Two European chip deals have run into trouble over their ties to China, a sign of concern spreading in the West about potential Chinese control of critical infrastructure.
Last week, the new owner of Britain’s biggest chip maker was ordered to dissolve its takeover, just days after another sale of a chip factory was stalled in Germany. Both deals were affected by national security concerns and involved takeovers by Chinese-owned companies.
In the UK, Nexperia, a Dutch subsidiary of Shanghai-listed semiconductor maker Wingtech, was told by the government to sell at least 86% of its stake in Newport Wafer Fab, more than a year after taking control of the factory. Staff have since protested the decision, saying it put nearly 600 jobs at risk.
In Germany, the economy ministry barred Elmos Semiconductor, a maker of automotive chips, from selling its factory in the city of Dortmund to Silex, a Swedish subsidiary of China’s Sai Microelectronics.
Chip manufacturing was already emerging as a new front in US-China tensions. Now the two troubled deals illustrate how pressure is also mounting in Europe, particularly as Western officials face demands 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 Eurasia Group.
“Pressure from the United States certainly contributed to these decisions. [A] probably the growing sense of technological sovereignty has also prompted these moves: governments around the world are increasingly numerous [viewing the] semiconductor industry as a strategic asset and try to protect them from foreign acquisitions”.
Legal experts said the two decisions were notable because each settlement was initially thought to have been approved.
The Newport Wafer case is “the first completed acquisition” to be liquidated under a UK National Security and Investment (NSI) Act, which took full effect in January, according to Ian Giles, head of antitrust and competition for Europe, the Middle East and Asia for Norton Rose.
Nexperia said last week it was “shocked” by the decision and that “the UK government has chosen not to enter into a meaningful dialogue with Nexperia or even visit the Newport site”.
The company added that it had offered to avoid “activities of potential concern and to provide the UK Government with direct control and participation in the management of Newport”, a 28-acre site in south Wales.
The factory produces silicon wafers, the basis for making computer chips. Many of its products eventually power cars and medical equipment. Nexperia has indicated that workers at the facility now face an uncertain future.
In a open letter The UK government’s Nexperia Newport Staff Association said on Thursday it was “incredulous” that employees’ livelihoods had been “in jeopardy in the run up to Christmas”.
“This is clearly a deeply political decision,” the group wrote, rejecting any notion that the deal could undermine British security. “You must have common sense and protect our jobs by allowing Nexteria to keep their Newport factory.”
For Elmos, German authorities had initially indicated they would issue a conditional approval, and even shared a draft approval after an intense review process that lasted about 10 months, the company said in a statement following the injunction.
Tim Schaper, head of antitrust and competition for Germany at Norton Rose, said the government’s intervention was also significant given that “Elmos’ technology is said to be quite old, cutting edge in the 1990s and presumably not of great industrial importance”.
“The transaction has become the toy of a public debate about Chinese investors acquiring stakes in major German technologies,” he said.
It’s possible that regulators were worried about an outflow of technical know-how, according to Alexander Rinne, the head of European antitrust practice at Munich-based international law firm Milbank.
“Elmos is known for manufacturing chips for the automotive sector, which is Germany’s main industry and the country’s pride,” he said in an interview.
Elmos and Nexperia both declined requests for interviews. A Nexperia spokesperson told CNN Business on Tuesday that he was “considering his options regarding the British government’s decision.”
Potato chips are a growing source of tension between the US and China. Washington has declared the shortage of materials a national security concern and stressed the importance of remaining competitive in advanced technological capabilities.
This year, according to Lu, the United States has stepped up its restrictions and pressured allies to implement its own. In August, the US government ordered two major chipmakers, Nvidia (NVDA) and AMD (AMD), to stop exporting certain high-performance chips to China.
Two months later, the Biden administration unveiled sweeping export controls that barred Chinese firms from purchasing advanced chips and chip-making equipment without a license. The rules also limited the ability of US citizens or US green card holders to provide support for chip development or manufacturing at certain manufacturing facilities in China.
The pressure is building. On Monday, NATO Secretary General Jens Stoltenberg urged the West to “be careful not to create new dependencies” on China. Speaking at a NATO parliamentary assembly in Madrid, Stoltenberg said he sees “growing Chinese efforts” to control critical Western infrastructure, supply chains and key industrial sectors.
“We cannot give authoritarian regimes any chance to exploit our vulnerabilities and weaken us,” he said.
China rejected the handling of the two European semiconductor cases.
“We strongly oppose the UK’s move and call on the UK to respect the legitimate rights and interests of Chinese companies and to provide a fair, just and (a)non-discriminatory trading environment,” the ministry spokesman told the press. Chinese Foreign Minister Mao Ning. last Friday when asked about the Newport Wafer order. “The UK has gone too far with the concept of national security and has abused state power.”
Zhao Lijian, another Chinese foreign ministry spokesman, called on Germany and other countries to “refrain from politicizing normal economic and trade cooperation” at a press conference earlier this month, without specifically addressing Elmos.
Germany has shown more control over Chinese buyers this year. Last month, a bid by Chinese state-owned shipping giant Cosco for a stake in a port terminal operator in Hamburg sparked similar controversy. Under pressure from some members of the government, the size of the investment was subsequently limited.
Lawyers say if the chipmakers appeal, they could face an uncertain battle that could drag on for years.
In any case, they should file an appeal in court within about a month of the regulators’ decisions, barring exceptional circumstances, according to Norton Rose.
Both Britain and Germany recently added rules that expand government oversight of such decisions, making it harder to predict outcomes. In Germany, a change to foreign direct investment rules in 2020 meant the government can intervene in potential deals “if there is a ‘probable deterioration of public order and security,'” Schaper said.
Previously, by contrast, it could only impose restrictions “if there was an ‘actual and sufficiently serious threat to public order and safety,'” he told CNN Business.
In the UK, the government’s ability to retroactively review arrangements under the NSI Act “was really something astonishing and far-reaching,” said Andrea Hamilton, Milbank’s London partner.
“If challenged, as Nexperia apparently intends, it will also become a test case regarding [the] scope of the limits of the NSI Act,” he said.
Elsewhere, attention is shifting to the Netherlands. The Dutch government is currently coming under pressure from the United States to limit exports to China, especially from ASML (ASML), a semiconductor equipment maker that holds a dominant position in the lithography machine market, according to Eurasia’s Lu group.
“It’s going to become the next case study,” he told CNN Business.
The Netherlands have made it clear that they will take a stand.
Asked about the issue this month, Dutch Foreign Trade Minister Liesje Schreinemacher said the country “will not copy US export restrictions for China one-for-one.”
“Let’s make our own assessment,” he said in an interview with Dutch newspaper NRC.
— CNN’s Zahid Mahmood, Rose Roobeek-Coppack and Laura Contributed to this report.