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LONDON — British firms are being asked about their investments in a swathe of “sensitive” Chinese sectors as the U.K. seeks to move closer to Joe Biden’s own clampdown on trade with China.
After Biden slapped fresh national security curbs on investment by U.S. firms in key Chinese tech sectors, Britain is mulling its own restrictions.
But the still-embryonic national security move — teased in a survey to British companies obtained by POLITICO — has already sparked fears the government could cast the net too widely. And there are jitters about the impact on the country’s prized microchips sector.
The survey was sent to a broad range of British companies in late July. It is, according to the document, “designed to build a collective understanding” of investment flows “in sensitive sectors.”
British firms are asked if they have invested in a list of 17 areas — covering everything from advanced materials and robotics to synthetic biology.
Also included are transport, energy and civilian nuclear infrastructure, communications, cryptography and more.
China is not the only country mentioned, with the government seeking to learn about investment in countries ranging from Australia and Bermuda to Canada, Hong Kong, Mexico and the U.S. itself.
But the government fact-finding exercise makes clear it is taking “a first step” to understanding U.K. business investment in the country’s strategic rivals.
And the move comes hard on the heels of a promise to “more closely align” with the U.S. on policies to prevent the transfer of so-called “dual-use technology,” which has both civilian and military applications, to China.
In the latest step in an escalating trade war with Beijing, U.S. President Joe Biden last week issued an executive order to block and regulate investments by U.S. firms in a narrow set of Chinese tech sectors.
British Prime Minister Rishi Sunak — who faces pressure from some of his own Conservative backbenchers to get tough with China — will have to weigh the impact of any subsequent British curbs on his plan to boost the economy.
U.K. Business and Trade Secretary Kemi Badenoch’s department says the survey will advise how Britain “can best calibrate” any action it takes “to respond effectively” to national security risks posed by outward direct investment (ODI).
Department for Business and Trade (DBT) officials have told companies that — like the Biden administration — the U.K. will curb investment into China’s semiconductor, artificial intelligence and quantum computing technology, a business representative briefed on the plans said. They were granted anonymity to speak about sensitive topics.
But the move could hit firms like Arm, Britain’s semiconductor “crown jewel” which licenses its chip design to Chinese manufacturers, the business rep warned.
New rules on investment “will force hard choices on international businesses, particularly those leveraged in the Chinese market,” said Ross Nugent, senior associate at consultancy Global Counsel’s trade policy practice.
“The British government’s approach to outbound investment screening is embryonic but the direction of travel is clear — the line between national security and trade policy is getting finer and finer.”
Some see restrictions as a necessity at a time of fierce geopolitical rivalry.
Keith Krach, chair of the Krach Institute for Tech Diplomacy at Purdue University and former U.S. under secretary of state for economic growth in the Trump administration, said continuing to provide the Chinese Communist Party (CCP) “and other countries of concern access to the most advanced technology — and delaying the restrictions — will not only compromise [the] U.K.’s national security but undermine its private sector.”
There is ample evidence the CCP “is weaponizing high-tech to boost its global supremacy ambitions,” he warned.
The U.K. government’s effort to chart the flow of outbound investment is “not a precursor to legislation,” states an email accompanying the 16-question multiple choice survey. Getting potential measures right is “essential,” it acknowledges, but the document warns that the U.K. “must strengthen our economic security as a priority.”
The survey “looks like a kind of embryonic form of a new, very difficult export control mechanism,” the same business representative quoted above said.
Businesses are already feeling bruised by Britain’s 2021 National Security and Investment Act (NSIA) — a previous piece of legislation aimed at boosting the country’s investment screening powers on national security grounds. A separate foreign influence law was significantly tweaked after a business backlash.
After those experiences, the same person quoted above said, there is now “trepidation” among some British firms that the government could cast the net too wide.
The U.K. has “a bit of a track record” of broad policies that are “extremely badly targeted and cause a huge amount of grief for industry,” they said. “It’s getting people quite nervous.”
‘Countries of concern’
U.S. President Biden’s own outbound investment screening plans will block specific transactions into China for firms dealing in technologies that are seen as posing a potential national security threat.
The administration aims to implement its new system — requiring U.S. firms and individuals to notify the government about certain transactions — by July 2024.
A U.S.-U.K. “Atlantic Declaration,” signed by Sunak on a visit to Washington in early June, committed the U.K. to “develop an evidence base” for national security risks in investment flowing from the U.K. to “countries of concern.”
Sunak’s regime will likely differ from Biden’s, said Dan Lund, a partner in legal firm Dentons’ international trade group and an expert in national security and foreign investment.
“If the U.K. proceeds, then it is unlikely to mirror exactly the technologies that the U.S. is targeting,” he said, “because what will be a national security concern in terms of emerging technologies will be different” to reflect Britain’s supply chain risks.
The sectors outlined in the British government survey mirror the U.K.’s existing inbound investment screening regime set up by the NSIA. But Lund said he could “see the U.K. targeting a much broader set of technologies over time” that is jurisdiction-agnostic and doesn’t pick on specific countries.
A regime screening outward investment could, Lund said, be set up by amending the 2021 NSIA. “That will be the neatest way to do it,” Lund explained, adding “it would be relatively straightforward for [the government] to make those changes.”
Although there are “similarities in what’s being proposed in the survey to the existing [NSIA] regime,” said Robert Gardener, director of government affairs at global legal firm Hogan Lovells, a new, separate piece of legislation may still be needed.
The U.K.’s efforts to get a grip on the flow of investment “strikes me as a very sensible and proportionate starting point,” he said, although he highlighted a key policy tension facing Sunak.
While there is “a political expediency” in aligning with the U.S., Gardener added, ministers also want to help the U.K. “achieve its aspiration to be a tech superpower” and foster domestic investment.
British firms are “not sitting here thinking we can stop everything, or think things are going to go back to the way they were,” said the business representative quoted at the top of this story. Firms are not, they said, “panicking, but approaching it with extreme trepidation.”
Sunak and Biden “have rightly put our economic security at the forefront of U.K.-U.S. cooperation,” said a U.K. government spokesperson. Officials are, they said, considering Biden’s measures “closely.”
Additional reporting by Tom Bristow and Joseph Bambridge.