German government stops sale of chip factory to Chinese-owned buyer

The Swedish, Chinese-owned company Silex wants to acquire the fab of German chip manufacturer Elmos. The German Ministry of Economics has stopped the deal. MERICS expert Antonia Hmaidi comments:

Elmos, a German company, manufactures integrated devices (designing and fabricating chips) for automobiles. They have already relinquished control of one foundry in Duisburg and want to sell another foundry in Dortmund, which produces chips using outdated 350 nanometer technology. The Swedish company Silex Microsystems is the world’s largest foundry for Micro Electronic Mechanical Systems (MEMS). It is owned by Chinese Sai Microelectronics.

Why Elmos wants to sell and why this could be considered non-critical:
The technology used for  chips production is outdated, but can be used for MEMS. Other manufacturers such as Bosch and Infineon also have the capabilities, therefore losing the Elmos’ facilities would not harm the European chips ecosystem. China, on the other hand, is capable of producing MEMS domestically. For competition reasons, Elmos wanted to sell its facilities – to become “fabless”. One alternative to the Swedish-Chinese buy-out now is the closure of the fab altogether. 

Why the German Ministry of Economics has stopped the sale:
The German domestic intelligence services (Bundesverfassungsschutz) had warned of sale, not  due to concerns over tech transfer, but because of dependency issues. Europe has very little production capacity for semiconductors left and selling the part to a Chinese company would further increase dependency on China. In addition, China has signaled a clear strategic interest in becoming the market leader in niche products like MEMS. Sai Microelectronics has ties to the Chinese military, and MEMS have clear military applications. The company has also clearly been supported by the Chinese state, through subsidies. The Chinese owners’ acquisition strategy in Europe should thus be seen also in a strategic light.

Overall assessment: 
It seems encouraging that the German government is reviewing Chinese-led takeover bids more carefully now. It is right to look beyond technology transfer and to investigate the dependency structures and strategic goals of the Chinese side. However, considering the handling of recent decisions, with Elmos originally given signals that they would get approval, there is a risk of damaging German competitiveness. What is needed now is to not simply prohibit transactions, but to also provide a perspective on how to navigate these issues more systematically and transparently in the future. It is also crucial to consult with like-minded partners on these issues and provide companies and employees with a perspective on future use, e.g., through government-subsidized loans for upgrading or retooling.