#HTE

Separated by a strait, the internet in Taiwan and mainland China are two different worlds. Even mainland tech giants Alibaba and Tencent have had little success entering the island, often running into regulatory hurdles.

Less than a year after Taobao launched on the island through an Alibaba-backed joint venture, the marketplace announced it will cease operations by the end of this year, the platform said in a notice to customers on Thursday.

The decision came two months after the Investment Commission under Taiwan’s Ministry of Economic Affairs ruled that Taobao Taiwan is a Chinese-controlled company and required the firm to either leave or re-register under a different corporate structure. Under Taiwanese law, Chinese investors must obtain permission from the government to directly or indirectly acquire a stake of more than 30% in any Taiwanese company.

Taobao Taiwan is owned and operated by British-registered Claddagh Venture Investment, which is 28.77% owned by Alibaba. Nonetheless, the investment regulator ruled that the one with de facto control over Taobao Taiwan is Alibaba, which has “veto power” over Claddagh’s board decisions.

The app is currently the most downloaded shopping app in the Taiwanese Google Play store, according to app tracking firm App Annie. Unexpectedly, the Chinese edition of Taobao comes in sixth in the iOS shopping category, where Shopee tops.

Taobao Taiwan is separate from Alibaba’s main marketplaces, which last boast 874 million mobile monthly users. Most of Alibaba’s shoppers are in mainland China, though customers in Hong Kong and Taiwan have long been able to shop on the Chinese Taobao app and have the goods imported to them with extra fees.

Taobao Taiwan, on the other hand, established to attract local vendors in a market of around 24 million people, competing with popular alternatives like Singapore-headquartered Shopee and the indigenous PChome 24.

This isn’t the first time Taobao has been hit by local law. In 2015, the authority ordered Taobao Taiwan, at the time set up by a Hong Kong entity of Alibaba, to leave because of its Chinese association. Even Shopee wasn’t exempt and was under investigation in 2017 for Tencent owned around 40% of its parent company Sea.

“We respect the decision by Claddagh,” an Alibaba representative said in a statement to TechCrunch. “Alibaba businesses are operating as normal in the Taiwan market, and we will continue to serve local consumers with quality products through our Taobao app.”

It’s unclear how Claddagh came to decide on its retreat rather than restructuring the joint venture. The firm has not responded to TechCrunch’s request for comment.