Joint Venture Infineon Technologies AG

As part of our ongoing research into European joint ventures in Europe, Datenna decided to highlight and research remarkable cases. This case considers the joint venture set up by the German Infineon Technologies AG.

  • The joint venture at stake entails the collaboration between Infineon Technology AG and SAIC.  Infineon Technology is one of the ten largest semiconductor manufacturers worldwide, and SAIC Motor is one of the largest car manufacturer in the Chinese market.
  • Shanghai Automotive Industry Corporation (SAIC) is fully owned by Shanghai State-owned Assets Management Committee and is a relevant SOE in China.
    The main aim of the joint venture is to provide power semiconductor solutions for electric vehicles in China. The German company just accounts for a minority share, the lack of control on the entity by the foreign investor could lead to the risk of technology transfer.
  • The production of new energy vehicles has been encouraged in China since 2018. Despite the burgeoning local market, there are still specific conditions to be met by foreign entities in order to be able to invest in the sector.

Infineon Technologies in China

In the considered company case, we want to describe Infineon Technologies AG investment activities in China. The German company is one of the world’s largest semiconductor manufacturers worldwide, therefore its experience can be used as an example to investigate the Chinese semiconductor industry and the limitations and opportunities that a foreign investor can encounter when entering the market.

Infineon Technologies AG, is a German semiconductor manufacturer founded in 1999. The firm originates from Siemen AG’s semiconductor operations spin off. The company’s core business mainly relates to the production of semiconductors and systems for automotive electronics, industrial applications and consumers-oriented applications. It can boast subsidiaries worldwide and several facilities around the whole of Europe.

Infineon Technologies AG first entered the Chinese market in 1995 establishing a wholly foreign owned enterprise called Infineon Technologies (China) Co., Ltd. with a registered capital of 92.0 million euro. The company subsequently established an headquarter in Shanghai, an R&D center in Beijing and a branch in Shenzhen. We estimated that the company invested around 286 million euro into China throughout the years.

In order to better serve the dynamically growing market for electric vehicles in China, Infineon Technologies has established a joint venture with SAIC Motor Corporation Limited for the production of power modules. SAIC Motor, the largest car manufacturer in the Chinese market, holds 51% of the joint venture’s shares while Infineon is restricted to a 49%, thus a minority part of the shares.

State-backed SAIC

The Chinese partner involved in the agreement, SAIC motor, is the largest automaker in China and is engaged in activities which range from vehicle research and development, to production, and sales. The company is also particularly engaged in the production of new energy vehicles.  In April 2020 alone, the automobile manufacturer sold 419,500 vehicles, including 50,000 new energy vehicles (NEVs). This is in line with the mid-term goal set by the Chinese government of building 5 million new energy vehicles by the end of 2020.

The two companies considered show relevant synergies and the joint venture’s activities. The joint activities entail the production of technologically power semiconductor solutions for electric vehicles in China, allowing Infineon to expand its production capacity into the country and providing SAIC motor with technologically advanced chips for the production of new energy vehicles.

Chinese Ambitions in the Semiconductor Sector

Since the joint venture scope of business concerns chip manufacturing applied to new energy vehicles, it is worth framing Chinese government current ambitions in the sector. Despite becoming a more and more relevant area of competition worldwide, semiconductors still represent a field in which the Chinese economy is largely dependent on external supply.

To make up for this gap and to be able to compete with western companies, over the last decades China spent tens of billions of dollars to build its own semiconductor industry. Despite these efforts, Chinese semiconductor companies still fail to conquer a relevant market share in the global arena.

To counter its dependence on foreign suppliers, the State Council of China announced a major semiconductor policy in 2014, namely the National Guidelines for Development and Promotion of the Integrated Circuit (IC) Industry. In the “Made in China” policy, which was launched the following year, China stated that it will deploy huge efforts and resources to the building of a national and self-sufficient semiconductor industry.

In order to serve a burgeoning market, China has granted financial benefits to domestic firms operating in the sector and encourages foreign investors to establish their factories within the country’s territories. In fact, such cutting-edge technology chips manufacturing can be included into “high-end manufacturing” which is a field included within the National Encouraged Catalogue for foreign investment.

The financial benefits of investing in China are high for foreign companies, both in terms of tax exemptions and proximity to end customers that justify European countries’ displacement of factories and activities. This can constitute a huge concern for Europe in terms of technology and know-how loss and transfer to a country which, in the near future, can start constituting a relevant competitor in the sector.

Infineon status as a global leader in the chips manufacturing sector, makes it an appealing partner, especially for a relevant actor as Shanghai Automotive Industry Corporation (SAIC) which, being mainly state-owned, might be geared towards the attainment of broader national policies and goals.

The Level-playing Field in the New Energy Vehicles Sector

As mentioned, the chips produced and supplied by Infineon will be specifically applied for the functioning of SAIC’s new energy vehicles. Given China’s high ambitions in the new energy vehicles production for the years to come, it is noteworthy to have a closer look at restrictions and regulations concerning foreign investment into the new energy vehicles production in China. In fact, this can enhance our understanding about the investment opportunities for foreign actors and assessing the level-playing field in the sector.

With the most recent version of the Chinese Negative List on Foreign Investment issued in 2020, the Chinese government planned to remove the 50% restriction on foreign ownership within joint ventures engaging in automobile’s manufacturing activities by 2022. The restriction has already been lifted for foreign companies who just produce pure electric vehicles in China (negative list). Nevertheless, even if formally permitted, are still limited and affected by market conditions. In fact, new investment projects for new energy vehicles by a foreign firm can only be carried out under specific conditions: first, the utilisation rate of automobile capacity in the considered province has to be higher than the average level of the same product category in the previous two years; secondly, the existing investment projects for pure electric vehicle in the province have all been completed and the annual output has reached its constructed scale. Lastly, the investment project should be of no less than USD 1 billion to be proposed in the first place.

We can argue thereby that even though market entry restriction have been softened considerably with the recent amendment of the Negative List, it is still hard for a foreign company to establish its production activities in China independently when operating into the automotive sector.

It is not the case for investments into sub-sectors like the semiconductor one that still attracts and  welcomes foreign investments probably in the attempt for domestic firms to access and master relevant know-how and technology.

Foreign multinationals like Infineon could benefit financially by entering the Chinese market but overlook the know-how absorption when setting up a new entity over which it has no full control. On a broader level this could lead to a relevant technology flee from Europe.