Germany sells microchip factory to China despite warnings from intelligence agencies

Despite warnings from its federal intelligence agencies, Germany's government is going ahead approving a Chinese takeover of a German company's microchips production facility.

As the Handelsblatt reported, the business deal includes the acquisition of the semiconductor production of Dortmund-based Elmos by Sweden's Silex company, which in turn is a wholly owned subsidiary of China's Sai Microelectronics.

The deal is currently being reviewed by the German economy ministry. A final decision on approval is expected within the next few weeks.

The German publication recalls that Europe — and Germany in particular — has been grappling with its reliance on autocratic third countries for critical infrastructure this year, casting criticism on the deal.

Only a few days earlier the German government gave the green light to Chinese state-owned shipping giant Cosco to buy a foothold in a container port in the country’s main trade city, Hamburg.

German Chancellor Olaf Scholz went ahead with the Cosco deal despite warnings from the EU and six of his own federal ministries, including the Green coalition party’s Vice Chancellor Robert Habeck.

Elmos is one of Germany's smaller semiconductor companies, which mainly produces chips for the automotive industry, with the acquisition by Silex worth €85 million. According to Politico, Elmos will use the investment to give up its own production and instead process chips bought from contract manufacturers.

The microchip producer uses old technology, therefore the government argued that an outflow of critical know-how to China will not occur. Nevertheless, German security authorities argued that they are not only concerned about exiting knowledge, but also that China is systematically increasing its chip production capacities.

Politico further reported that Germany’s Federal Intelligence Service (BND) also warned that China is deliberately buying into strategic industries in order to exert pressure on other countries.