The Story So far
The whole episode started with the Dutch Government using the Cold War-era law to take supervisory control of Nexperia, based in Hamburg, on September 29. Nexperia produces chips for the automotive industry and was acquired by a Chinese company, Wingtech, in 2018.
The trigger behind the move is contested. The first and most plausible explanation is that the Dutch were tipped by the Americans earlier in September that they were going to add Wingtech to the ‘affiliate list’ - which would have placed licensing requirements on US exports to entities where more than 50% of the ownership is with countries listed in the BIS Entity list (China in this case).
And by extension, Nexperia’s operations would be impacted. This created panic, especially as most of the European automakers are dependent on Nexperia chips (Germany was going to be the most affected). Immediately after the US move on September 30, the Dutch took control of Nesperia.
The Dutch version is that this has nothing to do with the US actions lately. Instead, the actions were a result of the company’s attempts to move IP rights and relocate production to China from Hamburg.
Anyway, the Chinese were swift in response and placed export restrictions on Nexperia chips from China. While Nexperia has operations in Europe - R&D and wafer production - the wafers are sent to its facilities in China for ATP. Thus, the Chinese were able to block the exports of finished chips.
After the Trump-Xi meet, US withdrew the decision wrt the affiliate list and the supplies of chips from China has started. However, the Dutch govt. still has the supervisory control. The Chinese are pressuring the EU to nudge the Dutch to do the right thing.
My take
At the outset, the decision by the Govt of the Netherlands doesn’t seem like a well-thought-out plan. If the wafers are shipped from the Netherlands to China for finishing, they should have anticipated the Chinese action in return. But then, it shows that the Europeans may have some leverage points vis-à-vis the Chinese here.
Wingtech has said that it is instead planning to expand its operations in Hamburg. It had announced a USD 200 million investment in Hamburg to expand wafer production. But the progress has been slow. My sense is that the Dutch can use this leverage to coerce Wintech to expand and retain operations in Hamburg. And so long as Wingtech remains invested in Hamburg and the Dutch can prevent the migration, the Dutch can retain the pressure point on the Chinese.The only issue is that it might force the Chinese to respond in kind. But then again, that could create a potential opportunity for India.