's Investment Commission despite an application three months ago, raising concern that the fund may be rejected amid a chill in political relations with China.
It follows a $300 million Taiwan Entrepreneur Fund that Alibaba founder Jack Ma announced in 2015 but while the start-ups that the fund has invested in so far are based in Taiwan, they are not incorporated in Taiwan.
Beijing cut off an official communications channel with Taiwan in June, after Taiwan's President Tsai Ing-wen declined to commit to the "One China" principle that Taiwan is part of China.
In a sign of heightened tensions, Taiwan scrambled jets and navy ships on Wednesday as a group of Chinese warships led by China's sole aircraft carrier sailed north through the Taiwan Strait.
Other business deals have been affected. In November, Taiwan's ChipMOS Technologies (8150.TW) said it scrapped a planned $373 million stake sale to China's Tsinghua Unigroup due to uncertainty about Taiwanese regulatory clearance, the second deal in eight months involving Unigroup and a firm in the island to fall through.
The source, who declined to be identified due to the sensitivity of the subject, said Alibaba's investment plans offered benefits to Taiwan startups.
"Alibaba can offer Taiwan entrepreneurs assistance to enter markets not only in China but in Southeast Asia as well," said the source.
The commission said that it was appropriate to take a more cautious approach to investments from China.
"We welcome foreign investments, and Chinese investments in principle as well," said Emile Chang, the commission's executive secretary. "But the review process is stricter."
Representatives for Alibaba did not respond to requests for comment.
Other investors in the fund include Quanta Computer (2382.TW), a supplier of Apple Inc (AAPL.O), and Far EasTone Telecommunications (4904.TW), said the source.
(Reporting by Faith Hung; Editing by Miyoung Kim and Edwina Gibbs)