The German government has blocked Chinese two semiconductor investments due to national security concerns.

Germany blocked Chinese investments into semiconductor firms Elmos and ERS Electronic because it feared those deals would lead to sensitive technological information being sent to Beijing, according to Reuters.

“In the semiconductor sector, it is important to us to protect the technological and economic sovereignty of Germany and Europe,” Robert Habeck, German economy minister said in a statement. “Of course, Germany is and will remain an open investment location, but we are not naive either.”

The news comes after Germany reviewed its policies and trade reliance on China, partly motivated by Russia’s invasion of Ukraine exposing the country’s reliance on Kremlin-backed gas.

Josep Bori, research director at research firm GlobalData, tells Verdict that the German government’s stance on this cross-border M&A of high-tech is consistent with global trade moods.

“Without access to the most advanced chip manufacturing technology, China is likely to struggle in key themes such as artificial intelligence, autonomous vehicles, autonomous mobile robots or the military,” Bori says.

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By GlobalData

“It will not be able to either buy the required advanced [artificial intelligence] chips from the US leaders [like NVIDIA and AMD], design their own and have them manufactured by third parties [such as] TSMC in Taiwan, or design and manufacture them domestically [as China has]no access to advanced ASML tools.”

The German government’s position is not surprising as it blocked semiconductor firm GlobalWafers’ acquisition of German chipmaker Siltronic in February, 2022.

Germany blocked the deal by withholding foreign trade clearance of its Ministry of Economic Affairs and Climate Action.

Bori says the investment deals “would have assisted China in its pursuit of domestic fabrication capabilities.” This is supposedly at the core of the US-China export row. It makes it difficult for other semiconductor-producing countries to stay neutral.

GlobalData is the parent company of Verdict and its sister publications.