The chip war between the United States and China spills over into Europe |  CNN Business

The chip war between the United States and China spills over into Europe | CNN Business

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CNN Business

Two European chip deals have run into trouble over their ties to China, a sign of concern spreading in the West about China’s potential control over critical infrastructure.

Last week the new owner of Britain’s biggest chipmaker was ordered to reverse its takeover, just days after another chip factory sale in Germany was blocked. Both transactions were affected by national security concerns and involved acquisitions by Chinese 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. From the factory. Staff members have since protested the move, saying it put nearly 600 jobs at risk.

In Germany, the Ministry of Economy has banned Elmos Semiconductor, a manufacturer of automotive chips, from selling its factory in the city of Dortmund to Silex, a Swedish subsidiary of Chinese Sai Microelectronics.

Chipmaking was already emerging as a new front in US-China tensions. Now the two troubled deals illustrate how the pressure is also growing in Europe, particularly as Western officials face calls for key sectors to be held out of Chinese control.

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

“American pressure certainly contributed to these decisions. [A] the growing sense of technological sovereignty has also likely prompted these moves – governments around the world are increasingly [viewing the] the semiconductor industry as a strategic resource and seek to protect them from foreign takeovers.

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

The Newport Wafer deal is “the first acquisition made” to be reversed under a UK National Security and Investment (NSI) law, which came into full force 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”.

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

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

The factory manufactures silicon wafers, the basis for manufacturing computer chips. Many of its products end up powering cars and medical equipment. Nexperia said workers at the plant now face an uncertain future.

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

“This is clearly a deeply political decision,” the group wrote, dismissing the idea that the deal would undermine British security. “You have to use common sense and protect our jobs by allowing Nexperia to keep its Newport plant.

For Elmos, German authorities initially indicated they would issue conditional approval, and even shared a draft approval after an intense review process lasting around 10 months, the company said in a statement. following the injunction.

Tim Schaper, head of antitrust and competition for Germany at Norton Rose, said government intervention was also important given that “Elmos’ technology would be quite old, state-of-the-art in the 1990s and would not be of great industrial importance”.

“The transaction has become the plaything of a public debate over Chinese investors acquiring stakes in key German technologies,” he said.

A sign of the company Elmos Semiconductor, seen on November 9 in the German city of Dortmund.

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

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

Both Elmos and Nexperia 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 said the shortage of materials was a national security issue and stressed the importance of staying competitive in advanced technological capabilities.

This year, the United States has tightened its own restrictions and pressed its allies to adopt theirs, according to Lu. In August, the US government ordered two major chipmakers, Nvidia (NVDA) and AMD (AMD), to suspend 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 chipmaking equipment without a license. The rules also restricted the ability of US citizens or US green card holders to support the development or production of chips at certain manufacturing facilities in China.

The pressure is mounting. 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 saw “increasing Chinese efforts” to control Western critical infrastructure, supply chains and key industrial sectors.

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

China has pushed back the handling of the two European semiconductor cases.

“We strongly oppose the UK’s decision and call on the UK to respect the legitimate rights and interests of Chinese companies and to provide a fair, just and (a) non-discriminatory business environment,” the door-keeper said. Chinese Foreign Minister Mao Ning’s speech to the 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 spokesperson, called on Germany and other countries to “refrain from politicizing normal economic and trade cooperation” at a press conference earlier this month. , without specifically addressing Elmos.

Germany has shown greater scrutiny of Chinese buyers this year. Last month, a bid by Chinese 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 then limited.

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

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

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

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

In the UK, the government’s ability to retroactively 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 as to [the] the extent of the limits of the NSI Act,” she said.

Elsewhere, attention turns to the Netherlands. The Dutch government is currently facing pressure from the United States to limit exports to China, in particular from ASML (ASML), a manufacturer of semiconductor equipment which holds a dominant position in the market for lithograph, according to Lu of Eurasia Group.

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

The Netherlands made it clear that they would form their own position.

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

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

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

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