China and Russia should be barred from investing in the UK defence supply chain, MPs have warned, as pressure mounts for the government to take a more assertive stance on potential threats posed by Beijing and Moscow in the forthcoming defence and foreign policy review.
The warning follows a parliamentary inquiry into foreign involvement in the UK defence supply chain that concluded tougher measures were needed to protect companies from hostile foreign ownership. This was particularly urgent in the aftermath of the Covid-19 pandemic which had weakened many small and medium sized businesses, potentially making them vulnerable to takeover, the inquiry’s findings stated.
“Investment in the defence supply chain from all countries that fall outside of an approved list, including Russia and China, must be barred,” said Richard Drax, conservative MP and chair of the House of Commons defence subcommittee. “No British company should be left with the choice of either going under or accepting hostile foreign investment.”
The MPs criticised the Ministry of Defence’s stated “agnostic” approach to foreign ownership.
Separately, several China-sceptic Tory MPs are lobbying the government to clarify its policy towards China in the long-delayed integrated defence and foreign policy review, which is due in early March.
Beijing’s imposition of a new security law in Hong Kong, and mounting evidence of human rights abuses against Uighur Muslims in Xinjiang, have increased concerns about whether Britain should be deepening trade ties with China.
The parliamentary inquiry noted that over the past decade six UK companies listing defence as a key business area had been acquired by Chinese investors. One company, eXception PCB, produced plastic components used in circuit boards for the F-35 fighter jet.
“The Ministry of Defence should urgently assess the implications of Chinese ownership of the companies listed within this report,” the MPs said.
Jeremy Quin, minister for defence procurement, told MPs that the MoD was already working through an extensive supply chain resilience and risk programme.
The report also criticised the MoD’s purchase of second-hand equipment from China, such as used 737 aircraft that will be converted into E-7 Wedgetail jets for the UK’s airborne early warning system.
Security officials insist privately that they are “clear-eyed” about the risks posed by Chinese military expansion and industrial espionage. But the government is wary of making its concerns explicit.
Ben Wallace, defence secretary, has hit back against expectations that the integrated review will name China as a geopolitical and strategic threat to the UK. “If you want a declaration by the government of who our enemies are, I am not sure even the [integrated review] will be specifically tailor-making a long list of the bad, the good and the neutral guys,” he told the defence committee in November.
Commenting on the report Sam Armstrong, compiler of the Henry Jackson Society’s Chinese-investment database, said that with components as sensitive as circuit boards, aircraft components, and underwater robotics, “even one security flaw could cost lives”.
“The committee is right to say that the government’s current simplistic and formulaic approach that treats investment from China in the same way as investment from the US needs to end,” he said. “We cannot allow the UK’s business-friendly system to be transformed into the soft underbelly of our security approach.”
MPs welcomed proposed legislation to give the government greater powers over foreign direct investment through the National Security and Investment Bill. This would bring the UK into line with allies and other countries. However clarity was needed on which countries would be acceptable investors, the report stressed.