National Security and Investment Bill (First sitting)

Chi Onwurah Excerpts

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

[The Chair]

Thank you very much. I call first Chi Onwurah.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Q It is a pleasure to serve under your chairship in this Committee, Mr Twigg. Thank you very much for joining us, with your extensive background, Mr Parton. As you know, we have an investment screening regime under the Enterprise Act 2002 that has led to 12 interventions on national security grounds since the Act came in. Which security threats do you feel are not covered by those existing public interest powers? While we have been waiting for the Government to act on this front, are there specific instances where you think the Government should have acted but did not exercise their powers, or did not have the relevant powers to exercise?

Charles Parton: I would not profess to be an expert on individual cases, but I would like to make some general response to your excellent question. The first point to make is that the Government have not really been attending to the problem with the attention that they should, given the nature of the threat, particularly from the Chinese, although others may be relevant too. I do not think that there is the structure for actually assessing the degree of the threats; I think that 12 cases since 2002 is very few indeed, when you look worldwide at the Chinese programme for technology acquisition, both under and over the table. That in itself shows that there has been insufficient attention paid to the issue.

The delay in the Bill is also regrettable, because the threat has been fairly clear for some time. I would urge the Government, first, to research the question, which is the one you asked, of to what degree in the past have the Chinese in particular bought up technology companies, the acquisition of which was greatly against our interests? That work could and should be done.

I am an associate fellow at the Royal United Services Institute, which has a team that has been looking through technology at a number of questions, but it could quite easily divert that team to look at this question, which needs China expertise and the ability to search through a lot of open data, which it has. I am not a member of the Government, but I am not aware that the Government have done that sort of research to establish the full degree of the problem.

From the point of view of the threat—if you will excuse me, as this is the first question, for putting a little bit of context to it in terms of the China thing—it is undoubted that there is nothing wrong with investment. In fact, that is extremely good. We want as much investment and good relations with China as with everyone else, but we need to recognise that there is a values war going on. I have written an article about that, which came out in the Conservatives’ China Research Group report a week or so ago.

This is not a cold war, because China is very important to us for trade, investment and many global goods, and it is a science and technology power, but we should not underestimate the degree to which Xi Jinping and the Communist party intend, as Xi said to the first politburo meeting, to get the upper hand against western democracies. He talks about us being hostile forces and about a big struggle all the time. When you add that to his policy of civil-military fusion—using civil in the military context—and the fact that he has set up a party organisation specifically to push that forward, and the change in investment policy away from things such as property, football clubs and other things, very much towards benefitting China and its technology, we have to be a lot more careful than we have been in the past.

The first step for that is to do the research. I am not aware of a really good assessment of just how much technology has been bought, the targets and so on. Maybe the Government have one—I don’t know—but I do not think that they do.

[Chi Onwurah]

Q Thank you very much for that response. I certainly agree with you on the delay in addressing this critical issue. I appreciate your experience, particularly with China, which obviously, as you say, has made a number of technology acquisitions.

I was particularly interested in the civil-military fusion, if you like, of China’s technology ambitions. Could you say a little more about how the Chinese see nascent technologies that are indirectly critical to downstream industries that supply our national security? I am trying to understand how, if you like, we differentiate between industrial strategy and technology to ensure that we have leading defence and national security capabilities. Is there a distinction that we can make there? Do we need to do further research, as you suggest? Do the Chinese make that kind of distinction? Do we need to address some elements of our industrial capability when we consider national security?

Charles Parton: We should widen this not only to companies, but to academia, if I could come back to your question from this angle. We have the phenomenon at the moment of Chinese companies, one might say, hiring our academics, in one way or other, to do scientific research on their behalf. Some of that is probably something that our defence establishment and security establishment would be pretty upset about if they were aware of it.

It is quite difficult to distinguish some of these and to know about them all, but a few weeks ago The Daily Telegraph did a story on, I think, Oxford University and Huawei’s commissioning of research. I think there were 17 projects. I looked at those, and I am not a technologist by any means, but some of them rang certain alarm bells. If you are researching, on behalf of the Chinese, drone technology, cryptography, gaits— Gait is very important for gait recognition. We have facial recognition and voice recognition, but in circumstances where people are wearing masks or there is bad weather, gait is an absolute identifier. Again, are these bad technologies? Well, there are perfectly good civilian uses for them, no doubt, but there also military and surveillance uses. I think we need to be very clear on what our academics, as well as our companies, are doing.

To give you another example, if you go on the website of one of the top Oxford mathematician professors, he has now retired and set up a company with a base in Shenzhen. He is an absolutely top mathematician and does the most abstruse things in cryptography. Should one of our top mathematicians be helping the Chinese in cryptography? Well, there are perfectly good and innocent uses of cryptography, I presume, for things such as banking and e-commerce, and there are perfectly not good uses of it, in military and surveillance and other things. I have no idea whether that is something we should be concerned about. On the face of it, it strikes me that we should be.

