Germany rejects agreement with Chinese company for chip factory

Germany rejects agreement with Chinese company for chip factory

The federal government blocked the sale of a chip factory to a Swedish subsidiary of a Chinese company, a decision that comes as Berlin grapples with its future relationship with Beijing.

The move through the cabinet follows a recent compromise over a Chinese shipping company’s investment in a German container terminal and a visit by the German Chancellor to Beijing Olaf Scholz last week.

The government’s red light was expected after German company Elmo’s said this week that he had been told that the €85 million (about $90 million) sale of his Dortmund chip factory to Silex Microsystems AB of Sweden was likely to be banned. According to German media, Silex belongs to Sai Microelectronics of China.

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Although the deal, announced in December, was not very significant financially and the technology did not appear to be new, it raised concerns about whether it would make sense to place German IT production capacity in Chinese hands.

German Economics Minister Robert Habeck said the government also blocked a second planned investment by an outside investor European UnionHowever, he did not want to give any details, as this is still subject to the business secrets of the companies involved.

In halting both deals, Habeck said safety in Germany must be protected and “there is a particular need to protect critical areas of production.”

“What is important is the political message that we are an open market economy, that foreign investment, including from countries outside the (European) Union, is wanted and welcome here, but an open market economy is not a naive market economy,” he told reporters.

Western governments are increasingly suspicious of China’s technological ambitions and assertive foreign policy. The United States and other governments have tightened controls on access to processors crisps and other technology.

scholzThe nearly year-long government has signaled a departure from predecessor Angela Merkel’s resolutely pro-trade stance on China. She wants to develop a “comprehensive China strategy”.

That’s pending. But Secretary of State Annalena Baerbock and others have made it clear that Germany wants to avoid repeating mistakes it made with Russia, which used to supply more than half of the country’s natural gas but is now supplying none.

However, a decision last month pointed to unresolved questions about the extent to which Chinese companies would be allowed to invest in Europe’s largest economy.

Officials were at odds over whether China’s COSCO should allow a 35 percent stake in a container terminal in the port of Hamburg.

Members of two junior parties in the governing coalition opposed the deal, while Scholz, a former mayor of Hamburg, downplayed its importance. The cabinet eventually approved COSCO to take a stake below 25%. Above this level, an investor can block a company’s decisions.

Scholz encourages companies to diversify but does not discourage doing business with China. “We don’t want to be decoupled from China,” he said before his trip, “but we will reduce one-sided dependencies in the interests of intelligent diversification.”

A spokesman for the Chinese Foreign Ministry Zhao Lijiansaid earlier on Wednesday that he was unaware of the sale of the chip factory, but called on the Scholz government to treat Chinese companies equally.

Zhao called on Germany to “provide a fair, open and non-discriminatory market environment for all businesses to operate normally” and “not to use national security as an excuse for protectionism.”