Chinese semiconductor companies looking to expand through acquisitions in Europe face an increasingly chilly reception from regulators wary of state-driven investment.
The continent had been an attractive destination for Chinese players seeking to gain a foothold in supply chains in a leading market for electric vehicles. Direct investment in Europe by Chinese companies rebounded 34% in 2021 to 10.6 billion euros ($11.2 billion at current rates), with auto-related deals accounting for nearly a quarter, according to Germany’s Mercator Institute for China Studies.
But a number of recent deals have been stymied by governments taking a harder line toward Beijing. German Economic Affairs Minister Robert Habeck cited the need to safeguard “technological and economic sovereignty” last month when Berlin vetoed the sale of a semiconductor plant in Dortmund to Sai MicroElectronics.
The facility operated by Elmos Semiconductor produces 350-nanometer chips — far from the field’s leading edge. Germany had planned to approve the acquisition before changing its decision just before the end of the screening deadline.
Sai, a midsize sensor maker, had hoped to add automotive semiconductor capacity with the Elmos deal. It has said it plans to continue pursuing the business.
Berlin has also blocked a Chinese company from investing in local chipmaking equipment company ERS Electronic.
Similar issues have cropped up in the U.K., where smartphone assembler Wingtech Technology was recently ordered to undo its acquisition of Newport Wafer Fab through a Dutch subsidiary, citing the risk of technology leaks that could “undermine U.K. capabilities.”
In August 2021, Wingtech spent 63 million pounds ($77 million at current rates) to buy all of Newport Wafer’s outstanding shares. But the British government reassessed the deal under new legislation implemented in January aimed at preventing leaks of sensitive technology.
Though Wingtech has said that unwinding the deal would have only a minor impact on its business, its Dutch unit operates multiple chip facilities in Europe that could also face issues. “Its production capacity could be affected, depending on local policies,” a representative at a Chinese brokerage said.
Italy has blocked the acquisition of LPE, a maker of semiconductor-manufacturing equipment, by a Shenzhen-based investment fund, as well as an attempt by Zhejiang Jingsheng Mechanical to buy the Italian screen-printing equipment business of U.S.-based Applied Materials.
The negative response stems from suspicion of China’s government-driven electric-vehicle strategy.
Regulators seek to limit Chinese sway over the burgeoning market. French consultancy Inovev estimates that electrics will make up roughly 40% of new-car sales in Europe in 2030, with as many as 1.16 million — about a fifth — made in China.
An analysis by Netherlands-based Datenna of 750 Chinese investments since 2010 found high state influence in 180 cases and medium influence in 121 more.
A growing hawkish tilt toward China in many European governments is a factor as well.
Germany’s Green Party, known for its hard line on China along with its pro-environmental stance, joined the ruling coalition in December. In the U.K., the Beijing-skeptic China Research Group has been gaining more influence in the ruling Conservative Party since the spring of 2020, before Huawei Technologies was shut out of the country’s 5G network that July.
Beijing has objected to the blocking of deals involving Chinese companies. Discussing the Wingtech case in November, Foreign Ministry spokesperson Mao Ning said the U.K. had “abused state power to directly interfere in a Chinese company’s normal investment cooperation in Britain.”
Another spokesperson, Zhao Lijian urged Germany and other countries to refrain from “using national security as a pretext to practice protectionism.”
The trend has made Chinese businesses more reluctant to invest in Europe, an effect compounded by inflation and soaring energy prices. Announced mergers and acquisitions by Chinese companies in the region sank under $1 billion to a record low last quarter, according to Ernst & Young.
This trend is unlikely to directly hurt companies much overall, as many Chinese players have been focusing on supply chains at home. But they could lose out on opportunities to gain talent and know-how, with consequences for their competitiveness further down the line.
Source : Nikkei Asia
