National Security and Investment Bill (First sitting)

(Limited Text - Ministerial Extracts only)

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[The Chair]

Before we begin, I have a few preliminary points to make. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. Members can sit in any seat marked with a “please sit here” sign. That includes the side tables and the Public Gallery, although Hansard colleagues have priority on the side tables. Members sitting in the Public Gallery should stand by the microphone to my right.

We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and then a motion to allow us to deliberate in private on our questions, before the oral evidence sessions. In view of the limited time available, I hope we can take these matters without too much debate. I call the Minister to move the programme motion agreed to yesterday by the Programming Sub-Committee.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)]

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 9.25am on Tuesday 24 November) meet—

(a) at 2.00 pm on Tuesday 24 November;

(b) at 11.30 am and 2.00 pm on Thursday 26 November;

(c) at 9.25 am and 2.00 pm on Tuesday 1 December;

(d) at 11.30 am and 2.00 pm on Thursday 3 December;

(e) at 11.30 am and 2.00 pm on Thursday 8 December;

(f) at 11.30 am and 2.00 pm on Thursday 10 December;

(g) at 9.25 am on Tuesday 15 December;

(2) the Committee shall hear oral evidence in accordance with the following Table:

TABLE

[The Chair]

Copies of the written evidence that the Committee receives will be made available in the Committee Room. We will now sit in private to discuss lines of questioning.

--- Later in debate ---

[Chi Onwurah]

Q I think you addressed the core of my question. I really like your phrase “defence of technology”, rather than the technology of defence, because the question was around how you distinguish in the industrial strategy between specific security concerns and the development of technologies that give us capability in those sectors. Can we identify at what point that becomes a national security concern?

Charles Parton: That is sort of way outside my technical expertise, but I would certainly say that one major criticism I have of the Bill is that you have to set up the right structure to be able to do that. I am not sure that the Bill’s putting everything in the hands of the Department for Business, Energy and Industrial Strategy and its Secretary of State is the right answer.

Let us take Huawei and the debate we had over the last couple of years, as well as the various flip-flops that have gone on. One might add flaps, as well as flip-flops, actually. There has been a big a division between the so-called economic and security Ministries. It is right that both have a say in the decision. Economic interests are very much at stake, but so are security interests. If you put everything into the hands of BEIS, which probably does not have the expertise on China—certainly not in the defence, security and surveillance realms, although not unnaturally, since its job is to encourage investment—you will perhaps find that the security and repression elements are not given sufficient weight, and more to the point, the perception will be that they are not given sufficient weight. We might therefore go back to this sort of business with Huawei, where there is a fight back and another fight back and so on.

What we actually need is an organisation that is made up of people on all sides of the debate and that has some real experts who actually understand what the technology means. One specific example I came across a year or so ago was a very interesting computer game. Fine. What is wrong with that? Well, I understand that it was then bought up by the Chinese and used to train fighter pilots. You cannot defend against everything, but you at least need some unbiased experts—a sort of, if I can use the words, Scientific Advisory Group for Emergencies—who would be there to advise, and then decisions would actually be accepted by all sides, not questioned.

On occasion, I am sure that questions would be put up to the National Security Council and the Prime Minister for decision if they were really important. However, the issue is often about very small companies with some very interesting technologies that have not been established. The Chinese are extremely efficient at hoovering around, finding them and buying them up early. I am not convinced that the structure and decision making of the whole process are right.

[Nadhim Zahawi]

Q Good morning, Mr Parton, it is great to see you. Without going further on your last point, I want to reassure you that the Bill is designed to deliver a quasi-judicial role for the Secretary of State for Business, Energy and Industrial Strategy. The team’s infrastructure will be pulling in all parts of Government expertise. My question is this: how do you think the current challenge of covid has exposed national security threats through investment? What are you seeing? How do you see the behaviour of malign actors anywhere in the world at a time of covid?

