Germany set to block Chinese chip deal – Financial Times

Germany’s economy minister said on Tuesday he was looking at ways to tighten restrictions on non-European investment in the country’s critical infrastructure as Berlin moved to block the sale of a chip factory to a Chinese-owned company.

The German government is expected to formally bar the sale of Dortmund-based Elmos’s semiconductor plant to China-owned Silex Microsystems following a cabinet meeting on Wednesday.

The blocking of the sale comes just days after Olaf Scholz made his first visit as chancellor to Beijing and highlights increasing concerns over the security of western semiconductor technology and supply chains.

Robert Habeck, the economy minister, said 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 told reporters in the southern city of Stuttgart.

He said the state should have an interest in ensuring companies involved in Germany’s critical infrastructure — including ports, telecoms, energy and the health sector — “remained as far as possible in European hands”.

Habeck, a senior figure in the German Green party, said his ministry was “some way off” from drafting laws that would further tighten rules covering Chinese investment.

The economy ministry must already approve all acquisitions of stakes larger than 10 per cent by non-EU entities in companies involved in the defence sector or critical infrastructure such as IT security components.

Elmos said on Tuesday morning that the ministry had “today informed the parties involved that . . . the sale of Elmos wafer production to Silex Microsystems is expected to be banned”.

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. Elmos said the economy ministry had until Tuesday told it the transaction “was likely to be approved”.

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 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 a container terminal 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,” said US secretary of state Antony Blinken 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.

Sai Microelectronics, formerly known as 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.