Wednesday, March 29, 2023

Germany set to block Chinese chip deal

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The German government is poised to block the sale of a semiconductor factory to a Chinese-owned company, a decision that comes just days after Olaf Scholz made his first visit as chancellor to Beijing.

A formal decision on the sale of Dortmund-based Elmos’s wafer plant is expected to be announced by Berlin following a cabinet meeting on Wednesday.

The decision to block the sale highlights increasing concerns over the security of western semiconductor technology and supply chains.

“The Federal Ministry for Economic Affairs and Climate Protection (BMWK) today informed the parties involved that . . . the sale of Elmos wafer production to Silex Microsystems is expected to be banned,” Elmos said on Tuesday morning.

Robert Habeck, the economy minister, said on Tuesday that Germany should nurture and develop relations with China, but needed to view investments in “critical sectors” such as semiconductors “with particular sensitivity”.

“That means that we should assume that Chinese investments (in such sectors) have higher hurdles to clear, and that goes for Elmos,” Habeck said.

Silex — a Swedish subsidiary of China’s Sai Microelectronics — did not respond to a request for comment.

Management at both companies were caught off guard by the decision. “This is a new development, since until today the BMWK had informed [us] that the transaction was likely to be approved,” Elmos said.

Scholz has just returned from what was the first visit to Beijing by a European leader since the start of the coronavirus pandemic.

Sensitivities over Germany’s trade-driven approach to foreign policy — often pursued at the expense of national security concerns — are running high in Berlin in the wake of Russia’s invasion of Ukraine.

Scholz said ahead of his trip there was a need to reduce “risky” and “one-sided” dependencies on China by screening investment and diversifying supply chains. But he has been reluctant to compromise on economic priorities.

Last month, the chancellor courted controversy by over-ruling the advice of six ministries and his intelligence agencies to push through the sale of a stake in the port of Hamburg to Chinese shipping company Cosco.

The decision drew widespread domestic criticism — including from his coalition partners, Germany’s liberal and green parties — and was condemned by allies.

“We have engaged [with Berlin] on shared concerns about some of the things that China does, including its coercive economic practices and the risk of creating new and deepening economic dependencies in critical areas,” US secretary of state Antony Blinken said last week at a meeting of G7 foreign ministers hosted by Germany.

The US in October introduced expansive chip export controls in an effort to make it harder for China to manufacture advanced semiconductors.

Pressure had been mounting on the German government to draw a line at the takeover of the Elmos factory. The government had already been advised to block the deal by Germany’s domestic security agency, the BfV.

Elmos manufactures chips for use in vehicles. Under the deal with Silex — which was commercially agreed last year — the company proposed to sell its production capability for €85mn.

China’s NavTech acquired Silex in 2015 and announced a plan to build a $300mn chip factory in Beijing “based on Silex technology”.

Proponents of the sale of Elmos note its relatively small scale and say the technologies it uses in Dortmund are not sophisticated enough to pose any security risk.



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