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CHINA
Cross-government scrutiny of foreign investment
- Under the Enterprise Act 2002, the (then) Department for Business, Energy and Industry Strategy (BEIS) was responsible for intervening in mergers and takeovers on national security grounds. However, in 2013, this Committee found that there was a lack of effective scrutiny when Huawei's entry into the UK’s telecommunications CNI was under consideration in the early 2000s, and we recommended that security concerns must be factored into any decision on foreign investment in the UK's CNI.[1]
- In 2016, the Investment Security Group (ISG) was established in the Cabinet Office to formalise consideration of foreign investment in CNI. The DNSA told us that "really, what that [establishment of the ISG] did was provide more resourcing" and a request "that BEIS review the legislative powers that underpin the work in this area which has of course since resulted in the National Security and Investment Bill". In 2019, the process was once again reviewed—the DNSA told us in October 2020 that this was because the caseload was increasing. The result of the review was that:
the numbers of people across Whitehall … doubled … to deal with the case workload that we were looking at, focused very much on upskilling departments to understand their sectors and have better insights and a larger unit for processing the casework.[2]
- The ISG was tasked with assessing the national security implications of foreign investment, and ensuring that Ministers and officials were provided with timely, comprehensive and balanced advice when taking decisions on such investment. Chaired by the DNSA (Intelligence, Security and Resilience), and supported by the Cabinet Office, the ISG comprised Director General- and Director-level representatives from across Whitehall.
- China represented the single largest country of origin for ISG investigations. However, it became apparent during this Inquiry that the ISG looked at cases individually, rather than examining linked investments and overall impact across the sector. When we questioned why, we were told that the overall security of the sector and China’s involvement in it "is very much a BEIS policy lead" and that BEIS is accountable for it.[3] It therefore appears that, as a matter of policy, BEIS considered that foreign investment in the Civil Nuclear sector did not need to be looked at in the round, and the ISG simply followed that direction. This is clearly absurd: we question how any department can consider that a foreign country single-handedly running our nuclear power stations should not give pause for thought.
- This concern was reinforced when, less than six weeks later, we were told that BEIS's lack of security expertise, capabilities and infrastructure was such that the Investment Security Unit (ISU) (the new unit set to take over the work of the ISG following the passage of the National Security Investment Act 2021) had to be "incubated" in the Cabinet Office because the Cabinet Office could "do that kind of intelligence component"—implying that BEIS couldn't.[4]
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