When the Dutch government invested in home-grown chipmaker Smart Photonics in June, it was a departure for a country with a hands-off approach to business.
A small company with big plans, Smart Photonics was struggling to attract financing to scale up production of its next-generation chips, whose applications include self-driving vehicles and data centers.
“We flew all over the world to talk to interested investors,” Smart Photonics chief technology officer Luc Augustin said in an interview at the company’s offices outside Eindhoven.
“The most serious interest came from Asia,” specifically from Taiwan, Japan, Singapore and China, he said.
In late June, just as it looked like the company was about to be lured to Asia, the Dutch government stepped in with 20 million euros (US$23.72 million at the current exchange rate).
A similar sum came from a consortium that included a government-backed agency, PhotonDelta, whose chief executive, Ewit Roos, raised the alarm at the Dutch Ministry of Economic Affairs as soon as he learned of the company’s predicament.
“The government acted swiftly and decisively,” Roos said by telephone.
The Dutch government said that its decision was taken to retain key technology and was not driven by concerns over China. Even so, its investment was just the latest example of a more defensive economic stance that has accompanied a hardening of the country’s attitude toward Beijing.
The shift has “been very noticeable, because the Netherlands has always been that kind of small, open, free-market economy that wanted nothing to be touched and everything to be open,” said Agatha Kratz, an associate director at Rhodium Group in Paris.
POWER PLAY
As US President Donald Trump’s administration targets Chinese technology companies from ZTE and Huawei to ByteDance’s social video platform TikTok, that changing outlook places the Netherlands and its high-tech companies in the middle of the geopolitical power play between Washington and Beijing.
The Dutch government last year denied an export license to ASML Holding for one of its extreme ultraviolet lithography machines intended for China. The license to ship the equipment, used to fabricate cutting-edge chips, still has not been granted.
While that decision lies with the government, “of course there are views in the US and China whether that’s a risk,” ASML chief executive Peter Wennink said in January.
Chinese Minister of Foreign Affairs Wang Yi (王毅) stopped off in The Hague last week to meet with Dutch Prime Minister Mark Rutte, a year after US Secretary of State Mike Pompeo made the same trip.
ASML is a top priority for the US because of its world-leading technology, a person familiar with the case said.
“Persuade the Dutch not to sell to China, and you don’t have to worry about China going elsewhere for the technology,” the person said, adding that it would be very surprising if Wang had not brought up ASML during his visit.
The Dutch are still highly unlikely to reverse their decision and allow the shipment, a second source said.
Both asked not to be named as the matter is private.
“The United States has confidence that the Netherlands will review the case very carefully,” the US Department of State said in a statement, referring to ASML.
Beijing still regards the Netherlands as an important trade partner and investment destination, even though the Netherlands is getting “harsher” toward China, said a researcher with the government-affiliated Chinese Academy of Social Sciences who asked not to be identified due to rules for speaking with media.
One reason for that change is that China is becoming more competitive economically with Europe, the researcher said.
Growing skepticism of China is a path already taken by countries from Australia to the UK — and most aggressively pursued by the US under Trump. However, it is a new direction for the Netherlands, a mercantile nation founded on free trade.
The Dutch used to only care about the business opportunities, but those days are over, said Maaike Okano-Heijmans, a senior research fellow at the Clingendael Institute in The Hague, a government-affiliated foreign policy think tank.
“China triggered this active industrial policy. You’ll never read this in an official paper, but that is how it is, and rightly so. An economy with that magnitude in combination with their system can really affect us — that is the crux,” Okano-Heijmans said, adding that the shift only occurred in about the past 18 months
In 2015, during a trip to the Chinese city of Shenzhen, Rutte praised Huawei Netherlands chief executive Wang Dexian (王德賢) as “Wonder Wang” and urged mutual projects to exploit a shared prowess in innovation.
Now The Hague is crafting a foreign investment screening mechanism and has all-but ruled out the participation of Huawei in its 5G network core by barring companies that “are obligated to work with [foreign] governmental organizations, especially those in charge of intelligence,” the Dutch government said.
The Netherlands is one of just two EU members — Sweden is the other — to have a public strategy on China. In it, the government cites assessments by its major intelligence agency that Beijing is gathering information on financial, economic and political subjects, as well as its interest in Dutch companies in the fields of high-tech systems, energy, maritime technology, and life sciences and health.
In December 2015, The Hague allowed the US$1.8 billion sale of what is now Ampleon, a former division of Dutch chip giant NXP Semiconductors and a world leader in transistors found in transmission towers essential for 5G. The irony is that NXP sold it to China’s JAC Capital to appease US antitrust agencies, as it was at the same time buying Freescale, then a US company.
KEY TECHNOLOGIES
The Dutch are now determined to retain an advantage in photonics — the communication of information via light instead of electronic signals — and its application to chips.
The EU has designated photonics as one of six “key enabling technologies,” which receive priority research and innovation support.
However, it is not the only area where the Dutch government has intervened. In April, it stepped in to help rescue IHC, a world leader in dredging ships — to safeguard jobs and “ensure expertise was retained for the Netherlands,” the ministry said.
Perhaps the most dramatic incident was the theft of intellectual copyright from ASML by several former, US-based employees, who set up a competitor called XTAL in 2014.
Dutch newspaper Het Financieele Dagblad reported last year that the former employees were Chinese spies with links to the Chinese Ministry of Science and Technology.
However, Wennink denied that the company had been subject to Chinese espionage, even though some of those involved “happened to be Chinese nationals.”
The case, which only came to light in April last year when ASML was awarded compensation of US$845 million by a US court, caused an uproar in the Dutch parliament, since it coincided with the drafting of the Dutch-China strategy, which was published the following month — shortly before Pompeo’s visit and the government’s refusal to grant the export license to ASML.
The Dutch have been made “very aware of some of the more strategic or national security issues of dealing with China,” Kratz said.
The government “wants to grasp chances when they occur, but will also go on the defense when necessary,” the Dutch Ministry of Economic Affairs said.
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