Intelligence and Security Committee China report/Overview

by The Intelligence and Security Committee of Parliament

OVERVIEW

There is effectively a global values struggle going on in which China is determined to assert itself as a world power … China is increasingly thinking of a future in which it could be the world power and that means that—if you think of UK interests as being in favour of good governance and transparency and good economic management, which … serve our national interest because it helps with trade, investment, prosperity and stability and so forth—then I think that China represents a risk on a pretty wide scale.

—Chair of the Joint Intelligence Committee (JIC)

 

China's interest in the UK

1. China's national imperative continues to be the continuing dominance and governance of the Chinese Communist Party (CCP). However, it is its ambition at a global level—to become a technological and economic superpower, on which other countries are reliant—that represents the greatest risk to the UK.
2. The UK may not be the top priority for China when it comes to espionage and interference, but it is nevertheless of significant interest, mainly given our close relationship with the United States (US): China sees almost all of its global activity in the context of its struggle with the US. The UK is also of interest given its membership of international bodies of significance to China and the perception of the UK as an opinion-former—which plays into China's strategy to reshape international systems in its favour. These factors would appear to place the UK just below China's top priority targets, as it seeks to build support for its current 'core interests': to mute international criticism and to gain economically.
3. In respect of the latter, China sees the UK as a home for Chinese investment. This approach can be seen in relation to nuclear energy: Chinese interest lies in gaining UK regulatory approval for its reactor designs as it assesses that this will influence other countries to permit Chinese investment in their Civil Nuclear sectors. The same philosophy lay behind Huawei's interest in the UK’s 5G telecommunications network.

 

The Inquiry

4. At the outset of this Inquiry, the Committee considered whether Huawei should be allowed to supply equipment for the UK's 5G telecommunications network: the key consideration, which lay at the heart of that issue, was the UK's over-reliance on Chinese technology. We urged that action be taken urgently to address this, cautioning: "This will require us to take a long-term view—but we need to start now."^[1] China's aspirations are looking ahead to 2049, and the UK needs to be thinking in the same way.
5. Our Inquiry has continued since then, considering the nature of the threat more broadly (although evidence-taking concluded in 2021—prior to the Russian invasion of Ukraine in February 2022).^[2] The Committee has taken evidence from a wide range of witnesses and considered a substantial volume of written evidence. We are grateful to those witnesses from outside the Intelligence Community—in particular John Gerson, Raffaello Pantucci, Charles Parton, Lord Patten, Dr Tim Stevens and Professor Steve Tsang—for kindly volunteering their very substantial expertise on China, as part of the Inquiry; we have benefitted greatly from their experience and knowledge.
6. This Report has been split into two parts. Part One considers the overall intelligence threat from China to the UK, and HMG's response to that threat. Part Two considers Case Studies on the threat to three specific areas—Academia, Industry and Technology, and Civil Nuclear energy—together with an annex considering China's response to, and use of, the Covid-19 pandemic.^[3]

 

The 'whole-of-state' threat

7. It is clear that China has taken advantage of the policy of successive British Governments to boost economic ties between the UK and China, which has enabled it to advance its commercial, science and technology, and industrial goals in order to gain a strategic advantage. The fact that China is a strategic threat is not news. However, this Report explores the multifaceted nature of the intelligence threat posed by China.
8. China almost certainly maintains the largest state intelligence apparatus in the world—dwarfing the UK's Intelligence Community and presenting a challenge for our Agencies to cover. As a result, our Agencies' work has to be targeted on those aspects that are most damaging. However, the problem is compounded by China's 'whole-of-state' approach. In practice, this means that Chinese state-owned and non-state-owned companies, as well as academic and cultural establishments and ordinary Chinese citizens, are liable to be (willingly or unwillingly) co-opted into espionage and interference operations overseas: much of the impact that China has on national security is overt—through its economic might, its takeovers and mergers, its interaction with Academia and Industry—as opposed to covert activity carried out by its intelligence officers.
9. China's size, ambition and capability have enabled it to successfully penetrate every sector of the UK’s economy, and—until the Covid-19 pandemic—Chinese money was readily accepted by HMG with few questions asked. China's commercial and industrial strategy is deliberately calibrated to establish China as an economic leader, a digital technology powerhouse and a global commercial power—on which the West is dependent. China has been buying up and seeking to control or influence the UK's Industry and Energy sectors: we have already mentioned China's interest in the UK's Civil Nuclear sector. China has been encouraged by decisions to allow the China General Nuclear Power Group into Hinkley Point C and promises of future investment in other sites. The Government has been so keen to take Chinese money that it has not been watching China's sleight of hand whilst it overtly penetrated the UK's Energy and Industry sectors: issues that are explored in Part Two of this Report.
10. China's ruthless targeting is not just economic: it is similarly aggressive in its interference activities, which it operates to advance its own interests, values and narrative at the expense of those of the West. While seeking to exert influence is a legitimate course of action, China oversteps the boundary, and crosses the line into interference in the pursuit of its interests and values at the expense of those of the UK. For example, China has been particularly effective at using its money and influence to penetrate or buy Academia in order to ensure that its international narrative is advanced and criticism of China supressed. This helps to reinforce the CCP's narrative and gives its international posture external credibility—helping it on its way to becoming a world power.
11. China's attempts to influence the international narrative can also be seen clearly in its response to the recent Covid-19 pandemic. Rather than being damaged by it, China has worked hard on disinformation. It has greatly exaggerated its work to counter the virus and develop vaccines, and has sown seeds of doubt about the origins of the virus, to make the world believe that China was not at fault. Further, it appears positioned to capitalise on the damage to world economies and may well emerge from the pandemic stronger than before—and certainly stronger relative to many other countries that have suffered from the pandemic. We also consider this issue in Part Two of the Report.

