Europe is being affected by the US-China semiconductor conflict.

A hint of growing anxiety in the West about possible Chinese control of essential infrastructure is the problems two European semiconductor transactions have run into because of their connections to China.

Just days after another chip plant sale in Germany was halted, the new owner of Britain’s largest chipmaker was given the go-ahead to reverse the transaction last week. National security issues impacted both deals, which entailed the purchase of Chinese-owned businesses.

More than a year after assuming control of the facility, the government of the United Kingdom ordered Nexperia, a Dutch affiliate of Shanghai-listed semiconductor manufacturer Wingtech, to sell at least 86% of its investment in Newport Wafer Fab. Since then, employees have been opposing the choice, claiming it jeopardizes roughly 600 employment.

The German economic ministry forbade Elmos Semiconductor, a manufacturer of automotive chips, from selling its facility in Dortmund to Silex, a Swedish affiliate of Sai Microelectronics, a Chinese company.

A new battleground in the US-China trade war was already opening up with the chip industry. The two difficult transactions now show how the pressure is increasing in Europe as well, especially in light of demands for Western leaders to defend vital industries from Chinese influence.

According to Xiaomeng Lu, director of geotechnology at Eurasia Group, “these choices signal a move towards stronger views towards Chinese involvement in important sectors in Europe.”

“There is no doubt that US pressure affected their choices. These actions were probably motivated by [a] rising feeling of technological sovereignty, as governments throughout the globe increasingly [see] the semiconductors sector as a strategic resource and work to prevent foreign takeovers.

Added two flashpoints

The two rulings, according to legal experts, were noteworthy since each agreement was first believed to have been approved.

According to Ian Giles, Norton Rose’s head of antitrust and competition for Europe, the Middle East, and Asia, the Newport Wafer case is “the first completed purchase” that needs to be undone under the UK’s national security and investment (NSI) act, which went into full force in January.

The UK government “choose not to engage into a meaningful discussion with Nexperia or even visit the Newport site,” according to a statement released by Nexperia last week. Nexperia claimed it was “shocked” by the decision.

The business also said that it has provided the UK government with direct oversight and involvement in the operation of Newport, a 28-acre location in south Wales, in exchange for avoiding “activity of possible concern.”

The plant produces silicon wafers, which are the building blocks for computer chips. Eventually, many of its products will power automobiles and medical technology. According to Nexperia, the future of the facility’s employees is now unclear.

The Nexperia Newport Staff Association expressed its “disbelief” that workers’ lives had been “placed in peril in the run-up to Christmas” in an open letter to the UK government last Thursday.

The organization rejected the notion that the agreement would jeopardize British security and said, “This is obviously a fundamentally political choice.” “You must use common sense and maintain Nexperia’s Newport manufacturing open to secure our employment.”

Elmos said in a statement after the injunction that German authorities had first claimed they would provide a conditional clearance and had even shared a draft approval after a rigorous assessment process spanning around 10 months.

Government participation was important, according to Tim Schaper, director of antitrust and competition for Germany at Norton Rose, considering that “Elmos’ technology is believed to be very old, state-of-the-art in the 1990s, and apparently not of huge economic value.”

He said that the deal “became the subject of a public discussion over Chinese investors buying interests in important German technology.”

Alexander Rinne, the head of international law firm Milbank’s European antitrust practice in Munich, speculates that authorities may have been worried about a loss of technical expertise.

In an interview, he said that “Elmos is recognized for producing chips for the automotive sector, which is Germany’s main business and the pride of the nation.”

Both Elmos and Nexperia denied requests for interviews. A spokesman for Nexperia said to MINIECHAT Business on Tuesday that the company was “evaluating its options about the decision of the UK government.”

escalating argument

Chips are becoming a bigger cause of conflict between China and the US. Washington has cited the need to maintain competitiveness in advanced technological capabilities in identifying the materials scarcity as a national security concern.

According to Lu, this year, the US tightened its own limitations while pressuring partners to do the same. The US government ordered two leading chipmakers, AMD and Nvidia, to stop exporting certain high-performance processors to China in August.

Two months later, the Biden administration disclosed extensive export restrictions that forbade Chinese firms from acquiring cutting-edge chips and chip-making machinery without a permit. The laws also limited the ability of US nationals or US green card holders to promote the creation or fabrication of chips at certain Chinese manufacturing sites.

The strain is becoming worse. Jens Stoltenberg, secretary general of NATO, advised the West on Monday to “take care not to build new dependence” on China. Stoltenberg said that he was seeing “increasing Chinese attempts” to dominate Western essential infrastructure, supply networks, and important industrial sectors while speaking at a NATO parliamentary assembly in Madrid.

He remarked, “We must allow authoritarian regimes any opportunity to take advantage of our weaknesses and to weaken us.

China has objected about how the two European semiconductor cases have been handled.

When asked about the Newport Wafer order at a press conference last Friday, Chinese Foreign Ministry Spokesperson Mao Ning stated, “We firmly 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.” “The UK has exploited state authority and extended the idea of national security.”

At a news conference earlier this month, Zhao Lijian, another spokeswoman for the Chinese Foreign Ministry, urged Germany and other nations to “refrain from politicizing routine business and commercial relations” without directly mentioning Elmos.

This year, Germany has been more cautious when dealing with Chinese customers. Similar uproar erupted last month over a Cosco offer to acquire stock in a Hamburg port terminal operator. Later, the extent of the investment was restricted as a result of pressure from certain government officials.

The approaching front line

The chipmakers may face an unclear struggle that might last years if they appeal, according to attorneys.

Barring extraordinary circumstances, they would need to dispute regulators’ rulings in each instance within around a month, according to Norton Rose.

Britain and Germany have recently introduced regulations that increase governmental monitoring of such choices, making results more unpredictable. According to Schaper, a change in foreign direct investment regulations in Germany in 2020 allowed the government to step in during negotiations “if there is a ‘probable harm of public order and security’.”

He said to MINIECHAT Business that in the past, limits could only be put in place “if there was a ‘real, sufficiently significant danger to public order and security.

According to Andrea Hamilton, a Milbank associate based in London, the UK government’s authority to retrospectively assess transactions under the NSI Act “was truly something that was deemed shocking and far-reaching.”

It will also serve as a test case for the NSI Act’s boundaries if it is challenged, as Nexperia reportedly plans.

The Netherlands is receiving more attention elsewhere. According to Lu at Eurasia Group, the US is presently pressuring the Dutch government to restrict shipments to China, notably from ASML, a manufacturer of semiconductor equipment that enjoys a strong position in the market for lithography machines.

She informed MINIECHAT Business that it would become the following case study.

The Netherlands has made it plain that it will take a unique stance.

Liesje Schreinemacher, the Dutch Minister for Foreign Trade, responded to a question regarding the matter this month by stating that her nation will “not imitate the US export limits for China one-to-one.”