The writer is a Conservative MP and chairs the House of Commons foreign affairs committee
For decades the UK has prided itself on being an open economy with few restrictions on foreign ownership. Without the threat of active government interference, investors have been confident their rights will stand and they can easily sell. Openness attracted capital from around the world, helping Britain prosper.
That model was based on the expectation that inbound funds would generally come from private-sector actors in economies broadly similar to our own, with similar rules and standards. The rise in state capitalism with deep pockets has changed that equilibrium.
Increasingly, China’s state-owned enterprises have been able to draw on state banks to outbid rivals in Europe and America. In a downturn, the difference between state-backed credit and the buying power of normal commercial investors will become starker, further strengthening the hand of state-owned enterprises with a voracious appetite to buy rather than build.
Unsurprisingly, some democratic market economies have begun to defend their interests, subjecting potential sales of significant companies and assets to stricter scrutiny. Britain should learn from them.
In March, anticipating the possibility of distressed sales during a downturn, Australia’s Treasurer lowered the threshold for referring takeovers to the Foreign Investment Review Board from A$1.1bn to zero. In April, France — which once declared yoghurt producer Danone a strategic asset — expanded the sectors where deals are subject to prior clearance from the government to include media, agriculture, quantum technologies, energy storage and biotechnology.
Even the EU competition chief, a champion of rules limiting state aid, has recommended members buy strategic stakes in vulnerable companies. Madrid, Berlin and Rome have all increased their powers to veto foreign takeovers and liberal Sweden is now talking about tightening the rules to prevent hard hit companies falling prey to foreign investors looking to gain access to cutting-edge technology or firms linked to crucial infrastructure.
So, it is welcome that UK prime minister Boris Johnson announced an imminent change to the UK’s rules at prime minister’s questions last week.
We cannot delay. Chancellor Rishi Sunak warns of a “recession the likes of which we have not seen”, which will see some businesses go under and others put up for sale. An inferno of fire sales is risky: if we are not careful, much of the intellectual property the UK needs for long-term innovation and prosperity could disappear to Shanghai or Shenzhen.
The Treasury recognises the danger: some will be mitigated through the Future Fund, which provides matched funding to high-growth start-ups. But supporting new businesses is only part of the solution. If we want to protect those investments, and our existing intellectual property, then we need to stop our best assets being stripped away.
Britain needs to bring its laws on foreign ownership in line with partners. The Committee on Foreign Investment in the United States provides one model that gives the government discretion and dissuades many inappropriate buyers before a veto is required.
Cfius blocked the take over of a US semiconductor group by the same Chinese-backed investment company — Canyon Bridge — that was allowed to buy the UK’s Imagination Technologies. The Chinese group then attempted to fill the company’s board with directors from a Chinese government investment fund, prompting fears that valuable patents will soon move east.
The UK approach must go beyond areas of national security such as military, dual-use, computing hardware and quantum technology sectors already covered by a change in the law two years ago. The current £1m turnover threshold to trigger an inquiry will look huge to many firms after lockdown. Now, with a Covid-induced recession and wolf warriors in China’s embassies and boardrooms, we can’t wait.
This is no longer about traditional security but ensuring the continued operation of open markets. Unlike its Soviet predecessors, Beijing has both the financial muscle and intent to execute an aggressive Made in China strategy across sectors ranging from green energy and medicines, to agriculture and aerospace.
For Britain there’s an added pressure. New European investment screening regulations will protect the EU27 from October just when we’re looking to strike new trade deals.
We need a new approach on international investment entrenched before we do those new deals. Every partner will be looking through our laws to see what limitations are already in place on inward investment. If we try to legislate for extra levels of control later, they could fall foul of non-regression clauses, trigger penalties or reopen lengthy negotiations.
We need to be clear on foreign ownership, now. We can be an open market for exchange, a broker to the world, and still protect the crown jewels of our knowledge economy. But time to do all three is running out.
Source: Economy - ft.com
