Germany Favours Blocking China Takeover Of Elmos’ Chip Production

The purchase of automotive chip supplier Elmos Semiconductor by a Chinese owned entity, looks likely to be blocked by the German government.

Reuters, citing ministry sources, reported that on Tuesday Germany’s economy ministry recommended to the cabinet that the government block the Chinese takeover of Elmos’ chip factory in Dortmund, saying it would pose a threat to national security.

The German case involving Elmos seems to mirror a UK case, where the British government has repeatedly delayed its national security decision whether to allow a Chinese-owned entity (Dutch chip firm Nexperia) to acquire Newport Wafer Fab, the UK’s largest largest chip producer.

Elmos Semiconductor

In the case of Germany’s Elmos Semiconductor, the German economics ministry became involved due to its potential sale to competitor Silex – a Swedish company that is a subsidiary of Chinese group Sai Microelectronics.

Now with the recommendation that the deal is blocked due to national security threat, the German government looks certain to block the Chinese takeover of Elmos.

Milder measures, such as an injunction, are not suitable for addressing the identified dangers, the sources confirmed to Reuters.

Elmos said on Monday that the German government would likely block its sale to Silex.

The sources said the economy ministry and the German government are currently working on a China strategy focused on reducing one-sided dependencies and encouraging diversification, as well as protecting infrastructure and preventing technology leakage, Reuters noted.

China relations

Tensions between Germany and China have been growing for a while now.

For years Germany was on the fence over whether to ban Chinese firm Huawei Technologies from its 5G networks.

But in April 2021, German lawmakers passed tougher 5G security legislation that restricted the role of “untrustworthy” suppliers of 5G technology and required telecoms operators to notify the government if they sign contracts for critical 5G components.

It also gave the government powers to block them.

That brought Germany to a similar position adopted by most of the European Union.

Last week Reuters noted that German Chancellor Olaf Scholz visited Beijing, where it was clear that China and Germany were no friends of ‘decoupling’.

That said Scholz also reported complained about increased difficulties for German companies accessing the Chinese market.

Concerns about the extent of Chinese influence in German businesses came to the forefront last month after Scholz pushed through a decision to allow Chinese shipping giant Cosco to buy a stake in a terminal in the country’s largest port, triggering unprecedented protest from within his own governing coalition, Reuters reported.

The decision sparked an angry response by the foreign ministry, which warned that the investment disproportionately expands China’s strategic influence and, in the event of a crisis, would open up the possibility for China to politically instrumentalise part of Germany’s critical infrastructure.

Germany recently faced heavy criticism for its reliance on Russian gas, and the ownership of German energy storage facilities by Russian entities.

Germany will also have to comply with strict US chip export controls, that has seen the decline of imports of semiconductors into China.