China's leading semiconductor association on Tuesday said the Dutch government was "abusing the concept of 'national security'" in taking control of Nijmegen-based semiconductor manufacturer Nexperia, a fully-owned subsidiary of Chinese company Wingtech. 

Wingtech's shares slid by the maximum permitted 10% before being frozen in Tuesday's trading in Shanghai for a second consecutive day, after the Netherlands announced the move late on Sunday. 

How and why did the Netherlands government assume partial control of Nexperia?

The Netherlands invoked the country's Goods Availability Act citing national security concerns to take control of Nexperia in late September, the government said when it announced the move late on Sunday evening. 

The company can continue regular production and operation, but its decisions can be blocked or reversed by the Dutch government. 

The government said in its statement that it took the step because of "recent and acute signals of serious governance shortcomings and actions" within Nexperia. 

The company makes chips for cars and consumer electronics — including "wide gap" chips suited for AI projects and other high-voltage, high-temperature usage. Until Wingtech's 2018 buyout for €3.63 billion (roughly $4.2 billion at current exchange rates) it was a subsidiary of engineering giant Philips.

The Netherlands cited concerns about technology transfers to Wingtech in its statement.

Semiconductor shortages and availability issues have hampered an array of industries for several years, with the industry a growing battleground for governments around the world.

China has a large and growing foothold in the industry, though it still lags behind regional rivals like Taiwan and South Korea, while US companies still lead the world in sales and the country plans to considerably bolster its declined manufacturing capacity in the next few years.

China's CSIA decries 'selective and discriminatory restrictions' 

The China Semiconductor Indusrty Association (CSIA) responded critically to the Dutch move early on Tuesday, as Nexperia parent company Wingtech's share values plummeted. 

"We oppose the practice of abusing the concept of 'national security' and imposing selective and discriminatory restrictions on overseas branches of Chinese enterprises," the CSIA said in a statement. 

"Discriminatory measures targeting specific enterprises with undermine the open, inclusive and collaborative global semiconductor ecosystem, and we firmly oppose such measures," it said. 

A Foreign Ministry spokesman in Beijing had made similar comments about China consistently opposing "generalizing the concept of national security." 

Stock markets in Asia reacted uneasily to the news early this week. 

Wingtech Technology's share price fell by the maximum permitted 10% for a second consecutive day and was then frozen. The CSI Semiconductor Industry Index was also down 6.9% in Tuesday's trade.

Wingtech also on US radar, Netherlands says timing a coincidence

The US put Wingtech on its "entity list" of companies seen as threats to national security, for its alleged role in "aiding China's government's efforts to acquire entities with sensitive semiconductor manufacturing capacity," and last month expanded its list to include subsidiaries. 

Reuters news agency, however, quoted a Dutch Economic Affairs Ministry spokesperson as saying its Nexperia decision and the timing were "purely coincidental." 

Nexperia itself had said it would comply with new US rules and that its Chinese parent company was kept at arm's length.

Wingtech called the Dutch intervention "excessive interference driven by geopolitical bias," and also accused non-Chinese executives of a "cloaked power grab," trying to alter the equity structure of the 100%-Wingtech-owned company via the courts.

Wingtech and Nexperia also came under scrutiny in the UK in 2022, when the Chinese company used its Dutch subsidiary to acquire an 86% stake in the UK's largest microchip plant, Newport Wafer Fab. The government later forced the company to divest, deeming the Chinese ownership a national security risk.

Edited by: Wesley Rahn