New guidelines on foreign investment for tech businesses

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Despite the uncertainty caused by Covid-19 and Brexit, or maybe in some respects because of it, this week the government resumed its drive to tighten rules on foreign investment in a variety of industries considered vital to the infrastructure and security of the UK.

The long anticipated publication of the National Security and Investment Bill yesterday did not go unnoticed, but it did not draw the publicity that one might expect in more common times, either. Described as a “radical” overhaul of “far-reaching” changes, the bill represents a drastic change in the policy of British industrial involvement.

A fair and understandable desire to protect strategic industries, valuable intellectual property and vital national infrastructure is at its heart from falling into the hands of what Business Minister Alok Sharma called “hostile actors.” yesterday. While the legislation was carefully designed to be country-neutral, China is at the forefront of this thought, there is no doubt.

Rebellious Conservative backbenchers led by Iain Duncan Smith managed to force a partial U-turn on the contentious position of Huawei in the UK 5G network earlier this year. While Huawei denies that it has ever been ordered to spy on behalf of the Chinese state, by 2027 the company will be excluded from the 5G networks of the United Kingdom, with no new Huawei equipment authorized to be bought after the end of that year.

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Since then, the former Conservative leader has also called for all Chinese investment in the UK to be formally reviewed. In doing so, he highlighted the case of BPL Group, the leading blood plasma supplier in the UK, which has been owned since 2016 by the Chinese investment company Creat.

Meanwhile, after the state-owned conglomerate named a chief executive with close ties to the Chinese Communist Party and the country’s military nuclear program, China General Nuclear’s involvement in the Hinkley Point C power plant has come under fire.

Leaving aside the issue of whether it makes sense to create a hostile atmosphere for one of the world’s leading foreign direct investment providers, investors from all countries would be subject to the new NSI rule, and that is what some business lobbyists are worried about. They argue that now is not the time to build either the illusion or the fact that the UK has become a tougher place to do business, with an economy crippled by the pandemic and facing more challenges from Brexit.

“This could mean costly delays for M&A activity in the U.K. and add pressure to the challenging post-Brexit outlook next year,” says Cornelia Andersson of Refinitiv, a financial data specialist.

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Yesterday, Mr. Sharma was at pains to walk the tightrope between being open to investment but not manipulating it, noting that the United Kingdom “remains one of the most attractive investment destinations in the world.” The new regulatory regime will be “targeted and proportionate,” claiming that without any interference, most transactions will be managed.

“This law will mean we can continue to welcome job-creating investment to our shores, while excluding those that could threaten the safety of the British people,” said Sharma.

Since 2002, only 12 UK government actions have taken place in relation to national security issues. The grounds for action is limited to matters of national security, financial stability and media plurality under the original Enterprise Act 2002. Public health emergencies were added to the list in June of this year.

The new bill needs businesses to obtain approval from a new Investment Security Division, which is located in the Department of Business, Energy and Industrial Strategy, for all future transactions, including acquisitions, asset sales and intellectual property agreements (BEIS). It would include corporations and enterprises of all sizes, unlike in the past, not just those at the greater end of the spectrum.

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