May 23, 2022

China Task Force Has Concerns with Foreign Investments Outside Jurisdiction of CFIUS

Holland & Knight Alert
Antonia I. Tzinova | Robert A. Friedman | Mackenzie A. Zales | Sarah K. Hubner


  • The U.S. House of Representatives' China Task Force has urged President Joe Biden to engage the government of the United Kingdom to block the acquisition of the U.K.'s largest semiconductor manufacturing facility, Newport Wafer Fab, by Chinese-owned Dutch semiconductor manufacturer Nexperia.
  • The China Task Force's requests are the most recent example of the U.S. government's continued concerns with deals related to critical and emerging technologies involving Chinese buyers or investors.
  • The Nexperia transaction demonstrates Congress' willingness to use political levers to block transactions that are not subject to U.S. jurisdiction.

In a letter sent to President Joe Biden on April 19, 2022, the Republican-led, special congressional task force known as the China Task Force (CTF) expressed concerns over the takeover of Newport Wafer Fab (NWF), a Welsh semiconductor manufacturer, by Nexperia, a Dutch semiconductor manufacturer. Located in South Wales, NWF is the U.K.'s largest chip plant. In particular, the letter raised questions regarding Nexperia's ownership by Wingtech Technology (Wingtech) of the People's Republic of China (PRC), claiming that Nexperia is "in effect a PRC state-owned enterprise." Research cited in CTF's letter suggests that the Chinese government owns at least 30 percent of Wingtech Technology's shares. The U.S. and allied governments consider the semiconductor industry a sector critical to innovation, national security and competition with China and is an ongoing focus of U.S. executive and congressional action.

Nexperia's Takeover of Newport Wafer Fab

Nexperia's acquisition of NWF was initially announced on July 5, 2021. According to a press release issued by the company, Nexperia, which became NWF's second-largest shareholder in 2019, obtained 100 percent ownership of NWF. As stated in CTF's letter to President Biden, the acquisition was completed with the support of Beijing Jianguang Asset Management Co. Ltd. (JAC Capital) – a subsidiary of Chinese state-owned investment firm JIC Capital and Beijing-based private equity firm Wise Road Capital. Notably, in December 2021, Wise Road Capital faced scrutiny from the U.S. government and terminated its merger agreement with South Korean semiconductor manufacturer Magnachip Semiconductor Corp. after the parties were unable to obtain Committee on Foreign Investment in the United States (CFIUS) approval for the transaction in a CFIUS-directed review of the transaction.

The U.K.'s Response

Following the press release, on July 7, 2021, U.K. Prime Minister Boris Johnson ordered the review of the Nexperia acquisition by U.K. National Security Advisor Stephen Lovegrove after several lawmakers raised concern over possible national security issues tied to the transaction.1 In early April 2022, media reports emerged that the U.K. government had quietly approved the sale of NWF to Nexperia after Lovegrove determined that there were not enough national security concerns to block the transaction. The U.K.'s Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng as well as Nexperia have denied the rumors, noting that the case was still being considered. The U.K. Parliament's Foreign Affairs Select Committee also issued a statement that said it had no evidence that a security review had even begun. On May 17, 2022, the Financial Times reported that Kwarteng would be warned in a Whitehall report against allowing the acquisition, as it could undermine the U.K.'s strategic semiconductor industry. A final decision from the U.K. government is expected by the end of June 2022. The review is within the scope of the U.K.'s recently adopted National Security and Investment Act (NSIA).

U.S. Congressional Concerns

In light of these developments and the seeming delay by the U.K. government to make a determination regarding Nexperia's acquisition of NWF, CTF urged President Biden to press the U.K. to block the transaction, "employ[ing] all tools necessary" to do so, and – if diplomatic outreach fails – to reconsider the U.K.'s position on the CFIUS list of Excepted Foreign States2 and apply targeted export controls on NWF.

Implications for Cross-Border Dealmakers

U.S. lawmakers' concerns over Chinese involvement in the semiconductor industry are not new or limited to the United States. Concerns raised by CTF are evidence that the protection of critical technologies, such as semiconductors, is a high priority for the U.S. government, even where there is no U.S. jurisdictional hook. In fact, the Nexperia-NWF transaction has no apparent U.S. nexus. NWF is not a U.S. company, nor is it a subsidiary or a parent of a U.S. company. It is not publicly listed on a U.S. stock exchange and has no U.S. operations. In other words, it would not pass the test of a "U.S. business" under CFIUS regulations. Yet, the outcome of the sale of one foreign company to another may, at least in part, be influenced by U.S. lawmakers. There is a recognition by the United States and its partners and allies that foreign direct investment regimes should be harmonized to prevent adversaries from obtaining technological superiority by shopping transactions around to countries with more relaxed review standards.

Pressure from the U.S. government could lead to regulatory responses from partner and ally countries. The U.S. Congress generally focuses on raising national security concerns to CFIUS that are associated with the acquisition of or investment in U.S. businesses. However, in cases such as the Nexperia acquisition, where CFIUS clearly does not have jurisdiction over the transaction, it would appear that U.S. lawmakers might be leveraging the U.K.'s status as an Excepted Foreign State under CFIUS regulations to nudge the U.K. government to do their bidding. It is notable that the U.K. was only provisionally kept on the list of Excepted Foreign States announced by CFIUS in early 2022, even though its new NSIA took effect in January 2022.

CFIUS-related implications may arise from non-U.S. activities. If CTF is successful in convincing President Biden to take retaliatory action, despite U.K. potential approval of the transaction, such a move could have certain consequences for U.S. businesses and U.K. investors alike. If the U.K. loses its status as an Excepted Foreign State under CFIUS regulations, U.K. investments in U.S. businesses could be subject to expanded CFIUS jurisdiction, compulsory filings, lengthier reviews and greater CFIUS scrutiny.

If you have any questions about this trade alert or are seeking guidance on international and cross-border transactions, reach out to the authors of this alert or another member of Holland & Knight's International Trade Group.


1 For reference, the U.K. has a foreign investment review process akin to CFIUS. For a thorough discussion of the U.K.'s National Security and Investment Act (NSIA), see Holland & Knight's previous alert, "U.K.'s National Security and Investment Act Takes Effect," Jan. 19, 2022.

2 For additional information regarding the Excepted Foreign State status and its implications for CFIUS review, see Holland & Knight's previous alert, "CFIUS Updates the List of Excepted Foreign States," Jan. 7, 2022.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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