The German federal government has blocked Chinese investment in two chip factories in the country, citing national security concerns ahead of the move.

First, the government vetoed the acquisition of Elmos, a Dortmund-based semiconductor company that produces chips for the automotive industry. This offer came from Silex, a Swedish subsidiary of the Chinese Sai Microelectronics.

The announcement came from Federal Economy Minister Robert Habeck after a meeting of the federal cabinet, Reuters reports.

In addition, the politician said that a Chinese private equity firm has also been banned from investing in a second company. Although Habeck has not disclosed his name, it is… allegedly the Bavarian business ERS Electronicwhich provides thermal test methods for semiconductor manufacturing.

“Germany is not naive”

“We need to keep a close eye on corporate takeovers when it comes to key infrastructure or when there is a danger of technology flowing to buyers from non-EU countries,” Habeck said.

“Especially in the semiconductor sector, it is important for us to protect the technological and economic sovereignty of Germany and Europe. Of course, Germany is and remains an open investment location, but we are not naive either.”

The minister sees a “conscious, strategic approach” to China and mentions concerns about “influencing knowledge acquisition” and “production control”.

Between theory and practice

Germany’s strategy against Chinese influence on the chip sector makes sense, especially as part of Europe’s effort to reduce its reliance on autocratic third countries for critical infrastructure. None of us need recall how the continent’s continued reliance on Russian gas has been exposed by Putin’s war against Ukraine.

The decision to protect Germany’s sovereignty in the semiconductor sector would theoretically strengthen the technological and economic position of the country — and by extension Europe — in this area.

However, the problem is that when it comes to the production of semiconductor chips, Europe is not even in the game. We just need to think about the pandemic-induced impact this has had on production. As global supply chains crumbled, the continent struggled to source chips. This cost hundreds of billions, if not trillions of euros worth economic damage.

Of course Europe is now trying to deal with this chip imbalancebut it all feels too little, too late.

In conversation with TNW, Mark Lippett, CEO of chip specialist XMOSsaid that “European capital expenditures in the semiconductor sector … have fallen for the better part of twenty years – despite the importance of the technologies involved.”

He attributes this to a mixture of ‘policy neglect’, project failures and ‘the legislative decisions of individual countries across the continent’.

Yes, blocking the investment and sale of chip companies is a good move, but it’s a bit like congratulating yourself on running the first hundred meters in a marathon that started two hours ago.

The state of Europe’s chip production is not entirely hopeless, but it will take more than the actions of individual states to even be in the running.