The government reversed their previous leanings, citing “security concerns” over China.

This week, the German government blocked the proposed Chinese investment in two semiconductor producers based in their country. The decision was made because “the purchase could endanger the order and security of Germany”, according to the economy ministry.

“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”, said Robert Habeck, head of Germany’s Federal Ministry for Economic Affairs and Climate Action.

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

Chinese company Sai MicroElectronics sought to buy the Dortmund factory of Elmos through its Swedish subsidiary, Silex. Elmos, which primarily builds components for the automobile industry, had announced last year that it intended to sell the production facility at its headquarters, and Silex was teed up to buy the facility for €85 million.

Bettina Stark-Watzinger, Germany’s minister for research, revealed that the sale of Bavaria-based ERS Electronic was blocked as well. ERS supplies a cooling technology to wafer manufacturers.

Ratcheting up global tensions

The decision to block the sale comes at a time of heightened sensitivity around relations between Berlin and Beijing.

China is a major market for German goods, particularly for auto giants Volkswagen, BMW and Mercedes-Benz. Many jobs in Europe’s top economy depend directly on the relationship. The government of Chancellor Olaf Scholz, who visited China last week, is trying to carefully push for access to the Chinese market for European companies while addressing security concerns and reducing Germany’s trade reliance on China.

China did not respond directly to the Elmos and ERS deals falling through, but Chinese foreign ministry spokesperson Zhao Lijian had some remarks at his regular news briefing. “All countries, including Germany, should provide a fair, open and non-discriminatory market environment for the normal operation of Chinese enterprises”, he said, adding that they should also “refrain from politicising normal economic and trade cooperation, not to mention protectionism on the grounds of national security.”