German Chancellor Olaf Scholz meets Chinese President Xi Jinping in Beijing on November 4, 2022. Photo: The Federal Government of Germany

China has called on other countries to provide it a non-discriminatory market environment after the German government blocked the sale of a semiconductor factory to a Chinese firm.

China’s foreign ministry said countries, including Germany, should refrain from politicizing normal economic and trade cooperation or using national security as a pretext to practice protectionism.

If the Chinese response to a highly disappointing move sounds as if Beijing were chewing nails while pretending to contemplate their flavor judiciously, there did indeed appear to be a studied effort in Beijing not to appear to overreact.

Hopes for Germany, after all, had loomed large – and still do, even after this setback – in China’s strategy for fighting the US-led chips war.

Germany’s Ministry of Economics and Climate Action dropped the hammer on Wednesday, issuing a statement saying it had prohibited Elmos Semiconductor, an auto chip maker, from selling its factory in Dortmund to Silex Microsystems AB, a Sweden-based unit of China’s Sai Micro Electronics.

The decision came after German Chancellor Olaf Scholz met Chinese President Xi Jinping in Beijing on November 4. The two leaders said both sides would strengthen economic ties.

German Chancellor Olaf Scholz and Xi Jinping had plenty to discuss in recent meeting. Image: Screengrab / BBC

Chinese commentators blamed the United States for pressuring Germany to make that decision. Academics said Scholz’s short visit to China would not alter the general trend that the European Union was diversifying its supply chain from China.

Scholz is the first G7 leader to have visited China since the global pandemic broke out in early 2020. He is also the first western leader to have met Xi after a week-long Party Congress closed in Beijing on October 22. The session renewed Xi’s term as general secretary of the Chinese Communist Party.
Before Scholtz’s trip, media reports said the German cabinet had agreed on an amended deal that would allow Cosco Shipping Ports, a Chinese state-owned enterprise, to take a minority stake in Germany’s Container Terminal Tollerort (CTT) in Hamburg.

This deal and the proposed chip fab sale to Silex Microsystems had been previously described by Chinese media as Scholz’s “big gifts” to China before his meeting with Xi.

Silex Microsystems on Wednesday evening received official documents from the German authorities that prohibited its acquisition of Elmos’s auto chip production line in Dortmund, Sai MicroElectronics said in a filing to the Shenzhen stock exchange on Thursday.

The deal “cannot be completed due to the prohibition,” said Sai MicroElectronics. “The companies involved in the deal will carefully analyze the decision received and decide their following move.”

The company expressed its deep regret that the German economic ministry had made this final decision. It said it remained optimistic about its auto chip businesses and related developments.

Zhao Lijian, a spokesperson of China’s Foreign Ministry, stuck to measured language Wednesday, saying,

I would like to point out that the Chinese government always encourages Chinese businesses to conduct mutually beneficial investment cooperation overseas in accordance with market principles and international rules as well as local laws and regulations. We hope Germany and other countries will provide a fair, open and non-discriminatory market environment for Chinese companies doing business there.

A slightly blunter assessment came from Fu Liang, an independent tech analyst, who was quoted as saying by the Global Times that the global competitiveness of Germany’s semiconductor and automobile sectors would be negatively affected by the blockage of the Silex Microsystems deal.

He said the promising automobile electronics sector should have been an opportunity for both China and Germany.

Tian Liu, a Hubei-based columnist, suggested in an article on Thursday that the German government had been pressured by the United States to block the deal.

Tian said: “Shortly after Scholz went home from China, he received a phone call from Biden. It’s difficult for people not to link up the two issues.

“We have reasons to believe that the blockage of the deal was pushed by the Biden administration and anti-China German politicians. We don’t know whether it’s Scholz’s decision or not but we will not underestimate the acting skills of any politician.”

He said if Scholz really hoped to improve the Sino-Germany relations, the chancellor should use his power to revive the deal, as he had previously done to push forward the CTT deal.

Sticking to its own vaguely worded version of the measured script, the White House said on November 6 that US President Joe Biden and Scholz in a phone call had affirmed their shared commitment to upholding the rules-based international order, human rights, and fair trade practices.

On October 7, the US banned the exports of its high-end chips and chip-making equipment to China for national security reasons. The Biden administration is also reportedly working to persuade its allies, including Japan and the European Union, to follow suit.

US President Joe Biden wants more advanced semiconductors produced in America. Image: Twitter

Chinese academics have said that China should focus on the development of its auto chip sector, which requires only mature semiconductor technologies.

Jian Junbo, deputy director of the Center for China-Europe Relations, Fudan University, told that Scholz had a long-term economic vision as he insisted on visiting China despite the opposition from local politicians and some European countries.

Jian said the polarization of the world’s economy, caused by the Russian-Ukrainian conflict, was not something that Germany and Europe wanted to see. He said Scholz wanted to stop this trend by visiting China as a decoupling with China did not fulfill the interest of Germany.

Ma Bin, a deputy researcher at the Center for Russian and Central Asian Studies, Fudan University said Scholz’s “flashmob” visit to China could improve Sino-Germany relations in the short run but it would not be able to alter the EU’s overall China policy, which had created a negative impact on Sino-Europe relations in recent years.

The China Association of Automobile Manufacturers said last month that China had surpassed Germany to become the world’s second-largest auto exporter after Japan. It said China exported 2.11 million vehicles while Germany shipped 1.91 million units in the first three quarters of this year.

Analysts said China would probably surpass Japan to become the world’s largest automobile exporter in 2023. But they also warned that China would face more punitive sanctions from the US in the future after achieving this milestone.

Read: Will US target China’s auto chip supply next?

Follow Jeff Pao on Twitter at @jeffpao3