A battle over a Chinese chip maker that rocked the global car industry

In late September, the Dutch authorities invoked a Chilly Warfare-era emergency regulation to take management of a Chinese language-owned chip firm that has operations within the nation.

The extraordinary transfer set off a series of occasions that despatched shock waves via the worldwide motor trade – already battered by US tariffs and China’s curbs on uncommon earth exports.

In a press release to the Netherlands parliament, the minister of financial affairs cited “severe governance shortcomings and actions inside Nexperia” that “posed a menace”.

“This measure is very distinctive and meant solely to make sure that the continuity of provide and safeguarding of essential applied sciences for the Dutch and European economic system will not be put in danger,” the assertion mentioned.

Beijing reacted furiously, accusing the Netherlands of political interference.

It imposed export controls and halted deliveries of Nexperia chips from its Chinese language services to Europe, whereas the Dutch authorities froze shipments of key provides wanted to make the chips in China.

The disruption induced to the motor trade highlighted a serious weak point within the world provide chain of chips important to automobile manufacturing and opened yet one more entrance within the rivalry between the US and China.

The Chinese government has now granted exemptions to export controls on the chips for civilian functions however has not clarified what it considers these to be.

However Chinese language authorities nonetheless need the Dutch to revoke the takeover of Nexperia.

“China welcomes the EU to proceed exerting its affect to induce the Netherlands to right its misguided practices as quickly as attainable,” the commerce ministry mentioned in a press release on Sunday.

Nexperia’s mum or dad firm Wingtech Know-how didn’t reply to a BBC request for remark.

On the centre of the dispute is a essential a part of the world’s chip ecosystem.

Nexperia makes so referred to as “legacy” or “constructing block” semiconductors which can be important for the whole lot from power-steering and airbags to central locking methods. These will not be cutting-edge chips, however they’re nonetheless indispensable.

Some automobiles include a whole bunch of them, and Nexperia provides chips to main carmakers world wide.

Round 70%-80% of its output is shipped to China for processing, testing and packaging – a dependence that has left automobile makers uncovered to Beijing’s management over provide chains.

“Automotive markers blindsided by the Nexperia mess needs to be hiring new provide chain administration executives, as they clearly discovered nothing from Covid… and extreme reliance on [Chinese] provide chains,” China watcher Invoice Bishop wrote in his Sinocism e-newsletter.

It underscores China’s potential to choke off world provide chains – simply because it did with uncommon earth exports.

Just like essential minerals, China can maintain the West hostage with management of an organization as inconspicuously essential as Nexperia, based on Invoice Echikson, Senior Fellow for the Tech Coverage Program at Heart for European Coverage Evaluation. That is as a lot about digital sovereignty as it’s about semiconductors, he provides.

Beijing faces a dilemma although. It has been pitching itself as a dependable accomplice within the face of Trump’s tariff chaos, however slicing off provides of essential merchandise dangers undermining that message.

“The narrative was [that, since] Trump got here in and induced chaos for everyone, possibly there’s a chance for China and the EU to work extra intently collectively,” mentioned Tom Nunlist, Affiliate Director at Trivium China.

That did not go so effectively, he provides, with the uncommon earths scarcity displaying how trapped Europe and different buying and selling companions are between the US and China, and their potential to upend world commerce, based on Mr Nunlist.

Together with the takeover, a Dutch court docket additionally suspended Nexperia’s former chief govt Zhang Xuezhen – who based its Chinese language proprietor Wingtech – citing mismanagement.

Wingtech’s shares commerce on the Shanghai Inventory Trade and it’s partially owned by the Chinese language authorities.

It was positioned on an official US watch record in 2024, and the so-called entity record was expanded this September to incorporate any agency that’s at the very least 50% owned by firms already on the record.

In response to court docket papers launched by the Dutch authorities final month in relation to the federal government’s takeover of Nexperia, US authorities had raised issues concerning the boss of the chip firm earlier than it was taken over.

The paperwork contained proof that Dutch authorities had advised Nexperia it could possibly safe an exemption from the US record if there was a change in management as a result of the “Chinese language proprietor is problematic”.

“It’s nearly sure that the CEO must get replaced to qualify for the exemption from the entity record,” authorities advised Nexperia, based on the paperwork.

The Hague denies the takeover of Nexperia was a response to strain from any international nation however mentioned there was proof to counsel the corporate’s chief govt was transferring its manufacturing capability, monetary sources and mental property to China.

Wingtech didn’t reply to a request for touch upon this.

“I believe Nexperia simply underlines what’s already true, and makes it more true,” mentioned Mr Nunlist from Trivium China.

“Western international locations don’t desire Chinese language traders in most of these strategic manufacturing belongings, even legacy chips.”

Consultants say the incident is an instance of the very actual impression of undoing enterprise and financial ties between the West and China.

“That is what decoupling truly seems like on the company degree, and it is an enormous mess,” mentioned Mr Nunlist.

European car trade suppliers have sought readability on the exemptions that might be utilized, and have mentioned it creates additional paperwork at an already unsure time.

It’s attainable to modify suppliers, say specialists, as rivals chip makers like Infineon, NXP and Texas make related chips.

However provide chains will not be exactly deliberate, they evolve organically and these elements are sometimes tailor made for autos, Mr Nunlist of Trivium China mentioned.

“Corporations cannot transfer on a dime; there are incentives to maintain provide chains in place and it is extraordinarily sophisticated and dear to vary issues.”

The incident comes as US President Donald Trump and China’s President Xi Jinping agreed to a one-year commerce truce – a deal which suspended some export bans and uncommon earth restrictions.

However the Nexperia dispute means that this newly-minted settlement could also be a fragile one.

The US is just not going to explode the deal although, based on Mr Nunlist, and Europe would not have a lot leverage particularly on this sport of provide chain weaponisation.

“That is actually politically difficult for each side, and for Europe as a result of it would not need this to finish with chip capability leaving Europe,” Mr Nunlist mentioned.

“My understanding is that leaders in Brussels had been unaware that the Dutch authorities was planning to make this transfer and had been sad with it.”

China and the EU stay locked in pressing negotiations to elevate export controls on each chips and uncommon earths.

Talks are persevering with with China on discovering a “lasting, secure, predictable framework that guarantee the total restoration of semiconductor flows”, EU commerce commissioner Maros Sefcovic mentioned in a put up on X over the weekend.

However the episode has uncovered vulnerabilities in key provide chains – and ties between China and the Netherlands, and in flip the European Union, are prone to stay below strain till the discord over Nexperia’s possession and operations is totally resolved.