I think we need to broaden the scope—forgive me if this is outside the Committee’s scope; you are only looking at the Bill—because the whole question of defence of technology needs to be looked at, in terms of whether we are strengthening a hostile foreign power, but also let us not forget the reputation of British companies and universities. If you look at what is going on in Xinjiang, for instance, with the concentration camps there—activities that quite definitely meet the definition of crimes against humanity under article 7 of the International Criminal Court’s Rome statute, or article 2 of the UN genocide convention—should our companies and universities be helping with technologies that can be used to strengthen that surveillance and that repressive regime? What is the difference between that and South African apartheid or some of the other things that we have seen in the past? Increasingly, the excuse of, “Well, we didn’t really know what was going on,” has gone, and companies and academia will have to be much more careful of their reputation. I have slightly moved away from the nub of your question. Perhaps you could just push the tiller a bit and put but me back to the centre of it again.

[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.

--- Later in debate ---

[Stephen Kinnock]

Q Thank you very much, Chair, for giving me another bite at the cherry. Mr Parton, as a final point, I thought it might be useful to remind the Committee of the symbiotic nature of the relationship between the Chinese Communist party and the Chinese business community. Based on your extensive experience in China, could you briefly outline how the Chinese Communist party in essence runs the business community; the role that it plays in ensuring executives are appointed who are sympathetic to the party; and the whole way in which the nomenklatura works? That will help us to understand the extent to which Chinese business interests in this country are, in essence, the same as the interests of the Chinese Communist party.

Charles Parton: That is a very good question.

[Chi Onwurah]

Could I just add to that? That is an excellent point, but could you also say a little bit on how China responds to proposed takeovers that might implicate its national security, if those takeovers are allowed? How does it respond to that investment into its companies?

Charles Parton: Those are both good points. First of all, divide it into the state-owned sector and the private sector. In terms of the state-owned sector, the top executives of the big state-owned companies are appointed by the central organisation department of the party. That is the organisation that is, as Mr Kinnock has said, in charge of the nomenklatura: the top 3,000 to 4,000 party officials. Of course, a lot of state-owned companies are also owned at the provincial and lower levels, and there, too, the top executives are party members and beholden to the party. Let us not forget that most foreign investment by the Chinese is state owned, so it is not just a fair bet but a fair certainty that any state-owned enterprise investing is fully politically controlled.

When it comes to the private sector, Huawei has spent a large amount of its time insisting that it is a private company—I really do not care. And I do not really care that the national security law says that any individual or organisation must help the party or security organs when called upon. The brute fact is that, in the way the system is run in China, if the party tells you to do something, the only response from private business to an order is to say, “Certainly, Sir. How high do you want me to jump?” so this debate is entirely irrelevant. The party is now pushing committees into all private enterprises—foreign and local—and it would be a very unwise head of a private company who said, “No, Mr Xi Jinping. I don’t think so.” If nothing else has been shown by what has happened with Jack Ma, China’s second-richest person, and the Ant Group finance company in the last few weeks—there are, of course, financial risk reasons they might want to control Jack Ma’s Ant Group—it is, “Sorry, you are beholden to the Communist party.” That was a very fierce reminder of it.

In terms of this debate, I do not think we should be under any illusion that if a party says to a company about its technology or whatever, “Well okay, it’s all very well that you’ve got that, but we want it fed into our People’s Liberation Army organisations and science and technology system,” no company is going to say, “Oh no, that’s not right. We won’t do that.” For instance, when Huawei says, “If we were asked to do something against our commitments, in terms of what we do abroad, that would threaten security, we would not do that,” it is rubbish. They know that.

[The Chair]

I am afraid that brings us to the end of this part of the session. Mr Parton, I thank you on behalf of the Committee for your evidence and the clear, concise answers you gave. We must now move on to the next session. If Members want to take a comfort break for a couple of minutes, I am happy to do that.

--- Later in debate ---

[The Chair]

Thank you so much for being a witness.

[Chi Onwurah]

Q Thank you very much, Sir Richard, for bringing your expertise to the Committee. The existing powers for intervening in transactions on national security grounds came in when you were chief of MI6. How have security threats evolved since then? Specifically, which security threats do you consider are not covered by existing public interest powers? It would be helpful to hear whether you think the Government have missed specific threats, or types of threat, by relying only on historical powers, and by not bringing in new legislation until now?

Sir Richard Dearlove: Wow. That is a massive question. Bear in mind that a large part of my career related to the cold war. In that period, our main concern was the Soviet Union and the members of the Warsaw Pact. It was characteristic of that period that there were heavy controls, mainly exercised through NATO structures, to prevent strategic material from leaching, as it were, into the economies of the Warsaw pact. I will not go into all the mechanisms. Historically, one does not need to worry about those now, but it was very much an issue that was at the forefront of people’s minds during that period of the cold war. Bear in mind also—I think this is important in looking at the broader context of what you are interested in—that the Soviet Union had hugely sophisticated what’s called S and T operations: science and technology. A whole line of Soviet intelligence of the KGB was devoted to obtaining strategic material that would help the Soviet economy, particularly in the military industrial complex.

