The clean room in Newport, south Wales, is the size of a football field, but in the industry they call it a ballroom. Workers in full bodysuits move silicon wafers from one end to another in a series of careful steps. The 20cm slices of silicon are rigorously cleaned in chemical baths before light is used to draw precise patterns that are then etched out. It all takes place in an orange gloom to prevent light-sensitive chemicals from reacting.

After robots and people test for defects, the owner Nexperia ships thousands of wafers every week to its other plants in Asia to be cut into hundreds or even thousands of pieces. Those in turn will be shipped all over the world for use in circuit boards controlling the power flow to devices from vacuum cleaners to Jaguar Land Rover cars.

“A chip travels the world twice before it is being used, not just for Nexperia but for any company,” says Toni Versluijs, the Dutch company’s UK country manager, in an interview at the factory.

Inside the clean room at Nexperia’s Newport plant
Inside the clean room at Nexperia’s Newport plant. Photograph: Adrian Sherratt/The Guardian

Governments want to be part of the semiconductor industry. More than a trillion chips were used globally last year to control every kind of electronic device. Yet the Newport plant’s international links have put it in the British government’s crosshairs. Nexperia is owned by China’s Wingtech, which critics suggest could come under the influence of Beijing. Now ministers have ordered Nexperia to give up the Newport site, 16 months after it took it over in July last year.

The company is outraged, having passed reviews by the business department and Boris Johnson’s national security adviser. It has promised to do whatever it takes to overturn a decision it says will jeopardise 550 jobs and an £80m investment programme.

Its executives have gone further, telling the Guardian they had been considering a programme of investment to double or even triple production, with the option of building two new factories (known as fabs) in response to a global shortage of semiconductors.

Paul James, the Newport fab’s managing director, says the plans – still at an early “concept” stage before the ruling – would be worth hundreds of millions of pounds in extra investment and could treble staff numbers at the site to 1,500. “It was the next logical step,” he says, suggesting the government decision is “political rather than based on facts”.

Touting the potential expansion is a last throw of the dice for Nexperia to persuade the government to change its mind, and some in the industry are sceptical that a company would expand now the recent boom is forecast to bust. The company has three weeks to ask for a judicial review of the decision or divest the site.

Workers in the fab are not authorised to discuss the situation, but the staff association this week wrote to the business secretary, Grant Shapps, opposing the intervention, and met his Labour shadow, Jonathan Reynolds, in parliament on Wednesday. Shapps told parliament he is privy to information that he cannot share.

Mary Curtis, a programme manager who has worked at the fab for 35 years and sits on the association, says workers are unanimously shocked. “It’s so unjust. We’ve been through a very difficult time but everything seemed much rosier,” she says. “It feels like a real kick in the teeth.”

China critics have welcomed the government intervention, fearing strategic vulnerability to Beijing. In the US, Joe Biden has pushed through plans to invest $52bn (£44bn) in its chips industry, and the EU has said it will invest €43bn (£38bn) to address similar concerns.

Edward Stringer, a retired air marshal who is now a fellow at the thinktank Policy Exchange, which is linked to the Conservative party,says “it might well be the right decision”, although he believes the government needs a “better articulated series of strategies for such sovereign capacities, and especially for semiconductors”. He adds: “Allowing China to control any vital link in these chains would not be sensible.”

Ministers’ public reasons for intervention centre on the potential for south Wales to expand into making more complex chips known as compound semiconductors. In a statement that did not explicitly mention China, the government explained that if Nexperia became involved in making such items, or part of a cluster of local businesses working on the technology, its current ownership could pose a threat to national security.

Compound semiconductors, made of two elements such as gallium and arsenic, are more power-efficient than traditional silicon devices, and demand is growing more quickly for them than for traditional varieties.

The government appears to be backing an argument made by the former Newport Wafer Fab owner Drew Nelson, a former research scientist turned entrepreneur, that the factory should take a central place in the UK’s attempts to build its semiconductor industry. Nelson bought the fab in 2017 in a management buyout backed by the Welsh government, but lost control to Nexperia after financial difficulties.

His plan had been to develop the most striking part of the plant – a mass of blue and yellow pipes built in the 1980s in signature inside-out style by the late architect Richard Rogers – to produce wafers for other companies on an open access basis, rather than only supplying Nexperia factories. Nelson declined requests for an interview.

A general view of Nexperia’s plant in Newport
A general view of Nexperia’s plant in Newport. Photograph: Matthew Horwood/Getty Images

Ron Black, the chief executive of Codasip, which makes tools to design microprocessors, has also expressed interest in taking over the fab should the merger be reversed. He says the government has made the correct decision, and a consortium he has assembled is still interested, although it is unsure of the process for any sale by Nexperia. Black has had discussions with Nelson.

Versluijs is scathing about the government’s claims of national security concerns about compound semiconductors, calling them “extremely far-fetched” and “weird”. “It reminds me a bit of the thought police, or Minority Report … if people are judged on what might happen, what could happen.”

The fab’s former owners have accused Nexperia of misleading MPs, saying the facility did in fact have the ability to make compound semiconductors before Nexperia’s takeover. Versluijs hotly disputes this, and his company says there was only ever “some partial processing of a few wafers in a project where basic engineering support was provided but never any open access semiconductor capabilities”.

“We believe it would hurt the cluster more than it would benefit it here” to reverse the takeover, he says. “We believe we are an asset, not a liability.”

Newport’s population appear unaware of the row over national security and the UK’s semiconductor industry. But well paid jobs are highly valued in a city that contains some of the most deprived areas in Wales. Past sources of wealth have come and gone and the city is bracing for the effects of the coming UK recession.

“Everybody is struggling at the moment,” said Beccy Paget, the co-owner of Busy Bees Patchwork, a sewing shop near the fab. “If that company goes, people who work there may not shop with us.”

Ruth Jones, the Labour MP for Newport West, is “at a loss” over the government’s decision, citing previous reviews that found no concerns over Nexperia’s takeover.

“Nothing has changed since then so why is it being called in now?” she says. The company’s workers “are local … To lose these jobs would be devastating”.

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