China Moves to Buy German Semiconductor Factory After New US Chip Ban
China Moves to Buy German Semiconductor Factory After New US Chip Ban

By Alex Wu

The German government intends to approve a China-based company’s acquisition of a chip production factory belonging to the Dortmund-based semiconductor company Elmos, despite the German intelligence agency warning against the move, according to German business daily Handelsblatt.

Swedish company Silex Microsystems AB, which is a subsidiary of China’s Sai Microelectronics Group, is planning to acquire Elmos. The acquisition is currently under review by Germany’s Ministry of Economic Affairs and a final decision is expected in the next few weeks, Handelsblatt reported on Oct. 27 citing federal sources.

In December last year, Sai Microelectronics announced that Silex planned to acquire the automotive chip manufacturing line of Elmos Semiconductor SE for 84.5 million euros.

According to Handelsblatt, Germany’s Federal Office for the Protection of the Constitution has warned the government of German Chancellor Olaf Scholz not to approve the sale, noting it is dangerous to increase reliance on China for chip production.

Recently, a series of decisions by Scholz have been to the benefit of China’s ruling communist party, including approval of the Chinese state-owned COSCO Group’s acquisition of a nearly 25 percent stake of the Port of Hamburg and a planned trip to China, which have drawn criticism within the government coalition and sparked public debate on issues of principle in dealing with an authoritarian communist regime.

Since the pandemic, global chip production and deliveries have repeatedly encountered difficulties. And with geopolitical tensions growing due to aggression by the regimes in Russia and China, chip factory acquisition has entered a more sensitive and dangerous period, sparking more heated debates.

Elmos is a second tier chip company that is significantly smaller than Infineon, the world’s largest automotive chip maker based in Munich. Ninety percent of Elmos’s chips are used in the automotive industry. The company wants to forgo its chip production capacity in favor of buying chips from contract manufacturers and processing them further.

According to the German government, Elmos’s chip technology is so outdated that a Chinese acquisition will not grant the regime any further access to newer technologies that could advance its development and put Germany at a disadvantage.

But numerous members of the government expressed to Handelsblatt it was inconceivable that the government was still considering to approve the acquisition, as the move would still help China increase its chip production capacity.

Production Capacity Matters Too

German intelligence agencies have said that concerns for the chip industry involve not only the outflow of technology, but also increased production capacity. Recently, the Federal Intelligence Service (BND) and the Office for the Protection of the Constitution also outlined the Chinese Communist Party’s (CCP) covetous intentions.

They said that China is looking to make acquisitions in the chip field to fill the void after Western companies exited China due to the new chip ban by the United States. They warned that the CCP wants to strategically buy into the chip industry so it can exert pressure on other countries in the future.

Silex is already making its own chips and hopes to expand production in its business model. Its products are used in sensors and actuators for medical technological equipments, consumer electronics, telecommunications, industrial, and automotive sectors.

The acquisition of Elmos’s production line will provide Silex with additional production capacity that can be used to process orders from numerous customers. Silex CEO Edvard Kälvesten said in an announcement that the acquisition would be “an important milestone in our successful growth strategy.”

Regarding competition in the chip field between the CCP and the West, Dr. Frank Xie, professor in business at the University of South Carolina, Aiken, said earlier this month that after the United States banned both technology export to China and American professionals from working for China’s chip development, the CCP has no chance of success in this field, even with its large capital investment, because small chips involve large-scale cutting-edge industries, which is a multinational multi-industry alliance of Western countries.

“The leading chip etching/lithography technology leader, the Dutch company ASML, does not export its high-end chip writing machines to China at all, and may completely cut off exports in the next step,” Xie said. “It is impossible for the CCP to catch up with more than a dozen of the most advanced industrialized countries in dozens of cutting-edge fields, ranging from laser optics, precision instruments, precision manufacturing, digital machine tools, to advanced materials.”

Wang Yixiao contributed to the report.

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