UK ministers quietly approve Chinese microchip factory takeover

LONDON — The U.K. government has quietly approved the controversial sale of a Welsh microchip factory to a Chinese-owned firm.

Ministers have decided not to intervene in the takeover of Newport Wafer Fab, which makes semiconductors, following a review by the government’s national security adviser, Stephen Lovegrove.

More than six months after he was asked to examine the sale, Lovegrove concluded there were not enough security concerns to block it, according to two government officials.

The decision has already caused alarm among security experts and backlash from Tory MPs who believe the government is employing too narrow a definition of national security.

Tom Tugendhat, the chairman of the House of Commons foreign affairs committee, said: “It’s not clear why we haven’t used our new powers under the National Security and Investment Act to fully review the takeover of one of our leading compound semiconductor companies.”

He added: “This is an area where China is sinking billions to compete. The government has no clear strategy to protect what’s left of our semiconductor industry.”

Iain Duncan Smith, a former Conservative leader and a long-standing critic of the Chinese government, said the decision was “ridiculous.” “Kwasi Kwarteng needs to stand up for access to key technologies in the West which China is determined to get control over,” he said, referring to the the U.K.’s business secretary.

Duncan Smith warned: “If the government goes down this road, it will become yet another step in the pathetic process of appeasing China who right now is supporting Russia and plans to pose a direct and deliberate threat to the West’s access to microchips and other key components for electronic equipment.”

No.10 Downing Street said it did not comment on national security assessments. An official at the Department for Business, Energy and Industrial Strategy said: “We reserve the right to intervene under National Security and Investment Act if there are national security concerns.”

Threat to ‘long-term capability’

The decision is likely to spark fresh concern over the role of Chinese-linked firms in crucial British industries.

Newport Wafer Fab is the U.K.’s largest semiconductor plant. Semiconductors, also known as microchips or chips, are an essential component of electronic devices.

Nexperia, a Dutch subsidiary of the Chinese technology company Wingtech, engineered a takeover of Newport Wafer Fab last spring despite calls for Kwarteng to intervene at the time.

A former security official who did not want to be named because of the sensitivity of the decision said: “What Newport Wafer Fab do at the moment is not that exceptional — you can argue that it’s not strategically important, and that’s a plausible case.”

“But it is part of an existing industrial base which is capable of developing further at a lower cost, and if you sell it to the Chinese, then it’s gone from your strategic orbit of control and long-term capability,” they added.

In July, Boris Johnson unexpectedly announced he had asked Lovegrove to look again at the sale.

Over the summer Ciaran Martin, the U.K.’s former cybersecurity chief, said there were “very real concerns” about the buyout and that it posed a greater threat than allowing Chinese telecoms firm Huawei to build the U.K.’s 5G network, another issue that sparked deep controversy in the U.K.

Tony Abbott, the former Australian prime minister and an adviser to the U.K. board of trade, said at the time that the sale “would not go ahead were it happening in Australia.”

Lovegrove’s review was prolonged into 2022 to allow ministers to intervene using new powers introduced by the U.K.’s fledgling National Security and Investment Act if necessary. They have concluded there is no need to act, but insist the case will continue to be monitored.

Lovegrove reached the same conclusion as the deputy national security adviser who initially looked at the takeover, according to one of the serving government officials cited above. The official said Newport Wafer Fab uses 20-year-old technology which the Chinese already have.

Ten deals involving various countries are currently being reviewed under the act, which was introduced to strengthen the government’s powers to block hostile foreign investment. Separately Kwarteng has ordered the competition watchdog to conduct a national security review into the takeover of Perpetuus, a graphene manufacturer, by a China-linked buyer.

Catherine West, the Labour deputy chair of the all-party parliamentary group on China, said it was “deeply concerning that the U.K. government appears to be giving the green light for a Chinese owned firm buying a British business of such importance” and said she would be writing to ministers.