China wants to buy chip companies in Germany

In Germany, a debate has broken out about takeovers of German companies in the semiconductor industry by Chinese investors. On Wednesday, the Federal Ministry of Economics prohibited two sales to China that had been requested.

The cases show that the People’s Republic definitely wants to expand its capacities in this important sector – and is going on a shopping spree worldwide.

The attempts to have European chip productions taken over by Chinese companies are not only of concern to the German government, but also to Great Britain. The sale of the largest British chip factory, Newport Wafer Fab, to China is currently being discussed there.

The company announced about a year ago that it had been taken over by the Chinese company Nexperia. Since then, the deal has been under scrutiny under the UK’s new National Security and Investments Act. In October, the decision was delayed for the third time.

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China’s need for semiconductors is huge – no other country in the world buys so many chips. The People’s Republic has held this first place since 2005. Accordingly, the Chinese government has been prioritizing the advancement of the domestic industry for years.

Despite strong growth, China’s goal is a long way off

In its “Made in China 2025” strategy published in 2015, Beijing had already set the goal of being self-sufficient in “key materials” by 2025. This also includes the chip industry. By then, China wanted to cover 70 percent of its semiconductor requirements with domestic manufacturers – the country left open whether this also meant foreign manufacturers producing in China.

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China’s chip industry has caught up a lot in recent years, but it will not come close to the stated goal. According to analysis firm Daxue Consulting, the Chinese semiconductor industry saw a rapid increase in its sales in 2021, growing between 20 and more than 30 percent depending on the area.

According to the market researcher IC Insights, chips produced in the People’s Republic accounted for 16.7 percent of the total Chinese market for semiconductors in 2021 – ten years earlier it was 12.7 percent. The analysts forecast that this part will increase by 4.5 percentage points to 21.2 percent from 2021 to 2026. That’s a lot, but not yet self-sufficiency.

The reason for the rapid expansion of manufacturing capacities in the country is that the Chinese government has invested massively in the sector in recent years, as well as enormous amounts of private capital. The “Big Fund” alone, as the largest state investment program is called, brought the industry 39 billion US dollars by mid-2021.

Sanctions could continue to cripple

The massive financial support led to progress, but also to major misallocations. This is how dummy companies were created, which were supported with large sums of money, but quickly turned out to be empty shells.

Especially in the area of ​​production and development, China’s semiconductor industry is still far behind in international comparison. In contrast, the Chinese industry is stronger in the assembly, testing and packaging segment of the semiconductor value chain than in the other areas, writes the analysis house Gavekal.

China’s semiconductor industry is facing massive headwind from the USA. In October, the US Department of Commerce released new export sanctions targeting the sector. According to a recent analysis by the analysis firm Gavekal, these sanctions posed “a serious threat”.

If fully implemented, it says, they will cripple China’s ability to design and manufacture the chips it needs for advanced data centers and supercomputers.

More: Federal government stops further Chinese takeover of German semiconductor company

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