A growing cabinet split has developed over China’s role in the UK electric car supply chain as the government wrestles over how to handle economic ties to the superpower, The Independent can reveal.
Senior Conservatives fear the UK is “falling into a trap” by handing over sensitive aspects of its “green industrial revolution” to a regime that threatens British security.
MPs who have sought to raise these concerns have found they are increasingly isolated, with the prime minister suggesting such fears are overblown, according to those familiar with the discussions.
Boris Johnson’s position has become increasingly relaxed on Chinese investment in recent months, with some suggesting this is partly due to the influence of his senior adviser, Dan Rosenfield.
A senior government source said that while doing business with China was essential, some areas are just too sensitive to allow for trade or investment with the world’s second-largest economy.
They cited the recent purchase of semi-conductor company Newport Wafer Fab – who produce technology for use in electric vehicles – as a “textbook example” of where Chinese involvement in the UK economy is “unacceptable”.
Ministers are also reviewing the involvement of China General Nuclear, a Chinese state-owned power company, in building a nuclear reactor for the Sizewell C power plant. Some MPs believe China should not have a role in national critical infrastructure.
Others, in both the party and the cabinet, believe the UK should focus on securing more foreign investment, and see commercial ties as a force for influence over China. These divides fed into disagreements among government ministers over the strength of language the UK should use to criticise China in the G7 communique.
No 10 declined to comment on claims of a split, however the Newport deal is now subject to a review by Sir Stephen Lovegrove, the prime minister’s national security adviser.
One senior Tory said: “There’s a sense that any investment is good investment – that people are somehow being hysterical if they raise worries about the risks China poses to the country – with No 10 these days.”
“This is a country we have reprimanded publicly for attacking sensitive technologies,” another Tory MP added. “How are international allies meant to take us seriously if we’re handing Beijing the keys to our green technology revolution?”
Earlier this month, the UK blamed China for attacks on Microsoft Exchange servers, with the National Cyber Security Centre (NCSC), an arm of the British security body GCHQ, describing a “pervasive pattern” of hacking by attackers sponsored by the Chinese state. The US also condemned the attacks.
The Conservatives have a history of division over how to handle economic relations with China. A 2019 investigation into a leak from a National Security Council meeting discussing Chinese telecoms company Huawei’s involvement in the UK’s 5G network led to Gavin Williamson being sacked.
Cyber attacks, allegations of genocide against Uyghur Muslims in the country’s Xinjiang region, and an increased military presence in the Taiwan Strait have all stoked Tory concerns about the ethical and security implications of Chinese investment.
Earlier this week, the former head of the NCSC, Ciaran Martin, said the £63m takeover of Newport Wafer Fab presented a bigger threat to the UK than Huawei’s involvement in 5G. The Welsh semi-conductor manufacturer has been bought by Nexperia, a Dutch subsidiary of the Chinese company Wingtech.
Critics say a global shortage of semi-conductors in the past year makes it even more imperative to secure domestic capacity for their development and manufacture. The shortage has been caused by a variety of problems, from coronavirus to droughts, and is affecting everything from the iPhone to the automotive industry.
The planned takeover of Newport Wafer Fab is not the only major Chinese interest in UK electric car production. Envision AESC, a Chinese company, jointly made the recent billion-pound investment in Nissan’s Sunderland plant in order to make electric vehicles there.
Senior Conservatives said these steps reflected other similar Chinese investments in AI computing, and represented a threat to the technological sovereignty of the UK.
One Tory compared the Newport sale to another that was decried by the technology intelligence community – when the Centre for Integrated Photonics was bought by Huawei in 2012. While small at the time, the company had extremely valuable intellectual property. Photonics, the science and technology of light, can be used in a host of applications, from lasers and optical fibres to phone cameras and screens.
Lord Peter Ricketts, crossbench peer and former national security adviser, told The Independent that Newport was a “test case” for the government’s new National Security and Investment Act, which is meant to strengthen its ability to intervene in mergers and acquisitions.
“Most of all it shows up the lack of any mechanism for western governments to coordinate their policy in Chinese investments of potential security concern. Each government seems to be making up their criteria as they go along,” he added.
Australia’s former PM Tony Abbott said on Tuesday that his country would not allow a deal like Nexperia’s takeover of Newport Wafer Fab, and that he believed the UK was now “obviously … moving in a comparable direction”.
In a speech to the Policy Exchange think tank, Mr Abbott – who serves as an external adviser to Mr Johnson’s Board of Trade – said that western countries would be “most unwise” to sell technology businesses to China.
Britain has pledged to make all new cars electric by 2030 and to hugely scale up its domestic battery production in order to do so. The US and the EU are also looking to vastly reduce their use of cars that run on fossil fuel.
At present, however, China is still set to dominate the market in lithium-ion batteries, and is likely to account for nearly 70 per cent of global production by 2029 according to Benchmark Mineral Intelligence.
China is also a leading supplier of rare earth metals. While these deposits are widely distributed around the world, the process of extracting these metals, which China has taken on at scale, is environmentally damaging.
“From raw materials and semi-conductor technologies to the production line itself, China will own the supply chain for electric cars in the UK at this rate,” one senior Tory said.
A spokesperson for the government’s business department said: “As an open economy, we welcome foreign trade and investment, including from China, where it supports UK growth and jobs – but we will not accept investments that could compromise our national security.
“The National Security Adviser is reviewing the case of Newport Wafer Fab, and we will not hesitate to take further action if needed.”
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