Netherlands Seizure Of Chinese Assets Is A Test Run For Seizure Of Russia’s Frozen Capital

The Netherlands’ seizure of China’s privately held Nexperia semiconductor manufacturer is, we believe, a test run of any potential geopolitical fallout of Belgium’s Euroclear seizing Russia’s frozen capital—an issue that has divided the EU, with those suggesting it should go ahead and others warning of significant repercussions.

Nexperia is based in the Netherlands and has been majority-owned by Chinese technology group Wingtech since 2019. The Dutch Ministry of Economic Affairs has acted on somewhat archaic laws to take effective control of the company, removing its CEO and board of directors and placing government-appointed executives instead to administer the business and oversee its operations and decision-making.

It said it acted because of “a threat to the continuity and safeguarding of Dutch and European interests in crucial technological knowledge and capabilities.” There have been no suggestions that Nexperia operated outside the limits of Dutch laws. The action is therefore being seen as a political act designed to punish the Chinese government for imposing export limits on its rare earths.

However, although China has invested to secure a dominant role in the global rare earths industry, it has been able to do so purely because Chinese investors saw an opportunity and raised the capital required to develop the sector at a time that Europe did not. China possesses the world’s largest rare earth reserves at 44 million tonnes, followed by Brazil, Vietnam, India, Australia, Russia, and the United States.

Quite apart from the issue of European investors failing to look longer-term at securing critical supply chains and now seizing control of assets to make up the shortfall, reading between the lines, the forced takeover of Nexperia also appears to be a test case to assess the political and economic fallout of seizing foreign-owned assets as concerns Europe’s reputation as a safe investment destination.

The Netherlands consistently ranks among the world’s most competitive industrialized economies and is among the largest recipients and sources of foreign direct investment (FDI) in the world, as well as being one of the largest recipients of direct investment from the United States. According to the OECD and the International Monetary Fund (IMF), the Netherlands was the second largest recipient for foreign direct investment (FDI) globally in 2022. In 2024, it received an estimated US$94 billion in FDI. It is key to note that about 60% of this originated from the US, signifying that the United States will remain supportive of the Netherlands even if alternative sources diminish. That, however, appears unlikely, as the other sources of FDI into the Netherlands are all European, although it should be noted that the recent trends for investment into the Dutch economy have shown a decline.

This suggests that while the Nexperia situation may ruffle feathers in Beijing, any shock to the Netherlands’ overall reputation as a safe haven for FDI is unlikely to show any significant damage, as much of its FDI is Western-driven. That is likely to be used by numerous EU and US politicians to suggest that any seizure of Russia’s frozen capital—an estimated US$170-190 billion—would be politically and reputationally sustainable.

Here though, the picture changes from a single foreign corporate business issue to a far broader global issue. Were the EU to clear the way to seizing Russia’s capital assets, rather than minimal foreign investment being affected, far larger amounts of foreign investment would be impacted, at both corporate and governmental levels. While the corporate impact could also be mitigated against – Chinese total corporate investment into the EU was just US$10 billion in 2024—at stake are the holdings of EU government bonds and related securities as well as the euro as a currency. An estimated 25% of China’s total financial reserves (or about US$850 billion) are denominated in euros. It is a similar figure for all total overseas holdings of EU debt—about 25% of this figure is owned by non-aligned foreign governments. If euro-denominated debt were to be sold, it would significantly devalue the currency and cause substantial economic problems within the euro area, such as massive inflation. The relative values of euro-denominated assets would dramatically reduce, a situation not dissimilar to the Asian Financial Crisis of the late 1990s—but in reverse. Paradoxically, that would lead to a bailout of European assets by capital-rich nations—such as China, Russia, India, and the United States.

Should the Nexperia experience—and the ‘limited impact’ theory—be later held up as a solid reason to seize Russian assets, it would probably indicate a tipping point as to when to exit European holdings.