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Government deepens probe into Chinese takeover of UK tech firms

Business secretary, Kwasi Kwarteng, has ordered the next stage of a review into a proposed Chinese takeover of a group of UK tech firms, citing national security concerns.

The step would allow the secretary of state to block the proposed sale if it is found to threaten British interests.

Last September, the proposed sale of Perpetuus Group to a group led by Chinese company Shanghai Kington Technologies was blocked by Mr Kwarteng.

Perpetuus Group is a collection of UK companies, some of which have developed new intellectual property involving modern engineering super material graphene. These technologies have “strategic applications” , according to a statement issued by the department for Business, Energy and Industrial Strategy on Wednesday.

Mr Kwarteng said of the next steps in the probe: “The UK remains firmly open for business, however we have been clear that foreign investment must not threaten our national security.

“I have considered the evidence presented to me and asked the Competition and Markets Authority to undertake an in-depth investigation so we can fully consider the implications of this transaction,” the business secretary added.

The intervention uses powers under the 2002 Enterprise Act, because the government intervened before its newer legislation, the National Security and Investment Act, came into force this year.

Perpetuus’ website outlines a range of applications for its nanomaterials – constructed from tiny particles which can help to shrink the scale of electronic circuitry or improve its performance.

Graphene, one of these materials, is a key branch of Perpetuus’ specialisms in sensitive technologies. It is used to create coatings and components which are much stronger or aerodynamic than those using other comparable materials. Its applications are manifold in innovative engineering from vehicles, to aircraft.

The transaction is considered to be much more sensitive than the proposed takeover of semiconductor maker Newport Wafer Fab, according to senior government sources. This is because Perpetuus’ technologies involve more sensitive and novel intellectual property.

The sale of Newport Wafer Fab last year to Nexperia, a Dutch company owned by China’s Wingtech for £63m is also under review. This was confirmed by a statement from business minister Lord Callanan, on 7 April, but it came after a prolonged debate among senior government figures over the deal.

There are deep cabinet divides over the role of Chinese investment in the UK and the threats it may pose to national security. Foreign secretary Liz Truss and Mr Kwarteng are understood to be keen to reduce dependence on China within sensitive supply chains.

Other figures, including the prime minister Boris Johnson and chancellor Rishi Sunak, have expressed concerns that national security fears must not override the need to remain an attractive investment destination for the world’s second largest economy.

Perpetuus and Newport Wafer Fab, the former whose activities include creating conductive coatings for electronics and the latter which makes silicon wafers, are both case studies which will inform the government’s semiconductor strategy. This is expected to be published this month by the Department for Culture, Media, and Sport, according to Whitehall sources.

The review into the potential sale of Perpetuus is expected to last 24 weeks, but this could be extended if officials consider more time is needed for their investigations.

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