LONDON, July 8 (Reuters Breakingviews) - Britain’s policy on Chinese inward M&A is all over the place. As the world’s governments scramble to safeguard their manufacturing capacity amid a global semiconductor shortage, the UK was on the cusp of waving through the sale of its biggest microchip factory to Dutch firm Nexperia, a subsidiary of $19 billion Shanghai-listed chipmaker Wingtech Technology (600745.SS), without even a review. It has now changed its mind, but the damage is already done. The sale of chipmaker Newport Wafer Fab, announced on Monday, is admittedly not an open and shut case. It’s small: current owner Neptune 6, led by Drew Nelson, bought the plant from Infineon Technologies (IFXGn.DE) in 2017 and is now selling it for just 63 million pounds ($87 million), according to people familiar with the matter. NWF, which produces semiconductors used in cars, is also troubled: revenue last year fell to 30 million pounds, against 2019’s 49 million pounds, and net losses deepened. Contractual terms constrained Nelson’s scope to raise funds from other investors, and the Dutch group is only acquiring the Welsh factory rather than NWF’s intellectual property and customers, according to a person familiar with the matter. Still, other states have taken a tougher line. In Italy, Prime Minister Mario Draghi’s government blocked a Chinese takeover in March of LPE, a small semiconductor firm. Beijing-based Wise Road Capital’s attempt to acquire South Korea’s Magnachip (MX.N), a $1.1 billion company with little United States presence, is facing several roadblocks in both Seoul and Washington, D.C. Yet despite some UK lawmakers’ call for similarly robust action, UK business secretary Kwasi Kwarteng was initially going to do nothing. The UK’s need to simultaneously criticise and court Beijing probably explains the flip-flopping. Britain’s ban on Huawei Technologies and the change of immigration rules to allow Hong Kongers to gain British citizenship have worsened UK-China relations. But it still wants some sort of strategic trade relationship after Brexit. That may be why the UK government didn’t act promptly when SoftBank Group (9984.T) acquired chip designer Arm in 2016 and when a Chinese-backed firm bought local semiconductor firm Imagination Technologies, leaving lawmakers limited power to intervene afterwards. NWF might still fall into Chinese hands if the government’s review concludes that the semiconductor plant sale causes no threat to national security. Either way, China lobbyists, both pro and anti, have further evidence that British inward M&A policy is malleable. Follow @karenkkwok on Twitter CONTEXT NEWS - Dutch semiconductor company Nexperia on July 5 said it had agreed to acquire Wales-based Newport Wafer Fab, the largest chip production facility in the United Kingdom, from its owner Neptune 6. The financial details were not disclosed, but a person familiar with the matter told Breakingviews it is worth around 63 million pounds ($87 million). - Nexperia is a customer of the semiconductor foundry services offered by Newport Wafer Fab and became its second-largest shareholder in 2019. The Dutch firm is a subsidiary of Wingtech Technology, a $19 billion Shanghai-listed Chinese automotive chipmaker. - Wingtech is heavily backed by the Chinese Communist Party, according to analysis from Chinese investment screening specialists Datenna, CNBC reported on July 7. - Tom Tugendhat, chairman of the UK’s foreign affairs select committee, told Breakingviews he was very surprised that the deal for Nexperia to take over Newport Wafer Fab had been completed without undergoing review under the National Security and Investment Act. He added it was the first real test of the new legislation since its introduction in April. - “The government is yet to explain why we are turning a blind eye to Britain’s largest semiconductor foundry falling into the hands of an entity from a country that has a track record of using technology to create geopolitical leverage,” he said. - In response, Prime Minister Boris Johnson told the parliament on July 7 that he had asked the National Security Adviser to review the Newport deal after all. - “We have to judge whether the stuff that they are making is (of) real intellectual property value and interest to China, and whether there are real security implications,” Johnson said. - “We have considered this issue thoroughly, and will continue to monitor the situation closely. The National Security Adviser is reviewing this case and we will not hesitate to take further action if needed,” a UK government spokesperson told Breakingviews. The government previously said it did not consider it “appropriate to intervene” in the Newport deal.