Germany reviewing possible Chinese takeover of chip factory

The German government is reviewing a possible sale of a local chip factory to a Chinese-owned firm, sources said Thursday, despite the reported concerns of intelligence agencies.

Germany reviewing possible Chinese takeover of chip factory
The Hamburg port terminal which has been a centre of controversy this week in Germany. Photo: picture alliance/dpa | Jonas Walzberg

Government officials speaking on condition of anonymity told AFP that they were assessing the potential impact of a takeover of Dortmund-based Elmos by Sweden’s Silex, a unit of Chinese company Sai MicroElectronics.

“There is an ongoing investment review procedure,” one official said. “The checks have begun, are continuing and are not finished.”

The overture by the Chinese firm comes ahead of Chancellor Olaf Scholz’s visit to China next week as the first European Union leader to make the trip since November 2019.

READ ALSO: Why is Olaf Scholz’s stance on Germany so controversial?

And it coincides with growing fears within his coalition government and among intelligence officials about the risks of critical infrastructure and intellectual property falling into foreign hands.

Business daily Handelsblatt had reported earlier that Berlin intends to green-light the deal, possibly as early as next week.

In contrast with other recent controversial acquisitions, the chancellery and the economy ministry are in agreement on Elmos and inclined to approve the takeover as the company’s technology is not state of the art, according to the report.

However the domestic security watchdog, the Office for the Protection of the Constitution, warned against the sale, saying that Chinese control of key production capacity was enough to allow Beijing to apply pressure on Germany, Handelsblatt reported.

The Office could not immediately be reached for comment.

Security concerns

Elmos, which primarily builds components for the automobile industry, said late last year it intended to sell the production facility at its headquarters.

Silex is seeking to buy the site and its supplies for 85 million
(dollars), which would allow Elmos to shed its own production activities and sell its chips to manufacturing contractors.

Germany’s coalition government on Wednesday allowed a Chinese firm to buy a reduced stake in a Hamburg port terminal, after Scholz resisted calls to ban the disputed sale outright over security concerns.

Under a tenuous compromise agreed by Scholz’s cabinet, Chinese shipping giant Cosco has the go-ahead to buy a stake “below 25 percent” in the Tollerort container terminal owned by HHLA.

Germany, along with EU partners, has in recent years taken a closer look at Chinese investment in sensitive technologies and other areas, and reserves the right to veto acquisitions.

The issue has gained urgency in light of the breakdown in ties with Russia over the Ukraine war due to the once heavy dependence of Europe’s top economy on Moscow’s energy supplies.

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‘Very small breather’: German inflation unexpectedly slows down

German inflation unexpectedly slowed in November after months of increases, preliminary data showed Tuesday, as sky-high energy prices begin to ease.

'Very small breather': German inflation unexpectedly slows down

The inflation rate in Europe’s top economy fell back to 10 percent this month, federal statistics agency Destatis said, after hitting a record high of 10.4 percent in October.

Analysts surveyed by Factset had expected an acceleration of 10.5 percent in November.

The surprise dip comes as “energy prices have eased slightly”, Destatis said, although it noted they were still 38.4 percent higher than a year earlier.

As in other countries across Europe, Germany’s recent consumer price hikes have been fuelled by soaring food and energy costs in the wake of Russia’s war in Ukraine.

READ ALSO: EXPLAINED: 10 ways to save money on your groceries in Germany

The German government has unveiled a €200 billion energy fund to shield households and businesses from price shocks, and has raced to diversify supplies after Russia cut gas deliveries.

Tuesday’s inflation data offered a “very small breather” for a country bracing for a difficult winter, said ING bank economist Carsten Brzeski.

But he cautioned it was too soon to hope inflation was on a downhill path.

“The pass-through of higher wholesale gas prices is still in full swing. Many households will see the first price increase only as of January 1st,” he said.

READ ALSO: How energy prices are rising across Germany

European Central Bank President Christine Lagarde echoed that sentiment Monday, when she said the eurozone had not yet reached peak inflation.

Like other central banks around the world the ECB has moved aggressively to curb red-hot inflation, lifting its key interest rates by two percentage points since July.

Lagarde has repeatedly said the bank would continue to raise rates in its battle to bring inflation back to its two-percent target.
The next rate hike is expected at the ECB’s upcoming December 15th meeting.

READ ALSO: Has Germany’s sky high inflation finally peaked?