Taiwan's economics ministry says it will claw back subsidies from a military drone supplier accused of building its drones with Chinese chips and flight controllers — bad news for the company and a fresh embarrassment for Taiwan's defense supply chain.

• Hangjian Technology, which won an army drone contract last year, is accused of using Chinese-made chips and flight control boards and covering up the labels to hide their origin.
• The company had also received government innovation subsidies, which are now under review.
• The economics ministry says it will halt payments, cancel the subsidy, or demand the money back if the rules were broken or the paperwork was false.
• The case has already gone to prosecutors, so the criminal side and the funding review are running side by side.

Outlook: Expect tighter checks on where Taiwan's defense drone parts actually come from, with more suppliers likely to face scrutiny.