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, a sign of growing concern in the West about China’s control of critical infrastructure.

Last week, the new owner of Britain’s biggest chipmaker was ordered to stop its takeover, days after the sale of another chip factory in Germany was blocked. Both of these transactions are related to national security and were acquired by Chinese companies.

In the UK, the Dutch subsidiary of Shanghai-listed semiconductor maker Wingtech has been required to sell its 86% stake in Newport Wafer Fab to Nexperia, more than a year after the government took control of the plant. Employees have since protested the decision, which they say puts about 600 jobs at risk.

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

Chip-making has already emerged 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 industries out of Chinese control.

“These decisions represent a shift towards tougher stances on Chinese investment in key industries in Europe,” said Xiaomeng Lu, director of geotech at Eurasia Group.

“US pressure definitely contributed to these decisions. [A] A growing sense of technological sovereignty has also fueled these moves – governments around the world are becoming increasingly powerful [viewing the] semiconductor industry as a strategic resource and seeks to protect them from foreign invasion”.

According to legal experts, both decisions make sense because each contract was initially considered cleared.

The Newport Wafer case is the “first completed acquisition” to be liquidated under the UK’s National Security and Investment (NSI) Act, which came into full effect in January, according to Ian Giles, head of European antitrust and competition East and Asia for Norton Rose. .

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

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

A worker in a clean room for silicon semiconductor wafer manufacturing at Nexperia's Newport Wafer Fab in Newport, Wales, on August 18.

The factory makes silicon wafers, the basis for making computer chips. Many of its products will eventually power cars and medical equipment. Nexperia said the facility’s workers now face an uncertain future.

An an open letter Last Thursday, the Nexperia Newport staff association told the UK government it was “incredulous” that staff’s livelihoods were “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 jeopardize Britain’s security. “You need to have common sense and protect our jobs by allowing Nexperia to keep the Newport factory.”

For Elmos, German authorities initially indicated they would grant conditional approval, even sharing a draft approval after an intensive review process that lasted about 10 months, the company said in a statement after the order.

Government intervention is also important, according to Tim Schaper, head of antitrust and competition in Germany at Norton Rose, who says “Diamond’s technology is quite old, 1990s-modern and industrially irrelevant”.

“The transaction has become a game of public debate about Chinese investors taking shares in key German technologies,” he said.

Elmos Semiconductor's sign seen on Nov. 9 in Dortmund, Germany.

Alexander Rinne, head of Milbank’s European antitrust practice in Munich, said regulators may have been concerned about the drain on technical know-how.

“Elmos is known for making 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 it was “considering its options in light of the UK government’s decision.”

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The chips are a source of rising tensions between the US and China. Washington has declared material shortages a national security issue and emphasized the importance of staying competitive in advanced technological capabilities.

This year, the United States has tightened its restrictions, forcing its allies to impose their own restrictions, Lu said. In August, the US government ordered two leading chipmakers, 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 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 “beware of creating new dependencies” on China. Speaking at the NATO Parliamentary Assembly in Madrid, Stoltenberg said he sees “increasing Chinese efforts” to control critical Western infrastructure, supply chains and key industrial sectors.

“We cannot allow authoritarian regimes to take advantage of our weaknesses and destroy us,” he said.

China has withdrawn the operation of two European semiconductor factories.

“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 said. briefing last Friday when asked about the Newport Wafer order. “Great Britain has abused state power by limiting the concept of national security.”

Another Chinese Foreign Ministry spokesman, Zhao Lijian, called on Germany and other countries to “refrain from politicizing normal economic and trade cooperation” at a press conference earlier this month, without specifically referring to Elmos.

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

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

According to Norton Rose, in each case they have to appeal to the court within about a month of the decisions of the regulators, except in special circumstances.

Both Britain and Germany have recently added rules that expand government control over such decisions, making outcomes more difficult to predict. In Germany, changes to foreign direct investment rules in 2020 mean the government can intervene in future deals “if” public order and security are likely to be compromised, Schaper said.

Previously, however, it could only impose restrictions “if there is an actual, serious threat to public order and security,” he told CNN Business.

In the U.K., the government’s ability to renegotiate contracts under the NSI Act was “really surprising and far-fetched,” said Andrea Hamilton, a London-based partner at Milbank.

“If Nexperia, as it intends, is controversial, it will also become a test. [the] The scope of the NSI Act,” he said.

Elsewhere, the focus is on the Netherlands. The Dutch government is currently facing pressure from the United States to limit exports to China, particularly from Eurasia Group’s semiconductor equipment maker ASML ( ASML ), which dominates the lithography machine market, said Lu.

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

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

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

“We will make our own assessment,” he told Dutch newspaper NRC.

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


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