Nexperia and Elmos cases show how the US-China chip war is spilling over to Europe

Hong Kong
CNN Business

Two European chip deals have run into trouble over their ties to China, fueling concerns in the West about China’s potential control over critical infrastructure.

Last week, the new owner of Britain’s biggest chip maker was told to stop the takeover, just days after another chip factory sale was blocked in Germany. Both deals were hit by national security concerns and were acquired by Chinese-owned companies.

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

In Germany, the economy ministry has banned automotive chipmaker Elmos Semiconductor from selling its factory in Dortmund to Silex, the Swedish subsidiary of China’s Sai Microelectronics.

Chip production has already been a new source of tension between the US and China. Now, the two troubled deals illustrate how pressure is also mounting in Europe, especially as Western officials face calls to prevent Chinese control of key sectors.

“These decisions signal a shift towards tighter Chinese investment in key European industries,” said Xiaomeng Lu, director of geotechnology at Eurasia Group.

“U.S. pressure certainly contributed to these decisions. [A] a growing sense of technological sovereignty is also likely to have fueled these moves, increasingly by governments around the world [viewing the] the semiconductor industry as a strategic resource and seek to protect it from foreign takeovers.

Legal experts said both rulings were significant because each deal was initially believed to have been approved.

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 full force in January, according to Ian Giles, head of antitrust and competition in Europe, Midlands. East and Asia Norton Rose.

Nexperia said last week it was “shocked” by the decision and that “the UK government has decided not to enter into a meaningful dialogue with Nexperia or even visit the Newport site”.

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The company added that it had proposed to avoid “potential activities of concern and to give the UK government direct control and involvement in the management of Newport, a 28-acre site in South Wales”.

August 18  In Newport, Wales, working in the cleanroom silicon semiconductor wafer manufacturing facility Newport Wafer Fab, owned by Neexperia.

The factory produces silicon wafers – the basis for the production of computer chips. Many of its products eventually power cars and medical equipment. Nexperia said the facility’s workers face an uncertain future.

In an open letter Last Thursday, the Nexperia Newport Workers’ Association told the UK government it “did not believe” workers’ livelihoods were “at risk in the run-up to Christmas”.

“This is clearly a very political decision,” the group wrote, rejecting the idea that the deal would harm Britain’s security. “You have to understand the point and protect our jobs by allowing Nexperia to keep the Newport plant.

In Elma’s case, German authorities initially indicated they would grant conditional approval, and after an intensive review process that lasted about 10 months, even shared a draft approval, the company said in a statement after the order.

Tim Schaper, head of German antitrust and competition at Norton Rose, said the government’s intervention was also significant because “Elmo’s technology is said to be quite old, the latest in the 20th century. 1990s and supposedly not very important to the industry.

“The deal has become a game changer in the public debate about acquisitions by Chinese investors of major German technology stocks,” he said.

The Elmos Semiconductor company logo, seen on November 9.  in the German city of Dortmund.

Regulators may have been concerned about the leakage of technical know-how, according to Alexander Rinne, head of the European antitrust practice at Milbank, a Munich-based international law firm.

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

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

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Chips are a growing source of tension between the US and China. Washington has declared material shortages a national security issue and emphasized the importance of remaining competitive in advanced technology capabilities.

This year, the United States has stepped up its restrictions and pressured allies to adopt theirs, according to Lu. August. The U.S. government has ordered two top chip makers, Nvidia ( NVDA ) and AMD ( AMD ) to stop exporting certain high-performance chips to China.

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

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 saw “increasing Chinese efforts” to control the West’s critical infrastructure, supply chains and key industrial sectors.

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

China has rejected the handling of 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 ensure a fair, just and (a) non-discriminatory business environment,” Chinese Foreign Ministry spokesman Mao Ning told reporters. briefing last Friday when asked about the Newport Wafer order. “The UK has overestimated the concept of national security and abused state power.”

Another spokesman for China’s foreign ministry, Zhao Lijian, urged Germany and other countries to “refrain from the usual politicization of economic and trade cooperation” at a news conference earlier this month, without specifically referring to Elmos.

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

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

According to Norton Rose, they will have to file a legal challenge in each case within about a month of the regulators’ decisions, except in exceptional circumstances.

Both Britain and Germany have recently added rules that expand government oversight of such decisions, making the consequences harder to predict. Change of foreign direct investment rules in Germany in 2020. meant that the government could intervene in future transactions if there was a “likely breach of public order and security,” Schaper said.

By contrast, it previously could only impose restrictions if there was an “actual, sufficiently serious threat to public order and security,” he told CNN Business.

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

“If challenged, as Nexperia apparently intends, it will also be a test [the] outside the NSI law,” she said.

Elsewhere, attention turns to the Netherlands. According to Eurasia Group’s Lu, the Dutch government is currently under pressure from the United States to limit exports to China, particularly from ASML ( ASML ), a semiconductor equipment maker that dominates the lithography machinery market.

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

The Netherlands has made it clear that it will formulate its position.

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

“We judge ourselves,” she said in an interview with the Dutch newspaper NRC.

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


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