Nexperia and Elmos cases show US-China chip war spilling over into Europe

Hong Kong
CNN Business

Two European chip deals have run into trouble over their links 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 end its takeover, just days after another sale of the chip factory was blocked in Germany. Both transactions were hit by national security concerns and involved acquisitions of Chinese-owned companies.

In the UK, Nexperia, the Dutch arm 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. Employees have been protesting the decision ever since, saying it puts almost 600 jobs at risk.

In Germany, the economy ministry banned Elmos Semiconductor, a maker of automotive chips, from selling its factory in the city of Dortmund to Silex, the 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 also mounting in Europe, especially as Western officials face calls to move key sectors out of Chinese control.

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

“U.S. pressure definitely contributed to these decisions. [A] A growing sense of technological sovereignty is also likely to have prompted these moves – governments around the world are increasingly [viewing the] semiconductor industry as a strategic resource and seeks to protect them from foreign takeover.

Legal experts said the two decisions were notable because each deal was initially considered approved.

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

Nexperia said last week that 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 “activities that could be of concern and to give the UK government direct control and involvement in the management of Newport, a 28-acre site in South Wales.”

A worker in a silicon semiconductor wafer clean room at Nexperia-owned Newport Wafer Fab in Newport, Wales on August 18.

The factory produces silicon wafers, the basis for the production of 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 an open letter Last Thursday, the Nexperia Newport Staff Association told the UK government it was “in disbelief” that staff’s livelihoods had been “threatened 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 have to see the point and protect our jobs by allowing Nexperia to keep the factory in Newport.”

As for Elmos, German authorities initially indicated 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 court order.

Tim Schaper, head of antitrust and competition for Germany at Norton Rose, said the government’s intervention was also significant given that “the 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 a plaything in the public debate about Chinese investors acquiring stakes in key German technologies,” he said.

Elmos Semiconductor corporate brand, seen on November 9 in the German city of Dortmund.

According to Alexander Rinne, head of the European antitrust office at Munich-based international law firm Milbank, it is possible that regulators were 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 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”.

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

According to Lu, the United States has tightened its own restrictions this year and urged allies to enact their own. In August, the U.S. government ordered two leading chip makers, 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 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 the development or production of chips at certain manufacturing facilities in China.

The pressure is rising. NATO Secretary General Jens Stoltenberg on Monday 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 “growing Chinese efforts” to control Western critical infrastructure, supply chains and key industrial sectors.

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

China has delayed the resolution 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 provide 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. “Great Britain has exaggerated the concept of national security and abused state power.”

Zhao Lijian, another spokesman for China’s foreign ministry, urged 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 more control over Chinese buyers this year. Last month, China’s state-owned shipping giant Cosco’s bid for a stake in a port terminal operator in Hamburg sparked similar controversy. Under pressure from some members of the government, the size of the investment was later limited.

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

In any case, Norton Rose said, they would have to file a lawsuit within about a month of the regulators’ decision, except in exceptional circumstances.

Both Britain and Germany have recently added rules that expand 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 potential deals “if there is a ‘likely breach of public order and security,'” Schaper said.

By contrast, previously it could only impose restrictions if there was a ‘genuine, 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 attacked, as Nexperia apparently intends, it will also become a test case [the] the extent of the limits of the Act on NSI,” she said.

Elsewhere, attention shifts 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 Eurasia Group’s Lu.

“It’s going to be another case study,” she told CNN Business.

The Netherlands have made it clear that they will create their own position.

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

“We are doing 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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