Are Nowi’s chips as strategic as yogurt?

When rumors circulated in 2005 that PepsiCo wanted to take over dairy company Danone, French politicians tumbled over one another to defend national interests. A bid never materialized, to the dismay of the free-trade evangelists in London, The Hague and Brussels. In those circles, ‘strategic yogurt’ became synonymous for French protectionism.

These days, no one is making fun of the French anymore. Industrial policy is at the top of agendas in Brussels and European capitals, including legislation to block takeovers. So too in the Netherlands. On June 1, the Security Screening of Investments, Mergers and Acquisitions Act (Vifo Act) went into effect, enabling the government to scrutinize investments in critical sectors and/or sensitive technologies for threats to national security. Although not specifically targeted at any one country, it’s no secret that the new rules were introduced primarily with China in mind.

One of the first deals that the Investment Review Office will hold up to the light, Minister Adriaansens (Economic Affairs) has announced, is the acquisition of Nowi by Nijmegen-headquartered Nexperia, part of China’s Wingtech Group. The outcome will reveal how the Dutch government wishes to relate to China in the semiconductor domain.

For a long time, the West thought China would evolve to become like us. But today, as the world’s second largest economy, the Middle Kingdom embraces the free market only when it deems it’s convenient to do so. Its domestic industry is shielded by the government and frequently lavished by generous subsidies. Meanwhile, foreign companies that want to operate in China face all sorts of restrictions and obligations.

China’s policy serves not only economic, but also geopolitical interests: China wants to oust the US as the world’s superpower. It considers the tech industry as a springboard to this dominant role, and to close the gap with the West, it tries to extract knowledge from foreign firms in any way possible. Through hacking and corporate espionage, but also through legitimate investments and acquisitions.

It makes sense that the West is now drawing up a response, although the United States and Europe have different points of view. The US’ priority is not to lose its status as an unassailable superpower, while Europe – generally - is wary of overzealous decoupling even if China poses a threat as a systemic rival.

It’s not yet entirely clear where The Netherlands stands in all this. That’s what makes the Nowi case so interesting. It would take quite a bit of legal contortions for the deal to be blocked, but if the government wishes to go down that road, it would be very telling.

According to Duco de Boer of law firm Stibbe, the Vifo Act can be applied retroactively, but only in cases involving military or a combination of military and civilian (“dual-use”) applications. It takes a lot of imagination to claim that Nowi’s chips, which are designed for remote controls and wearables, are military technology.

Nonetheless, politicians are calling for Nowi’s acquisition to be reversed, even if its technology is not militarily relevant, in Dutch hands. “A Chinese takeover of a Dutch chip designer goes against everything what we’ve been working for in Europe,” said MEP Bart Groothuis in the Volkskrant, referring to the EU Chips Act. He unequivocally stated that the Vifo Act should be used to thwart the takeover of the Delft startup. “That’s simply a matter political will,” Groothuis said.

We’ve seen that kind of maneuvering before in the United Kingdom, where Nexperia’s acquisition of a fab in Wales was scrapped. That decision reeked of political motivation, too, with two official investigations failing to find a reason to stop the deal. Possibly pressured by the US, it’s conceivable that Dutch politicians might follow the UK’s example, taking advantage of the secrecy surrounding the Vifo Act. The reasoning behind the review’s decision, which is ultimately up to the Minister, will not be made public.

Will the Netherlands slam the door in China’s face, or will it leave room for economic relations in the strategically important high-tech? The Brainport region should be keeping close tabs on the Nowi case.