British government is consulting business before responding to Washington’s new restrictions on US capital
Rishi Sunak is weighing whether to follow US president Joe Biden in restricting outbound investment into the Chinese tech sector, including artificial intelligence, chips and quantum computing.
Biden announced the new security regime on Wednesday but the UK prime minister has been more circumspect. His government is consulting business and the financial sector before deciding whether to follow suit.
Sunak promised Biden during a visit to the White House in June that Britain would “respond effectively” to the risk that British capital and expertise could help rival countries develop a military or intelligence threat.
On Wednesday the White House announced an executive order that placed targeted restrictions on US investment into the Chinese tech sector, paving the way for them to come into force next year.
Washington is waiting to see if the UK and other allies will back the new US approach.
The British government said: “This executive order on outward investment gives important clarity on the US approach. The UK will consider these new measures closely as we continue to assess potential national security risks attached to some investments.”
Sunak’s general approach to China is rooted in a hard-headed desire to do business with the Asian superpower wherever possible, except when national security issues are at stake.
In April James Cleverly, UK foreign secretary, faced down China hawks in the governing Conservative party with a set-piece policy speech calling for a “robust and constructive” new bilateral relationship with Beijing.
In May Sunak sent Britain’s investment minister, Lord Dominic Johnson, to Hong Kong — the first senior British official to visit the former UK colony in five years and the first since China imposed a national security law.
The Atlantic Declaration said the UK would “swiftly” engage with businesses and the financial services sector to “develop an evidence base to assess and inform how the UK can best calibrate its actions to respond effectively to these risks and meet our shared objective”.
But the declaration made clear that the US and UK might move at different speeds, referring to their “own respective timelines”. A UK general election looms next year, so time is short for Sunak to act.
The UK government said it would also update its export control regime to tackle sensitive technology transfers, but with the important caveat: “We remain an open and outward-looking economy.”
China is the UK’s fourth-largest trading partner but is a much less significant destination for UK foreign investment, according to figures released by the UK’s Office for National Statistics in July.
The stock of foreign direct investment from the UK into China stood at £10.7bn, or 0.6 per cent of the global total, in 2021, according to the most recent figures published by the ONS this year. Financial services accounted for almost a quarter of the total, more than any other sector.
The China investments accounted for earnings of £1.2bn in 2021, according to the ONS data.
Hong Kong, ever more closely aligned with Beijing, was one of the most heavily invested jurisdictions, with a stock of £77.6bn of UK investment recorded.
By contrast, mainland China ranked outside the top 20 jurisdictions based on total UK investment, ranking below the likes of India, Australia and Switzerland as well as a host of EU countries.
More than half of British companies surveyed were taking a “wait-and-see approach” to making new investments in China, according to a report published in May by the British Chamber of Commerce in China.