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7 July 2021

The sale of the UK’s largest chip plant to China shows how Brexit has left Britain exposed

Beyond all the rhetoric and bluster, Brexit has made us into rule takers from everybody because we need foreign direct investment from everybody. 

By Paul Mason

If you buy a new car in the digital era, the golden moment comes when the salesman flips open a laptop to show the factory production line. “There’s yours,” an Audi guy told my friend last month. “It should be ready about… December.” In the age of just-in-time production, my friend responded, December seems a bit late. “It’s the chips,” came the reply, “there’s a global shortage.”

Too right. In the summer of 2020, even as general economic demand slumped due to Covid-19, demand for semiconductors soared. People bought new computers, gaming consoles and TVs to while away lockdown. But US sanctions against a major Chinese chipmaker simultaneously created a major disruption in supply. A drought in Taiwan, which makes 21 per cent of chips, and a boom in demand for Bitcoin, which is “mined” using high-end chips, did the rest.

Since mid-2020 Western manufacturers of automobiles, appliances and every other small gadget linked to the “internet of things” have faced major production delays. What better time, then, for Britain to sell its largest chip-making plant to China. Newport Wafer Fab (NWF), a production facility in South Wales created substantially through state investment and Welsh government industrial policy, was sold to the Chinese-owned company Nexperia. Nexperia is owned by Wingtech Technology, but was initially acquired by Wise Road Capital. According to the South China Morning Post, “Wise Road often relocates production to China after it purchases overseas assets, with local Chinese governments usually rolling out the red carpet”.

The ownership and control of both companies is, by Western standards, opaque. MPs believe they are part of an interlinked strategic Chinese network designed to acquire semiconductors according to the country’s “dual circulation” policy. Announced in May 2020, the policy will increase domestic production of goods such as silicon chips to the point of autonomy, while trying to maintain an open global market for Chinese exports and cross-border financial investments. Unlike any other capitalist country, China has an integrated political, social and economic strategy to advance at the expense of others.

And that’s fine if you are a Chinese billionaire, and even good for some Chinese workers. But not for us. As the world deglobalises, and the Chinese superpower emerges with an explicit agenda of technological protectionism and neo-colonial trade policies towards the Global South, Western elites are suddenly in a game they haven’t practised for – at least since they themselves played it in the 19th and 20th centuries.

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NWF was created through a mixture of British entrepreneurship, public investment and strategic economic planning by the Welsh government. It stands at the heart of a semiconductor cluster, which is the product of explicit government design, stretching from Swansea University. With European automakers protesting over chip shortages and promising to ramp up domestic production, NWF is clearly a strategic economic asset. 

The Conservative MP Tom Tugendhat, a China-hawk who chairs the foreign affairs select committee, has called for the government to review the sale under the National Security and Investment Act, which became law in April but may not be fully enforced until the end of 2021. So far the government has said merely that it is “monitoring” the sale.

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But other Western governments have taken tougher action. The South Korean government, together with the US, has effectively blocked Wise Road Capital’s attempt to buy a chip-maker called Magnachip. Meanwhile the Italian government has blocked the sale of a similar fabrication plant in Milan, designating it as having “strategic importance”.

Having built up NWF, using public money and strategic guidance, it is madness to allow it to become 100 per cent Chinese-owned at a time when the entire Chinese private sector is being reconfigured to secure industrial autonomy. The government’s own Integrated Review, published in March, recognises China as a “systemic competitor”. There can be no guarantee that either the intellectual property, or ultimately the production capacity, will remain in the UK. Even if it does, ownership by a Chinese firm under a legal obligation to promote the country’s dual circulation strategy creates unwanted economic and diplomatic leverage.

Labour, which recently launched an industrial strategy designed to “make, sell and buy more in Britain”, has called for the government to “scrutinise” the deal under the National Security and Investment Act. During the passage of the act, Labour fought for the government to take powers to intervene not just on security concerns, but over issues of economic and industrial strategy.

But it needs to go further. While it’s right for Labour to insist on future “stretch clauses” to tip the balance of public procurement towards UK suppliers, a comprehensive industrial strategy is about something bigger: shaping and directing the behaviour of the private sector through long-term guidance, state-backed finance, and funding for skills and R&D. 

The Labour-controlled Welsh government, meanwhile, seems happy simply to recoup the £18m it is reportedly owed – “plus interest” as a spokesperson pointed out – and to secure 400 jobs. It has made no objections to the takeover, saying that is a matter for the Westminster government. But halting the sale of NWF should be the common policy of Westminster and Cardiff Bay.

Every major economic bloc, from the US and the EU to non-China Asia, is now faced with the need to create new, integrated industrial capacity in chip manufacturing. Under globalisation, the industry bifurcated into designers, who owned the intellectual property and drove innovation, and “fabs”, who made the stuff. The industry was fragmented further by the determination of end users – such as Apple, Audi or Bosch – to avoid long-term relationships with their suppliers, seeking the cheapest and quickest suppliers.

Now, an entirely different global pattern is emerging. With US-China protectionism in semiconductors a reality, and the US intervening to block acquisitions by China in third countries, it is sensible for major users to start owning their own production facilities, and – as in the case of Apple – designing their own silicon.

In short, the most fundamental technology of the Fourth Industrial Revolution is undergoing a process of deglobalisation. It is being regionalised and nationalised. Just as there is a separate Chinese internet to the world’s internet, there will soon be a separate Chinese semiconductor ecosystem. Wherever it starts from, it will inevitably take a different technological pathway – as, for example, differing safeguards and standards on facial recognition and privacy are built into the architecture of new chips.

The EU, though acting at its usual glacial pace, has recognised this. In December ministers from 22 member states signed a joint declaration pledging to “cooperate… in efforts to co-invest in semiconductor technologies across the full value chain” and earmarked up to €145bn from its Covid recovery fund to the design and production of semiconductors. Recognising that the EU’s roughly 10 per cent share of the semiconductor market is woeful, they agreed to collaborate in the design and manufacture of the “next generation of trusted, low-power processors” – that is, to out-compete China in two areas (privacy and power consumption) where Europe’s specific regime might give it a global edge.

And what is Britain doing? It is, as in every other case, drifting. The Business Secretary, Kwasi Kwarteng, has refused to intervene in the sale of NWF “at the current time”. As with Huawei, which the Tories allowed into the very backbone of the UK’s information system, the government assumes the old-boy network of British executives will in some way protect our national security while working for a firm whose commercial interest coincides with that of a strategic geopolitical competitor. 

That effectively, is what Boris Johnson’s “Global Britain” means. Beyond all the rhetoric and bluster, Brexit has made us into rule takers from everybody because we need foreign direct investment from everybody. We are outside the new European regime for silicon, our plants at the mercy of highly mobile Chinese capital, our intellectual property on a one-way journey eastwards.