Charles Parton: I think what covid has done is expose the nature of the Chinese Communist party, in answer to your question. I hope that it has brought home to people the nature of the beast. Looking at what happened, China did not do so well to start with, and its people were pretty upset with it. China then used its external propaganda machine to right its domestic problem, pushing forward the line, “Look how badly the foreigners have done, and look how well we are helping the foreigners out of the mess,” while hiding the fact that it had allowed the virus to propagate so fast in the first place. To many people in democracies, that brought home the fact that the Communist party of China is prepared to use that against us.

Where the Chinese Communist party was unhappy with how countries were acting, it started to put them under pressure and made threats about the delivery of personal protective equipment or whatever. Australia is really taking it in the neck at the moment because it had the temerity to ask—perfectly reasonably—for an investigation of the origins of the virus, which is essential for scientific and preventive purposes. Look at the political pressure on Australia. There is absolutely no doubt that where the Communist party sees an opportunity to use whatever is going on at the moment, it will do so.

The question that I have continuously asked is this: to what degree is investment threatened by a country such as the UK, Australia or Canada standing up for its own interest? We are not actually attacking China, but we are saying, “Sorry, but we have our own interests and our own security. You wouldn’t allow the equivalent in your country, possibly rightly, and we are not allowing it here because we are defending our security, in this case.” To what degree is the tool of depriving someone of investment a real threat? I have urged in a number of papers that the Government look at that in dispassionate terms. The China-Britain Business Council recently put out a paper, but I would not describe it as dispassionate. That is for the Government to do. My own feeling is that the likely conclusion is that, on the whole, the threats are pretty hollow. Chinese investment is not done for charitable reasons.

Since 2017—the high point was 2016—China has cut back on investment. Beijing was getting pretty annoyed at the way money was seeping out not in line with its policies, but investment is now more tightly controlled and aimed at the acquisition of science and technology. To what degree are we vulnerable? This is not charity. Money is very cheap at the moment; it can be got at negative interest rates. It is not as though China is the sole source of money. It invests because it wants technology. Surely we have to look at that carefully and ask where is the mutual benefit. If it is mutually beneficial, fantastic, let us go ahead. Let us not be too brow-beaten by this thing—that if you do not do x or y, or if you do not take Huawei, we will hit your investment. I think, in practice, if you look at that and then look at some of the other threats that China has made over the years, including to your exports, all those have grown for all countries, although they had been in the diplomatic doghouse historically—certainly in the past; we will see about the future—but I think it is greatly exaggerated.

[Nadhim Zahawi]

I am grateful to you, Mr Parton. I do not want to hog the floor, as I am sure many colleagues want to ask questions. Thank you very much.

[Stephen Kinnock (Aberavon) (Lab)]

Q It is a pleasure to serve under your chairmanship, Mr Twigg. I do not know whether you can see me, Charlie, but I am here. I am sitting at the back due to social distancing, but it is good to see you.

Going back to your point about resourcing the investment security unit, can you give a bit more detail about what would be an ideal outcome from your point of view? Would it be that we need specificity in the Bill that key representatives and experts of the intelligence services, of the Ministry of Defence, of the diplomatic corps and of other agencies be formally named in the legislation, so we would have that reassurance that the body doing the screening had all the necessary breadth across the spectrum of both the economy and national security?

Charles Parton: That is a good question; it is not necessarily for me and I do not necessarily have the experience to lay down precisely how it works. For me, I think, first, that all those organisations you have mentioned—although others also on the economic side, such as the Treasury and BEIS—perhaps should be there to set the parameters of what needs to be referred. I think that, as a sort of preliminary filter, one would hope that there was an ability for most companies, and most universities as well, very quickly to put forward the deals or the pieces of work that they felt might be coming up against the parameters set by such a Government body.

For a quick decision, is the topic one that is suitable, or does it need a little more investigation? Should we be working with this organisation, or in some cases this particular Chinese academic or company, which may have links to the military or to the repressive regime? The experts, as it were, which means the SAGE-type committee, surely should be very quickly—companies and academics need to move quite quickly—making a preliminary estimation of whether this needs to be referred upwards to a Government Committee that wants to look at it in more detail.

