Frustrate China’s wicked plans – while we still can

We have to get serious about why Beijing wants to buy British firms, and apply greater scrutiny

In all the excitement about partygate yesterday, an important announcement went almost unnoticed. It was that Kwasi Kwarteng, the Business Secretary, would “call in” for review, under the new National Security and Investment Act, the proposed sale of Newport Wafer Fab to Nexperia, a Chinese company. Newport is one of the UK’S few remaining manufacturers of semiconductors – of which there is a huge shortage at the moment – and a key part of the related manufacturing cluster in South Wales.

Stephen Lovegrove, the National Security Adviser, apparently concluded in March that there was no reason to block this deal. The Business Secretary’s decision does not suggest he has an awful lot of confidence in that review. He is not alone in that. I don’t either, and nor, it seems, does Tom Tugendhat, the chairman of Parliament’s Foreign Affairs Committee and co-chairman of the Conservative China Research Group, who has tirelessly pursued the issue for a year now.

What’s crucial is that the Business Secretary looks at this acquisition in the right way. Maybe the takeover does not present problems at the purely commercial and company level. But that is not the only relevant perspective. We must take a broader view, first, of what capacities we want to see in this country and, second, who we want to own them.

The future of another company, ARM, forces us to think hard about the first. ARM is our only hi-tech world leader, central to cutting-edge technology around the globe, some vital to our and allies’ national security. It was sold to a Japanese company, Softbank, in one of many self-abasing acts by the Theresa May government, to try to show that we were still an open economy after Brexit. Having abandoned a sale to the US firm Nvidia, Softbank is now trying to list it in New York, a move that will inevitably take the company further out of the UK orbit and ultimately make it vulnerable to another takeover or break-up.

Governments generally don’t know best about industrial policy. We shouldn’t be picking winners. But governments can shape policy so that key national assets remain just that – national. The location of central management and control of companies does matter. With it comes crucial R&D, intellectual property, and highly paid jobs.

So keeping those functions in the UK is a legitimate policy aim. It’s obviously easier to achieve if the business environment is low-tax, low-regulation, and supportive of enterprise. As that is unfortunately not entirely the case, the Government should use its powers to establish a golden share in ARM, and maybe even consider taking a stake sufficient to get the company listed in London instead.

As for who should own Uk-based businesses, the issue is very simple. It’s about China. They want to buy Newport for one simple reason – to build up their expertise in compound semiconductors. It’s not a secret – it’s in their 14th Five Year Plan. If this sale goes through, China will do what it so often does – strip the company of any relevant intellectual property for their own purposes. Every little helps.

Moreover – and even more importantly – the capacity becomes vulnerable. Once China has got what it needs, the factory can be closed at any moment. And even if the Government nationalised it to stop that happening, by then it would be just a husk, stripped of what originally made it valuable.

We have seen this pattern repeated around the world. Legal and illegal acquisition of intellectual property has helped China catch up with the West and, in an increasing number of cutting-edge areas, put it ahead of us.

Of course China has the right to try to get rich. But while it is so obviously a threat to its neighbours, notably Taiwan; while its domestic policy is so repressive; while dissent from the Chinese Communist Party worldview is impossible; while Xinjiang and Hong Kong are under the jackboot; while China obfuscates and blocks an investigation into the cause of the Covid pandemic; while it seeks to buy influence and intimidate dissidents overseas: in these circumstances, we have the right, indeed the duty, to treat China differently.

The Government’s statement of policy on the National Security Act describes the sectors which will attract particular scrutiny, but not the countries. This makes no sense. The source of a takeover is highly relevant to whether it presents a national security risk. We have to get serious. The Government should make clear that investment from China will always attract scrutiny and will be reviewed with a high degree of suspicion.

The Prime Minister says he is not anti-china and even that he is a “Sinophile”. Any civilised person should be an admirer of Chinese civilisation and Chinese culture. It is one of the great civilisations of the world. But unfortunately that civilisation is in the hands of an unpleasant, repressive and, in many respects, wicked regime. Its aims are not the same as ours. I hope one day the Chinese people will be wealthy and free. Until then, we must seek to frustrate China’s aims and build up our resilience against it – while we still can.