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 potential Chinese control of critical infrastructure.

Last week, the new owner of Britain’s biggest chip maker was ordered to unravel its takeover, days after another chip factory sale in Germany was blocked. Both transactions were affected by national security concerns and involved acquisitions 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 stake in Newport Wafer Fab, more than a year after taking control of the fab. Staff have since protested the decision, saying it puts nearly 600 jobs at risk.

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

Chip production had already emerged as a new front in US-China tensions. Now the two troubled deals show how pressure is also mounting in Europe, particularly as Western officials face calls to keep key sectors out of Chinese control.

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

“U.S. pressure certainly contributed to these decisions. [A] A growing sense of technological dominance also likely fueled these moves—governments around the world are increasingly [viewing the] the semiconductor industry as a strategic resource and we seek to protect them from foreign takeovers.”

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

The Newport Wafer case is “the first comprehensive takeover” to be unfolded under the UK’s National Security and Investment (NSI) Act, 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 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”.

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

A worker in a clean room for manufacturing silicon semiconductor wafers at Newport Wafer Fab, owned by Nexperia, in Newport, Wales on August 18.

The factory makes silicon wafers, 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.

In one I open a letter to the UK government last Thursday, the Nexperia Newport Staff Union said it was “in disbelief” that workers’ livelihoods had been “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 British security. “You need to make sense and protect our jobs by allowing Nexperia to keep its factory in Newport.”

For Elmos, German authorities had initially said they would issue conditional approval and even shared a draft approval after an intensive 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 the government intervention was also significant given that “Elmos’ technology is said to be quite old, state-of-the-art in the 1990s and allegedly not of much industrial importance ».

“The transaction became the plaything of a public debate about Chinese investors taking stakes in key German technologies,” he said.

A corporate logo of Elmos Semiconductor, displayed on November 9 in the German city of Dortmund.

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

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

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

This year, the United States increased its own restrictions and pressured allies to enact their own, according to Lu. In August, the U.S. government ordered two leading chipmakers, Nvidia ( NVDA ) and AMD ( AMD ), to halt exports of certain high-performance chips to China.

Two months later, the Biden administration unveiled sweeping export controls that barred 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 chip development or production 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 “increasing Chinese efforts” to control vital Western 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 legal rights and interests of Chinese companies and provide a fair, just and (a) fair business environment,” said Chinese Foreign Ministry spokesman Mao ning in a press. update last Friday when asked about the Newport Wafer order. “The United Kingdom has overstretched 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 news conference earlier this month, without specifically addressing Elmos.

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 sparked similar controversy. Under pressure from some members of the government, the size of the investment was later reduced.

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

In any case, they should file a court appeal within about a month of the regulators’ decisions, except in exceptional circumstances, according to Norton Rose.

Both Britain and Germany have recently added rules that expand government oversight of such decisions, making the results harder to predict. In Germany, a change to foreign direct investment rules in 2020 meant the government can intervene in potential deals “if there is a ‘potential harm to public order and security,'” Schaper said.

Previously, instead, it could 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 retrospectively review deals 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 challenged, as Nexperia apparently intends, it will also become a test case for [the] extent of NSI Act limits,” he said.

Elsewhere, attention turns to the Netherlands. The Dutch government is currently facing pressure from the United States to curb exports to China, particularly from ASML ( ASML ), a semiconductor equipment maker that dominates the lithography machine market, according to Lu at Eurasia Group.

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

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

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 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.


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