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Germany halts Chinese buyouts of semiconductor firms

November 9, 2022

The German government has blocked the sale of two semiconductor companies, including the Dortmund-based Elmos. Core components in computers and more, many leading semiconductor manufacturers are in Asia.

Outside of Elmos Semiconductor SE in Dortmund
Dortmund-based Elmos told investors on Monday that it had been told the deal would probably be stoppedImage: Dieter Menne/dpa/picture alliance

Germany's Cabinet on Wednesday agreed to halt the sale of two German semiconductor companies to purchasers ultimately funded by China, according to German Economy Minister Robert Habeck.

"We must look very closely at company takeovers when it relates to important infrastructure or when there is a danger that the technology would flow to buyers from non-EU countries," Habeck said.

One of the companies, Dortmund-based Elmos, had told investors on Monday that it understood that its sale would likely be halted. Swedish company Silex Microsystems AB was planning to purchase Elmos; it is a subsidiary of Chinese company Sai Microelectronics. 

German business publication Handelsblatt had also reported that the takeover of Bavarian company ERS Electronic by a Chinese investor would likely be stopped. The report did not identify the purchaser.

Green Party politician Habeck on Wednesday confirmed that two takeovers were affected but said he could not provide details on the second company because commercial confidentiality applied. 

Semiconductor shortage prompts US, EU drives for domestic production

Semiconductors are core components in the manufacture of computer chips and almost all electronic devices. They have been in short supply in recent years, partly as a result of the COVID-19 pandemic, causing serious supply chain issues for manufacturing everything from cars to the Playstation 5 gaming console. 

The US, Europe and Japan once dominated global production but in recent years China, Taiwan and South Korea have been rapidly expanding capacity. Now the US, Europe and Japan account for around one third of global production and China, Taiwan and South Korea for more than half of it. 

Habeck said Germany remained an open market economy, but added, "an open market economy is not a naive market economy."

He said that China was and should remain an important trading partner, but that in the semiconductor and microchip sectors specifically, a conscious Chinese strategy was becoming apparent that could eventually damage German interests. 

US President Joe Biden has also been looking to boost domestic semiconductor production during his time in office, the EU unveiled a multi-billion euro production drive earlier in the year

Decision follows Scholz Beijing trip, partial approval of Hamburg port purchase

Germany's business relations with China have been in sharp focus in the past couple of weeks. 

Chancellor Olaf Scholz's visit to Beijing, soon after President Xi Jinping secured an unprecedented third term as Chinese Communist Party leader, had prompted criticism at home and abroad. 

It also coincided with news that Scholz had insisted his Cabinet approve a partial purchase — albeit with a smaller stake than originally planned, 24.9% not 35% — of a terminal at the Port of Hamburg by Chinese company Cosco. 

Several ministers and ministries, including Habeck, had advised against allowing the deal to go ahead at all

Chip crisis drives car suppliers out of business

National politicians come out in support of decision, Dortmund's mayor dubious 

Germany's minister for education and research, Bettina Stark-Watzinger of the pro-business Free Democrats, also welcomed the Cabinet decision. 

"This makes it demonstrably clear that we must provide safeguards against the strategic flow towards China of know-how in core technologies," Stark-Watzinger said, adding that China was becoming an ever clearer competitor and systemic rival for Germany and the EU. "Therefore a clear, harmonized position from the federal government is necessary." 

Her party colleague Lukas Köhler said the FDP would be pushing for revisions to Germany's laws governing contentious foreign trade to provide better protection. Habeck also hinted at this on Tuesday, calling the existing law "a sharp sword" which "we will sharpen further still in the future." 

A co-leader of Habeck's Green Party, Omid Nouripour, said that Russia's invasion of Ukraine had laid bare the dangers of excessive dependency on other countries for core resources. 

"These last months have drastically demonstrated how important it is to avoid the formation of dependencies, as well as to diversify markets and supply chains," Nouripour said. He said that protecting domestic infrastructure and production capacities would "strengthen our technological and economic sovereignty." 

However, Dortmund's mayor was critical of the decision, saying that it put some 225 jobs in his city at risk. 

"With the sale this would not have been the case — now Elmos must decide how to proceed," Thomas Westphal, a Social Democrat, said. He argued that the factory being purchased had produced dated chips that were no longer of use for the company's own product line. He said the chips being produced at the site still had value for medical test equipment and other devices based on older technologies. 

msh/sms (AFP, dpa, Reuters)

Germany's Cosco deal: A risky dependency?