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Politics

UK puts foreign investment under microscope to prevent tech leaks

Cooling attitudes on China inspire tougher restrictions on acquisitions

A Chinese flag hangs in London. The U.K. has tightened its reviews of acquisitions by foreign investors.   © Reuters

LONDON -- The U.K. has increased oversight over inbound foreign acquisitions in the country's first major update to its screening process in two decades, responding to concerns that sensitive technologies could leak to China and other countries.

The National Security and Investment Act, which became law on Thursday, requires advanced notice for foreign acquisitions in 17 fields including artificial intelligence, quantum technologies, communications, defense and energy. The government can block any deals deemed to pose a national security risk.

Companies that fail to notify the government in advance will be fined 5% of their global revenue or 10 million pounds ($13.8 million), whichever is larger. The government is expected to assess potential deals within 30 working days.

The move comes amid growing concerns about technologies with national security implications leaking abroad, particularly to China.

For years, the U.K. enjoyed what some called a "golden era" of relations with China that focused primarily on economic interests. But that has changed. A group of Conservative lawmakers formed the China Research Group in April 2020, providing momentum to more hard-line views on Beijing.

In July of that year, the U.K. decided to ban equipment produced by China's Huawei Technologies from its ultrafast 5G wireless networks. The National Security and Investment Act was submitted to parliament in November.

China possesses significantly more advanced technology than the U.K., and Britain as a democracy cannot entrust its security to the country, a Conservative lawmaker said.

Telecom companies that fail to keep Huawei Technologies out of their 5G networks would face fines of up to 10% of sales under a bill before the U.K. Parliament.    © Reuters

China has made marked advancements in 5G, AI and other critical fields in recent years. There is concern that Chinese companies could siphon technology from businesses in the U.K. that they acquire, and eventually pose a threat to British national security. China's long-running tensions with the U.S. have further driven the U.K. to reevaluate its relations with the Asian power.

A separate Communications Security Bill, which would fine telecommunications providers up to a tenth of their revenue for using Huawei equipment, is being discussed in parliament as well.

But London's scrutiny of foreign investment goes beyond the new security legislation.

The government said last week it will conduct a national security screening of the planned acquisition of British chip design house Arm by American chipmaker Nvidia. The Competition and Markets Authority is already reviewing the sale's potential impact on competition.

The move adds to the hurdles faced by the deal reached last September by Nvidia and SoftBank Group, the Japanese parent of Arm.

"We want to support our thriving U.K. tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this," said Digital Secretary Oliver Dowden.

After leaving the European Union last year, the U.K. is setting out its own strategy for growth. London in November established the new Office for Investment as part of its efforts to attract capital in such areas as technology and renewable energy.

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