Nexperia and Elmos cases show how the US-China chip war is spilling over into Europe | Popgen Tech

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CNN Business
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Two European chip deals have run into trouble over their ties to China, a sign of concerns 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 wind down its takeover, just days after another chip factory sale was blocked in Germany. Both deals were hit by national security concerns, and involved acquisitions by Chinese-owned companies.

In the UK, Nexperia, a Dutch subsidiary of Shanghai-listed semiconductor maker Wingtech, has been 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 fab . Staff have since protested the decision, saying it put nearly 600 jobs at risk.

In Germany, the economy ministry banned Elmos Semiconductor, an automotive chip maker, from selling its factory in the city of Dortmund to Silex, a Swedish subsidiary of China’s Sai Microelectronics.

Chip manufacturing has already emerged as a new front in US-China tensions. Now the two troubled deals illustrate how pressure is mounting in Europe as well, especially as Western officials face calls to keep key sectors out of Chinese control.

“These decisions indicate a shift towards tougher stances regarding Chinese investment in critical industries in Europe,” said Xiaomeng Lu, director of geo-technology at Eurasia Group.

“US pressure certainly contributed to these decisions. [A] growing sense of technology sovereignty has probably spurred these moves as well—governments around the world are increasingly [viewing the] semiconductor industry as a strategic resource and trying to protect them from foreign takeovers.”

Legal experts said the two decisions were notable because it was initially thought that each transaction had been cleared.

The Newport Wafer case is “the first completed acquisition” to be wound up under a UK national security and investment (NSI) law, which came into 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 that it was “shocked” by the decision, and that “the UK government chose not to have a meaningful dialogue with Nexperia or even visit the Newport site.”

The company added that it 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 makes silicon wafers, the basis for making computer chips. Many of its products end up powering cars and medical equipment. Nexperia indicated that workers at the facility now face an uncertain future.

In a open letter to the British government last Thursday, the Nexperia Newport staff association said it was “in disbelief” that employees’ livelihoods were “put at risk” in the run-up to Christmas.

“This is clearly a deeply political decision,” the group wrote, rejecting the idea that the deal would undermine UK security. “You have to make sense and protect our jobs by allowing Nexperia to keep their Newport factory.”

For Elmos, German authorities 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 after the order.

Tim Schaper, head of antitrust and competition for Germany at Norton Rose, said that government intervention was also significant as “Elmos’ technology is said to be quite old, modern in the 1990s, and said not to be of major industrial importance.”

“The deal has become the fount of a public debate about Chinese investors’ acquisition of stakes in key German technologies,” he said.

It is possible that regulators were concerned about an outflow of technical know-how, according to Alexander Rinne, the Munich-based head of international law firm Milbank’s European antitrust practice.

“Elmos is known for making chips for the automotive sector, which is Germany’s core industry and the pride of the country,” he said in an interview.

Elmos and Nexperia both declined interview requests. A spokesperson for Nexperia told CNN Business on Tuesday that it was “considering its options regarding the UK government’s decision”.

Chips are a growing source of tension between the United States and China. Washington has declared a shortage of the material a national security issue and stressed the importance of remaining competitive in advanced technological capabilities.

This year, the United States increased its own restrictions and pressured allies to introduce their own, according to Lu. In August, the US government ordered two top 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 banned Chinese companies from buying 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 the development or production of chips at certain manufacturing facilities in China.

The pressure is increasing. Jens Stoltenberg, Secretary General of NATO, urged the West on Monday to “be careful not to create new dependencies” on China. Speaking at a NATO parliamentary meeting in Madrid, Stoltenberg said he saw “growing Chinese efforts” to control Western critical infrastructure, supply chains and key industrial sectors.

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

China pushed back on handling 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 provide a fair, just and (a) non-discriminatory business environment,” Mao Ning, spokesman for the Chinese Ministry of Foreign Affairs, told a press. briefing last Friday when asked about the Newport Wafer order. “The UK has overstepped the concept of national security and 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 naming Elmos specifically. to address.

Germany has shown greater scrutiny of Chinese buyers this year. Last month, a bid by Chinese state-owned shipping giant Cosco for a stake in a Hamburg port terminal operator sparked similar controversy. Under pressure from some members of the government, the size of the investment was later limited.

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

In each case, they would have to file a challenge in court within about a month of regulators’ decisions, except in exceptional circumstances, according to Norton Rose.

Both Britain and Germany have recently added rules expanding government oversight of such decisions, making outcomes harder to predict. In Germany, a change to foreign direct investment rules in 2020 meant the government could intervene in prospective deals “if there is a ‘likely impairment of public order and security,'” Schaper said.

Previously, by contrast, it could only impose restrictions “if there was a ‘real, sufficiently serious threat to public order and security,'” he told CNN Business.

In the UK, the government’s ability to retroactively review transactions under the NSI Act was “really something that was seen as surprising and far-reaching,” said Andrea Hamilton, a London-based partner at Milbank.

“If it is challenged, as Nexperia apparently intends, it will also become a test case against [the] extent of the NSI Act’s limits,” she said.

Elsewhere, attention shifts 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 machine market, according to Lu at Eurasia Group.

“This will become the next case study,” she told CNN Business.

The Netherlands has made it clear that it will form its own position.

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

“We make our own assessment,” she said in an interview with the Dutch newspaper NRC.

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