British Intelligence Agencies Urge Reassessing China Relationship

April 15, 2020 Updated: April 16, 2020

News Analysis

Britain’s intelligence agencies called for restrictions on Chinese takeovers of UK tech firms.

The Express reported that MI6 foreign intelligence service and its domestic counterpart, MI5, urged the UK to “reassess its relationship with China,” to include tighter controls on Beijing’s dealings with British high-tech and other strategic industries.

British lawmakers expressed concern that the Chinese regime is exploiting the global crisis triggered by the CCP (Chinese Communist Party) virus pandemic by taking control of companies, such as UK chipmaker Imagination Technologies.

“What we think is going on is the Chinese are trying to export the technology base from here to China and that’s inappropriate,” David Davis, a lawmaker from Prime Minister Boris Johnson’s Conservative Party, told Reuters on April 14.

Imagination Technologies, a supplier of semiconductor intellectual property, was acquired for $742.5 million in 2017 by U.S.-based private equity firm Canyon Bridge Capital Partners, led by former Oracle executive Ray Bingham.

Canyon Bridge is in turn backed by Chinese state-owned China Reform Holdings.

China Reform had attempted to take control of Imagination’s board by appointing members who would support them.

A board meeting that was scheduled last Tuesday was delayed after the British government intervened, Reuters reported.

Imagination announced on April 10 that its chief executive officer, Ron Black, had stepped down and would be replaced by Ray Bingham.

Black tendered his resignation a few days earlier with a letter stating that he resigned after assurances that China Reform would remain a passive limited partner. However, it had “proven not to be the case,” and China Reform was now attempting to “assert its control” in a boardroom coup by appointing four of the seven board members.

Black stated that the takeover was an effort to undermine Imagination’s neutrality in the Sino-U.S. tech war confrontation to favor China’s 5G leader Huawei.

He added that the tactic would undermine the UK firm “perhaps fatally” and suggested that the Chinese might move the company and its 600 jobs to China.

After the contents of Black’s resignation letter were leaked to the Financial Times, UK culture minister Oliver Dowden wrote to Bingham to demand more information on the developments, resulting in the cancellation of Imagination’s board meeting.

Davis said the British government should ensure that Imagination’s technology base does not transfer to China, and should even look for a Western buyer for the company, according to Reuters.

Imagination Technologies is located in England’s “Oxford-Cambridge Arc.” The Arc, which runs between Oxford and Cambridge universities, has become England’s high-tech economic heartland with 23 science parks and innovation districts.

The Arc is known for its global expertise in life sciences, healthcare, space, satellites, energy, big data, artificial intelligence, advanced engineering, electronics, sensors, environment, and digital media.

In 2017, Canyon Bridge tried to buy U.S. chip-maker Lattice Semiconductor for $1.3 billion before it signed the deal with Imagination. The Trump administration’s Committee on Foreign Investment in the United States (CFIUS) blocked the buyout of the field-programmable gate array maker on national security grounds.

CFIUS highlighted that Portland-based Lattice had been a major producer of semi-conductor chips for the U.S. military. It stated that Canyon Bridge “shall take all steps necessary to fully and permanently abandon the proposed transaction.”

To further protect British technology, MI6 and MI5 suggested the UK to reduce Chinese student access to research at its universities. In 2019, around 32 percent, or 86,485, of first-year non-UK students were international students from China.

A government source told The Express that the British intelligence services are emphasizing that the UK must ensure diversity of supply for “6G and 7G,” and to protect highly important UK “crown jewel” industries of technology, research, and innovation.