China wages dirty war for Britain’s tech secrets

Revealed: Hidden clause to stop sale of chip firm

CHINA has buried a clause in the deal to buy a British microchip firm that will stop its technology ever being sold back overseas.

Businesses backed by the Beijing government have included the clause in the £580m takeover of a division of ARM Holdings, which was regarded as Britain’s most powerful tech company before it was sold to a Japanese firm in 2016.

Cambridge-based ARM makes chips used in almost all of the world’s smartphones, and the latest deal is widely seen as an attempt by China to get its hands on the pioneering technology to boost its own commercial and military sectors.

However, the Mail understands that under the terms of the contract, a ban will be placed on shares in ARM Technology China being sold to investors based outside China. This will prevent valuable intellectual property falling back into the hands of Britain or the US.

As trade tensions between China and the US rise, both have put increasing restrictions on foreign investments into areas deemed most sensitive, including microchip manufacturing.

ARM, one of the world’s primary chip makers, was Britain’s biggest technology firm, but it was controversially sold two years ago to Japan’s Softbank for £24bn.

Prime Minister Theresa May and Philip Hammond, the Chancellor, welcomed the sale at the time, although they demanded guarantees that Softbank would increase ARM’s workforce and keep the company in the UK.

However, it was condemned as a disaster for the British tech industry because it allowed vital know-how to fall into the hands of foreign companies. No restrictions were placed on who the Japanese buyers could sell ARM’s internal divisions to, with critics now raising security concerns about the deal with China.

Sir Gerald Howarth, the former Tory defence minister, has called for better scrutiny to ensure that sensitive British technology does not end up in China’s hands.

The deal has seen ARM surrender 51pc of its Chinese business to local investors – meaning Softbank no longer has control. Similar deals have been struck by other western companies operating in China to get around tough restrictions on foreign investment. These usually involve creating a joint venture with Chinese partners – and handing over sensitive intellectual property.

China has encouraged such deals under its ‘Made in China 2025’ strategy, which aims to help its home-grown companies catch up with the US in areas such as robotics, aerospace, clean- energy cars and microchips. The plan’s targets include ensuring 40pc of smartphone chips are made in China.

But it has provoked fury in Donald Trump’s administration. It emerged yesterday that the US government was drawing up rules that would ban firms that were at least 25pc Chinese-owned from investing in American companies working in sensitive areas, according to the Wall Street Journal.

ARM Holdings was asked to comment but did not respond.