This is now in the public domain: in the mid-1980s, there was a major intelligence success, which, interestingly, was conducted by the French, but in which the UK had an important role. We completely dismantled, or learned, exactly what the Soviet Union and its allies were up to on a global basis. We knew before, but we did not know the detail to that extent, and what we learned was pretty shocking. That case has not been greatly publicised, but it was probably one of the most important intelligence cases of the cold war.

With the break-up of the Soviet Union and the disintegration of the Soviet empire, particularly the economic structures that bound the Warsaw pact countries together, in the West our attitudes towards those issues changed very significantly. There was a much more laissez-faire situation and, as countries broke away from the Soviet empire, an enthusiasm to trade with them without the same degree of control.

During that period, you had the emergence of China, which was still very much a regional power but with aspirations to become a global power. To short cut, we have now transferred to China the concerns we had about the Soviet Union and its allies, but the problem with China in some respects is much more serious than the problem with the Soviet Union, although that was bad enough. Charlie Parton, who was talking to you before, is an expert on China specifically. I am not, and my view is maybe more strategic, although I had a lot to do with China when I was head of MI6.

If you look back at the emergence of China as a regional power, from the very start—when Mao was still alive and was then succeeded by Deng Xiaoping—its intelligence community focused on China’s economic growth. It was not particularly interested in what we would see as strategic or political intelligence. There is a famous passage in Kissinger’s book on China in which he is talking to Mao and Mao says to him, “We’re not interested in your politics because we have our own ideological view of the world, and I don’t really care what our intelligence service reports about what’s going on in the west.” What he did not say, but what was quite clear because it became evident subsequently, particularly under Deng Xiaoping, was that the primary purpose of the Chinese intelligence machine outside China was to contribute to the economic rebuilding of China.

We in the West have been, over a longish period of time, pretty naive and had forgotten the fundamental dangers of having a close relationship with China. I am not anti-Chinese or a cold warrior. I understand—and this is the complexity that lies at the heart of this legislation—that our economies in the West are tied to China’s. They are intertwined in a manner that did not exist during the cold war between the United Kingdom and the Soviet Union. Of course there were economic links with the Soviets but essentially the relationship was one of separation. But that is not the case any longer. We are intimately engaged with the Chinese economy. Our enthusiasm––I am using “our” in the broadest sense of the West’s enthusiasm––to trade with China and to have a close relationship and to build that relationship is thoroughly understandable, but in the process we have let down our guard and we have been extremely laissez-faire, as it were, in our attitude towards the commercial threat from China.

I remember very well on one of my visits to the far east, when I was coming out of China through Hong Kong, talking to a British lawyer who had been head of a legal office in Shanghai for a long time. He said, “Richard, you have got to understand one thing about the Chinese attitude to us: they don’t understand win-win. All they understand is ‘We win, you lose.’” However intimate and successful your relations with China may be economically, if you are too successful, you can absolutely guarantee that the Chinese will transfer that success to themselves in their own economic structures, having allowed you to run successfully for a period of time.

What we now know and understand is that the Chinese are highly organised and strategic in their attitude towards the West and towards us. For example, some of the thousands of Chinese students who are being educated in Western universities, particularly in the UK and the United States, are unquestionably organised and targeted in terms of subjects––I am thinking more about graduates, PhDs and post-docs––looking at areas of strategic interest to the Chinese economy, and they are organised by Chinese intelligence.

We need to conduct our relationship with China with much more wisdom and care. The Chinese understand us incredibly well. They have put their leadership through our universities for 20 or 30 years. We in comparison hardly know anything about China because we just do not have that depth of knowledge and experience. You have people such as Charlie Parton and many wonderful Chinese scholars who understand intimately, in particular, the workings of the Chinese state, but they are rare individuals who are now massively in demand in trying to educate people about the problem that we have on our hands.

I am not one who is saying that we have to hold China at arm’s length. It is impossible to do that because they are so intimately involved in our economy, but we have to understand where we restrict their access, where we control their access and where we do not allow them to build strategic positions at our expense and literally take us for a ride. If you go back a little way, we were incredibly naive about this, which accounts for the position we got into with Huawei. It was completely ridiculous that we should even have been considering Huawei to build our 5G. That is probably why you called me. I was heavily involved in lobbying MPs through these various structures. I am delighted that the Government have now taken a grip on this issue.

[The Chair]

Thank you. I have no leeway to go past 11.25 am, so please can we keep questions as succinct as possible.

Sir Richard Dearlove: Sorry. That was a long answer, but it is precisely the question one should be considering.

[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.