Two European chip deals have run into trouble over their relations with China, a sign of widespread anxiety in the West about China’s potential control of critical infrastructure.
Last week, the new owner of Britain’s largest chipmaker was ordered to cancel its acquisition, just days after another chipmaker in Germany was barred from being sold. Both operations have been affected by national security concerns, and have involved acquisitions by Chinese-owned companies.
In the UK, the government has asked Nexperia, a Dutch subsidiary of Shanghai-listed semiconductor maker Wingtech, to sell at least 86% of its stake in Newport Wafer Fab, after more than a year taking control of the plant. Employees have since protested the decision, saying it puts nearly 600 jobs at risk.
In Germany, Elmos Semiconductor, a car chip maker, has been banned from selling its Dortmund factory to Silex, a Swedish subsidiary of China’s Sai Microelectronics.
The chip industry was already emerging as a new front in the tensions between the US and China. The two now-faltering deals illustrate how pressure is also building in Europe, especially as Western officials face calls to keep key sectors out of Chinese control.
“These decisions mark a shift towards tougher stances regarding Chinese investment in critical industries in Europe,” said Xiaomeng Lu, director of geotechnology at the Eurasia Group.
American pressure certainly contributed to these decisions. [A] It’s also likely that a growing sense of technological mastery has driven these moves — governments around the world are increasingly [viewing the] Semiconductor industry as a strategic resource and seeks to protect it from foreign acquisitions.
Legal experts said the two decisions were notable because it was initially believed that each deal had been approved.
The Newport Weaver case is the “first completed takeover” that must be unlocked under the UK’s National Security and Investment (NSI) law, which took full effect in January, according to Ian Giles, head of antitrust and competition in Europe and the Middle East. East and Asia by Norton Rose.
Nexperia said last week that it was “shocked” by the decision, and that “the UK government has chosen not to engage in meaningful dialogue with Nexperia or even visit the Newport site.”
The company added that it had offered to avoid “activities of potentially significant importance, and to provide the UK government with direct control and participation in the management of Newport”, a 28-acre site in south Wales.
The plant makes silicon wafers, the basis for the computer chip industry. Many of its products eventually power cars and medical equipment. Nexperia noted that workers at the facility now face an uncertain future.
in open letter To the UK Government last Thursday, the Nexperia Newport Employees’ Association stated that it was “inconceivable” that staff livelihoods were “at risk in the run-up to Christmas”.
“This is clearly a deeply political decision,” the group wrote, rejecting the notion that the deal would undermine British security. “You must have common sense and protect our jobs by allowing Nexperia to keep its Newport plant.”
For Elmos, German authorities initially indicated they would issue conditional approval and even participated in a draft approval after an extensive review process that lasted about 10 months, the company said in a statement following the injunction.
Government intervention was also significant, said Tim Schaper, Germany’s head of antitrust and competition at Norton Rose, since “Elmos technology is said to be very old, recent in the 1990s, and allegedly not of much industrial interest.”
“The deal has become a plaything in a public debate about Chinese investors taking stakes in key German technologies,” he said.
Regulators are likely concerned about the flow of technical know-how, according to Alexander Rehn, head of international antitrust law firm Milbank Europe.
“Elmos is known for making chips for the automotive sector, which is Germany’s primary industry and the country’s pride,” he said in an interview.
Elmos and Nexperia declined interview requests. A spokesperson for Nexperia told CNN Business on Tuesday that it is “evaluating its options in relation to the UK government’s decision.”
Chips are a growing source of tension between the US and China. Washington declared material shortages a national security issue, and highlighted the importance of maintaining competitiveness in advanced technological capabilities.
This year, the United States has tightened its restrictions and pressured allies to make laws of their own, according to Lu. In August, the US government ordered two major chip manufacturers, Nvidia (NVDA) and AMD (AMD), to stop exporting some high-performance chips to China.
Two months later, the Biden administration unveiled sweeping export controls that prevented Chinese companies from buying chips and advanced chip manufacturing equipment without a license. The rules also restricted the ability of US citizens or US green card holders to provide support for the development or production of chips at certain manufacturing facilities in China.
The pressure is mounting. On Monday, NATO Secretary General Jens Stoltenberg urged the West to “be careful not to create new dependencies” on China. Speaking at the NATO Parliamentary Assembly in Madrid, Stoltenberg said he sees “increased Chinese efforts” to control critical Western infrastructure, supply chains, and key industrial sectors.
“We cannot give authoritarian regimes any opportunity to exploit our weaknesses and undermine us,” he said.
China backtracked on handling two European semiconductor cases.
“We resolutely oppose the UK’s move, and call on the UK to respect the legitimate rights and interests of Chinese companies and provide a fair, just and (a) non-discriminatory business environment,” Chinese Foreign Ministry spokesperson Mao Ning told the press. Briefing last Friday when asked about the Newport Weaver request. “The United Kingdom overextended the concept of national security and abused the power of the state.”
Zhao Lijian, a spokesperson for the Chinese Foreign Ministry, called on Germany and other countries to “refrain from politicizing normal economic and trade cooperation” at a press conference earlier this month, without addressing Elmos specifically.
Germany has shown greater scrutiny of Chinese buyers this year. Last month, a bid by Chinese state shipping giant Cosco for a stake in the Hamburg port terminal operator sparked a similar controversy. Under pressure from some members of the government, the size of the investment was later determined.
If the chipmakers appeal, lawyers say, they could face an uncertain battle that could drag on for years.
In each case, they’ll need to file a court challenge within about a month of the organizers’ decisions, barring exceptional circumstances, according to Norton Rose.
Both Britain and Germany have recently added rules that extend government oversight over such decisions, making the outcomes more difficult to predict. Changing foreign direct investment rules in Germany in 2020, Shabbir said, means the government can intervene in potential deals “if there is a potential weakness in public order and security.”
Previously, by contrast, it could only impose restrictions” if there was a “real and sufficiently serious threat to public order and security,” he told CNN Business.
Andrea Hamilton, a partner at Milbank in London, said the UK government’s ability to retrospectively review deals under NIS law “was really something that’s surprising and far-reaching”.
If challenged, as Nexperia apparently intends, it will also become a test case [the] The extent of the limits of the NIE law,” she said.
Elsewhere, attention is turning to the Netherlands. The Dutch government is currently facing pressure from the United States to limit exports to China, particularly from ASML (ASML), a semiconductor equipment maker that holds a dominant position in the lithography machinery market, according to Lu of Eurasia Group.
“It will become the next case study,” she told CNN Business.
The Netherlands made it clear that it would form its own position.
Asked about the issue this month, the Dutch Minister for Foreign Trade, Lesje Schrenemacher, said the country “will not unilaterally copy US export restrictions on China.”
“We are doing our own assessment,” she said in an interview with Dutch newspaper NRC.
— Zahed Mahmoud, Rose Rubik-Kopak and Laura CNN contributed to this report.
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