I do agree with you that the range of interests needs to be representative if the decision is to be perceived by all sides as acceptable when it is eventually made.

--- Later in debate ---

[Chi Onwurah]

Q Absolutely. I appreciate the response and I would like details of the Soviet case of the military-industrial complex that was dismantled, which you mentioned. That would be interesting to compare.

You have talked about the relationship between the military-industrial complex, in the case of Russia, and economic development, specifically in the case of China. We have essential industries that are critical to our economy and there has been concern that BEIS is going to be overseeing the security implications. Where we have industries and technologies that are critical for national security, they are also critical for our economic security, so our national and economic security end up being linked. You have talked about some of those links in the case of Russia and China. How can we reflect those links effectively in the Bill? Do we need structures within BEIS, or outside BEIS, to identify and reflect the overlap between economic and national security?

Sir Richard Dearlove: This is a really difficult question. I am expressing the problem, not the solutions. You have to bear in mind that I spent my life as a poacher, not a gamekeeper, so my view of these problems is mirror imaging. I was an offensive intelligence officer, not a defensive one. I spent my life trying to penetrate Chinese intelligence, if you see what I mean.

The problem is much bigger than just national security; that is one of the difficulties. It leaches into the whole future of our economic competition with China. I do not like to talk about it, but some people use the phrase “a new cold war”. I do not subscribe to that. We have to find some other way of talking about this. They are very serious competitors who are beginning to edge along the path of enmity in the way they treat us on some issues—witness Hong Kong at the moment—so you have to have some sort of flexible scrutiny arrangement.

The reason this is so difficult to comprehend is that areas like climate change and energy policy, which are national security issues but not right on the frontline, are so big that, I think, China has a pretty disturbing agenda for us. They will encourage us to follow policies that they think are disadvantageous to our economy.

If you take their statements on things like climate change, which is relevant to what we are talking about, China is going to go on increasing its carbon emissions up until 2030, if we look at the figures and understand its policies. China is going to completely miss out renewables. When it has generated enough wealth and success in its economy, it is going to jump from carbon energy straight to nuclear and hydrogen. It will have the wealth and the means to do that. Renewables for the Chinese are going to be rather peripheral, because they will not generate the energy intensity that the Chinese economy requires. China has a road map in its head that is really rather different from ours and there is no question but that, competitively, our green agenda is going to put us at an even greater disadvantage to China, if you take a 30-year view of that.

There are some very worrying aspects of this. That means that if we are gaily allowing the Chinese to walk off with all sorts of bits of our economy, we are going to pay possibly a pretty high price for that over a long period. We need to take a strategic view of this. China certainly has a strategy, and at the moment we do not really have a strategy. We are beginning to realise that we have to have one, and maybe this Bill is a healthy first step in that direction.

You will need sub-committees of some sort, with flexible thinking and experts to advise on where these problems lie. The difficulty is also that we do not want to ruin our economic relationship completely with China. We still need to partner with it in areas that are advantageous to us and our economy as well.

[Nadhim Zahawi]

Q The Bill provides for an annual report to Parliament, Sir Richard. What is your view on balancing transparency and ensuring Government can take national security decisions sensitively? Where does that balance lie in terms of our ability to be as transparent as we can without harming sensitivities around these decisions?

Sir Richard Dearlove: My view would be that the annual report has as much transparency as possible, but you are probably going to require a secret annexe from time to time. It is a bit like the reports of the Intelligence and Security Committee, which I dealt with frequently as chief. They and we were keen that they should publish their reports, but there comes a point where it is not in our national interest that some of this stuff is put in the public domain. I would be pretty clear cut on that.

[The Chair]

I call Peter Grant, who will be behind you, Sir Richard, because of the social distancing rules we have in Committees.