The Nexperia and Elmos cases show how the US-China chip war is spreading to Europe

Hong Kong
CNN Business

Two European chip deals have run into trouble over their ties to China, a sign of growing concern in the West about potential Chinese control of critical infrastructure.

Last week, the new owner of Britain’s biggest chip maker was ordered to stop its takeover, just days after the sale of another chip factory in Germany was put on hold. Both transactions raised national security concerns and were acquisitions by Chinese-owned companies.

In the United Kingdom, Nexperia, the Dutch subsidiary of Shanghai-listed semiconductor maker Wingtech, has been ordered to sell at least 86% of its stake in Newport Wafer Fab, more than a year after the government seized control of the plant. Workers have since protested the decision, saying it puts about 600 jobs at risk.

In Germany, the Economy Ministry has banned the sale of automotive chip maker Elmos Semiconductor’s factory in Dortmund to Silex, the 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 show how pressure is mounting in Europe, especially as Western officials face calls to keep key sectors out of Chinese control.

Eurasia Group director of geotechnologies Xiaomeng Lu said: “These decisions show a shift towards a tougher stance on Chinese investment in Europe’s critical industries.

“U.S. pressure undoubtedly helped these decisions. [A] A growing sense of technology sovereignty has also fueled these moves—increasingly, governments around the world are [viewing the] values ​​the semiconductor industry as a strategic resource and seeks to protect it from foreign takeovers.

Legal experts said the two rulings were notable because each deal was initially thought to be cleared.

According to Ian Giles, the head of the European Antitrust and Competition Department, the Newport Wafer case is “the first completed acquisition” to be cleared under the UK’s national security and investment (NSI) act, which came into force in January. 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 engage in meaningful dialogue with Nexperia or even visit the Newport site”.

The company added that it had offered to “avoid potentially disruptive activities and provide the UK government with direct control and involvement in the management of Newport, a 28-hectare site in south Wales”.

The factory produces silicon wafers, which are the basis for making computer chips. Many of its products eventually power cars and medical equipment. Nexperia said workers at the facility now face an uncertain future.

one open letter Last Thursday, the Nexperia Newport Workers’ Association told the UK government it was in “disbelief” that workers’ livelihoods were being “threatened in the run-up to Christmas”.

“This is clearly a deeply political decision,” the group wrote, rejecting the idea that the deal would harm Britain’s security. “Letting Nexperia keep the Newport factory makes sense and protects our jobs.”

For Elmos, German authorities initially said they would grant conditional approval and even shared a draft approval after an intense review process that lasted nearly 10 months, the company said in a statement after the order.

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 quite old, state-of-the-art in the 1990s and allegedly not of great industrial importance”.

“The deal has become a toy in the public debate about Chinese investors acquiring stakes in key German technologies,” he said.

The Elmos Semiconductor company sign seen on November 9 in Dortmund, Germany.

According to Alexander Rinne, head of the European antitrust practice at Milbank, an international law firm based in Munich, it is possible that regulators may be concerned about technical know-how.

“Elmos is known for making chips for the automotive sector, Germany’s main industry and the country’s pride,” he said.

Elmos and Nexperia declined interview requests. A Nexperia spokesperson told CNN Business on Tuesday that it is “considering its options in relation to the UK government’s decision”.

The chips are a source of growing tension between the US and China. Washington has declared the materials shortage a national security issue and stressed the importance of remaining competitive in advanced technology capabilities.

According to Lu, this year the United States has strengthened its restrictions and forced its allies to apply theirs. In August, the U.S. government ordered two top chip makers Nvidia ( NVDA ) and AMD ( AMD ) to stop exporting some high-performance chips to China.

Two months later, the Biden administration announced sweeping export controls that bar Chinese companies from buying advanced chips and chip-making equipment without a license. The rules also limited the ability of American citizens or US green card holders to support the development or production of chips at certain manufacturing facilities in China.

The pressure is on. On Monday, NATO Secretary General Jens Stoltenberg urged the West to “be careful not to create new dependencies” on China. Speaking at NATO’s parliamentary assembly in Madrid, Stoltenberg said he sees “increasing efforts” by China to control the West’s critical infrastructure, supply chains and key industrial sectors.

“We cannot give authoritarian regimes any chance to exploit our weaknesses and undermine us,” he said.

China withdraws control of two European semiconductor jobs.

“We strongly oppose this move by the UK 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 spokesman Mao Ning said in a press release. Asked about the Newport Wafer order at the briefing last Friday. “Great Britain has overextended the concept of national security and abused state powers.”

Zhao Lijian, another spokesman for China’s foreign ministry, urged Germany and other countries to “refrain from politicizing normal economic and trade cooperation,” without specifically referring to Elmos at a press conference earlier this month.

Germany has paid more attention to Chinese buyers this year. Last month, Chinese state-owned shipping giant Cosco’s bid to buy a stake in Hamburg’s port terminal operator sparked similar controversy. Due to pressure from some members of the government, the amount of investment was later limited.

If the chipmakers appeal, they could face an uncertain battle that could drag on for years, lawyers say.

According to Norton Rose, in each case, except in exceptional cases, they will have to challenge the decision in court within about a month of the decision of the regulators.

Both Britain and Germany have recently added rules that expand government control over such decisions and make outcomes harder to predict. In Germany, a 2020 change to foreign direct investment rules meant the government could intervene in prospective deals in the event of a “suspected breach of public order and security”.

Previously, by contrast, it could only impose restrictions “when there was an actual, sufficiently serious threat to public order and safety,” he told CNN Business.

Andrea Hamilton, a London-based partner at Milbank, said that in the UK the government’s ability to look back at deals under the NSI Act was “really surprising and considered far-reaching”.

“If challenged as Nexperia intends, it will also become a test case. [the] The extent of the limitations of the NSI Act,” he said.

Elsewhere, the focus is on the Netherlands. According to Eurasia Group’s Lu, the Dutch government is currently facing pressure to limit exports from the U.S. to China, particularly from semiconductor equipment maker ASML ( ASML ), which has a dominant position in the lithography machine market.

“This will be the next case study,” he told CNN Business.

The Netherlands announced that it will formulate its position.

When asked about the issue this month, Dutch Foreign Trade Minister Liesje Schreinemacher said the country would not “one-for-one copy the US export restrictions for China.”

“We are making our own assessment,” he told Dutch newspaper NRC.

— CNN’s Zahid Mahmoud, Rose Roobeek-Coppack and Laura O contributed to this report.

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