Chinese acquisitions have become a geopolitical frontier

Newport in South Wales finds itself on an unexpected geopolitical streak. The UK government cited national security concerns to prevent the sale of one of Britain’s largest semiconductor plants, Newport Wafer Fab, to a Dutch company owned by China’s Wingtech. The UK is not alone: ​​Germany has blocked two similar deals, with its vice president, Robert Habeck, accusing China of pursuing a “deliberate strategy” of “trying to gain knowledge” in the sector.

The decisions risk being seen as China-bashing. The West should try to balance legitimate concerns about strategic assets falling into the hands of potential adversaries with actions that could fuel the idea that it is trying to rein in China — or that it is pursuing a back-door industrial strategy.

The pandemic and Russia’s war in Ukraine underscored the need to secure supply chains, as well as the folly of over-reliance on a hostile regime. The UK and Germany’s decisions follow sweeping US controls over high-tech chips. US congressmen have raised concerns about the Newport Weaver sale, leading critics to claim pressure from Washington – although this ignores the number of China hawks in the UK government.

Enveloping industrial and protectionist strategy in the mantle of national security is a mistake. But the role of Chinese companies in these deals, and the fact that they involve semiconductors, makes it difficult to draw the line. This is especially true in the context of a more assertive China and fears that it may invade Taiwan, which dominates the advanced semiconductor industry.

Under a 2017 law, Chinese companies are required to cooperate with intelligence services in Beijing. This means that the Chinese takeover put forward in another country’s strategic sectors becomes a more complex proposition. This is not limited to semiconductors: Concern has been expressed about COSCO’s stakes in the ports of Piraeus and Hamburg. Beijing could theoretically ask the shipping giant to provide support for the Chinese navy wherever COSCO operates.

Semiconductors also blur the definition of a security threat. They power everything from smartphones to cars but they also have military applications. This is why Joe Biden’s export controls — though ostensibly intended to prevent military technology from falling into Beijing’s hands — are so far-reaching. Securing a small role in this global supply chain can itself be a national security concern.

Still, the UK’s decision baffled many. The Newport Wafer’s technology isn’t cutting-edge—although the plant is within a group that specializes in vehicles that could have advanced uses. The government’s reasoning, other than a one-page document, is not clear. The lack of a definition of national security does not help in the legislation under which the deal was banned. The company can file a legal challenge, but much of the government’s deliberations will be classified, making it difficult for judges to consider the underlying principles. This uncertainty makes the foreign investment that Britain relies on less predictable.

If a country decides to choke off the investment flows of a capital-intensive sector like semiconductors, it is crucial that they then nurture that industry. The United States and the European Union announced support packages worth $52 billion and €43 billion, respectively, for the development of domestic semiconductor industries. Meanwhile, investment in the UK is negligible. A comprehensive strategy is long overdue.

Trying to differentiate between national interest and national security is difficult when it comes to semiconductors. But a little transparency goes a long way, as does remembering that unwarranted protectionism will inflate costs and exacerbate cross-border tensions.

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