UK draws up plans to restrict Chinese inward investment

Tory MPs have urged Boris Johnson to accelerate new legislation designed to make it harder for overseas state-owned companies — for example from China — to take over struggling UK firms.

The move comes as government officials confirmed the prime minister was drawing up plans to force a full phase out of Chinese telecoms company Huawei from Britain’s 5G networks within three years, a policy U-turn that is the latest sign of chilling relations between London and Beijing.

The UK government has spent a decade courting inward investment from China. But with increasing concerns that Beijing did not disclose the initial scale of the coronavirus outbreak, foreign secretary Dominic Raab has announced an end to “business as usual” with Beijing.

“MPs and the public want action on China,” said one cabinet minister. “Takeovers are something we have to act on.”

Theresa May drew up plans for greater scrutiny of overseas takeovers three years ago. They require companies to flag any transactions with potential security concerns — even if only an asset or a shareholding — to the Competition and Markets Authority.

Mr Johnson promised in his December Queen’s Speech to implement the proposals through a National Security Investment Bill. Last week he said action would take place “in the next few weeks” to deal with “the buying up of UK technology now by countries that . . . may have ulterior motives”.

But the prime minister is under pressure to further strengthen the proposed measures and give a firm date for the legislation to be brought to the Commons.

Tom Tugendhat, chair of the foreign affairs select committee, warned that “time is running out” for Mr Johnson to push ahead with the new legislation given a looming spike in distressed sales.

News on Friday that Beijing plans to impose a national security law on Hong Kong has prompted further consternation in the UK.

“In a downturn, the difference between state-backed credit and the buying power of normal commercial investors will become starker, further strengthening the hand of state-owned enterprises,” Mr Tugendhat wrote in the FT.

“If we’re not careful, much of the intellectual property we will need for our long-term innovation and prosperity could disappear to Shanghai or Shenzhen.”

Tory MP Neil O’Brien pointed out that countries including Japan, Italy and the US had tightened up their foreign takeover regimes in recent months “It’s a decision that everyone in the world is having . . . Covid-19 is just accelerating things,” he said. “We need to make a distinction between having an open economy and interactions with the Chinese state.”

The foreign affairs select committee last month opened an inquiry after UK tech group Imagination Technologies saw an attempt to wrest boardroom control by a private equity investor backed by Beijing.

The prime minister’s change of heart on Huawei’s involvement in the 5G network comes after months of pressure from senior Tory MPs to ensure that UK’s telecoms networks do not contain equipment from the Chinese equipment maker beyond 2023 on national security grounds.

Mr Johnson in January granted Huawei a limited role in supplying kit for the UK’s 5G networks, confining its market share to 35 per cent. The rules also banned the use of the company’s equipment in the critical core of mobile networks, where data is stored and routed.

In March the government only narrowly defeated a Tory rebel amendment designed to completely ban Huawei from UK networks.

Those rebel MPs had been gearing up to try to force a new anti-Huawei amendment into legislation this summer.

David Davis, the former Brexit secretary said the coronavirus crisis had changed the political climate. “The Huawei policy may have been arguable pre-corona but I don’t think it is any more. That may not be rational but the zeitgeist has changed.”

EE, Vodafone and Three use Huawei equipment in their 5G networks. Switching to a rival supplier such as Ericsson or Nokia would slow down their roll out and increase costs. BT has estimated that it would cost £500m to comply with the 35 per cent cap.

Telecoms executives are frustrated that despite an 18-month review and the imposition of limits on Huawei equipment that the issue is still being debated by politicians. One said that a 2023 timeline was “too aggressive” for a full phase out, raising the issue of how such a switch out would be paid for.

Huawei declined to comment.

“There is a growing consensus over China, to want trade but to have no illusions,” said Bob Seely, a Tory MP. “We can want trade but we want fair trade, not intellectual property theft and espionage.”

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