UK Microchip Plant Taken over by Communist China Was Developing British Military Tech: Report

China's President Xi Jinping inspects People's Liberation Army soldiers at a barracks in H
DALE DE LA REY/AFP via Getty Images
Kurt Zindulka

The UK’s largest microchip factory, which has been taken over by a firm backed by Communist China, has reportedly received millions in funding from the British government, including military research grants.

Newport Wafer Fab (NWF), which was forced into selling its factory to Chinese-owned Nexperia after failing to meet its debt obligations earlier this month, has been reported to have been granted large-scale contracts from the British government’s innovation agency, Innovate UK.

A whistleblower told CNBC that the semiconductor firm had received around £55 million ($75 million) to develop next-generation technologies, including defence contracts.

“I don’t think anybody realized that there were a couple of defence-related projects in there,” the source told the news outlet.

One of the contracts is said to have been a £5.4 million joint project with Cardiff University to develop radar systems for fighter jets.

The chairman of the Foreign Affairs Select Committee, Tory MP Tom Tugendhat, said: “Britain has paid for the research that makes Newport Wafer Fab a key partner in a U.K. government defence project. That’s why we need a complete review of the decision on national security grounds, including asking why the deal was initially waved through.”

Mr Tugendhat added: “The U.K. and Welsh governments have spent tens of millions of pounds supporting compound semiconductor innovation in Wales — with NWF at the heart.

“While there’s a global shortage, and Beijing has hopes to dominate the market, we need to be much clearer about our interests, not just company profits or rivals’ opportunities.”

In 2019, the Dutch-based but Chinese-owned Nexperia entered into a contract with Newport Wafer Fab to support the firm in exchange for the British microchip putting up its factory as collateral.

NWF reportedly attempted to raise the funds necessary to remain free from Chinese control earlier this year. However, they were unable to meet the terms of the contract and therefore had to cede control of their facility in Wales.

Under the terms of the contract, Nexperia, which already held some stake in the firm, only had to pay out £63 million in order to take over the factory.

An analyst at research firm Forrester, Glenn O’Donnell, said that the price tag for such a factory is “minuscule”, saying: “Most wafer fabs cost well over £1 billion. Even if this is older tech, this deal is ridiculously cheap.”

Following widespread backlash and concern expressed about Communist China taking control of what many would consider a critical technology factory, Prime Minister Boris Johnson ordered a review of the sale under national security laws.

“We have to judge whether the stuff that they are making is of real intellectual property value and interest to China, whether there are real security implications,” Johnson said.

Yet on Thursday, the Under-Secretary of State for Science, Research and Innovation Amanda Solloway said that the government is not currently planning on intervening to block the sale as it is not believed to be of national security concern.

“It is right that commercial transactions are primarily a matter for the parties involved. The government has been in close contact with Newport Wafer Fab but it does not consider it appropriate to intervene in this case at the current time,” Solloway said.

While the review has not been concluded, a Nexperia flag has already been hoisted above the factory’s entrance.

Former Conservative Party leader, Sir Iain Duncan Smith, said that the government is in an “unholy mess” in regards to the Chinese takeover.

“I wonder in the course of this failure to make a decision did they look at what China thinks of semiconductors?” Sir Iain questioned.

“China is the busiest exporter in the world and is busy buying up semiconductor technology everywhere it can find it,” he noted.

The scandal comes amid increasing scrutiny over technology transfers from Britain to Beijing, with MI6 reportedly investigating “some of the most prestigious universities in the country” for working with Chinese weapons producers.

Some 200 British academics are also allegedly under investigation from the security services for assisting the Communist nation in developing military tech, including cyberweapons, missile designs, and aircraft technology.

Follow Kurt Zindulka on Twitter here @KurtZindulka

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