 

Protecting the UK

12. So what of the UK's response to this threat? As the world's second largest economy (and one of the fastest growing), with a military increasing in size and capability, considerable levels of diplomatic engagement and a large digital sector which acts as a force multiplier, China has a significant impact on global affairs. The balance between security and prosperity requires dexterity and we understand that there are a number of difficult trade-offs involved. The Government's policy on, and strategy towards, China must take this into account when considering how to tackle the threats China poses to the UK.
13. The Government says its response is "robust" and "clear-eyed".^[4] The External Experts we spoke to were rather less complimentary. While we sought to examine whether the Government's strategy for dealing with such a large adversary was up to the task, they felt very strongly that HMG did not have any strategy on China, let alone an effective one, and that it was singularly failing to deploy a 'whole-of-government' approach when countering the threat from China—a damning appraisal indeed.
14. One of the factors involved is that, until recently, our Agencies did not even recognise that they had any responsibility for countering Chinese interference activity in the UK. Instead, they focused their efforts on China's 'covert' activity in the UK *** resources were diverted onto the acute counter-terrorism threat arising from Syria. Time and again resources have had to be diverted to tackling the terrorist threat, and it is clear that, historically, China did not receive as much attention as ***.
15. Yet the security community were at least aware of many of the issues we address in this Report several years ago and we were therefore surprised at how long it had taken for a process to be put in place to identify and protect UK assets, based on the UK's sovereign interests ***. The Government's lack of understanding contrasts with the approach of the US, which has already produced a national strategy on critical and emerging technologies, aimed at protecting its technological dominance, in which it lists what it considers to be its 20 priority technologies. The lack of action similarly to identify and protect UK assets from a known threat is a serious failure, and one that the UK may feel the consequences of for years to come. The global pandemic has brought into sharp relief the importance of the UK safeguarding its sovereign assets if we are to protect our domestic economic security.
16. As for who is in charge of countering Chinese interference, responsibility for mitigating the more overt aspects of the Chinese threat to the UK seems to rest with Whitehall policy departments. However, there is no evidence that those departments have the necessary resources, expertise or knowledge of the threat to investigate and counter China's approach. The nature of China's engagement, influence and interference activity in the UK is difficult to detect, but even more concerning is the fact that the Government may not previously have been looking for it. *** The UK is now playing catch-up—and the whole of the Government has its work cut out to understand and counter China’s 'whole-of-state' threat.
17. A further radical change in approach is required in relation to planning. Even now, HMG's focus has been dominated by short-term or acute threats. It has consistently failed to think long term—unlike China—and China has historically been able to take advantage of this. The Government must adopt a longer-term planning cycle with regards to the future security of the UK if it is to face Chinese ambitions, which are not reset every political cycle. This will mean adopting cross-government policies which may well take years to stand up, and require multi-year spending commitments. This is something that will likely require Opposition support—but the danger posed by doing too little too late in this area is too significant to play politics with. For a long-term strategy on China—thinking ten, fifteen, twenty years ahead—the Government needs to plan for it and commit to it now: the UK is severely handicapped by the short-termist approach currently being taken.
18. If the Government is serious about tackling the threat from China, then it needs to ensure that it has its house in order such that security concerns are not constantly trumped by economic interest. Our predecessor Committee sounded the alarm, in relation to Russia, that oligarchs are now so embedded in society that too many politicians cannot even take a decision on an investment case because they have taken money from those concerned. We know that China invests in political influence, and we question whether—with high-profile cases such as David Cameron (UK–China Fund), Sir Danny Alexander (Asian Infrastructure Investment Bank), Lord Heseltine (The 48 Group Club) and HMG's former Chief Information Officer, John Suffolk (Huawei)—a similar situation might be arising in relation to China.
19. At present, it appears that the threat from China is primarily at a state, rather than an individual, level and it can exert that state power in every area because of its economic might. The Government has, finally, put in place legislation (the National Security and Investment (NSI) Act 2021) to factor in security when considering investment decisions—eight years after this Committee warned them to do so. Whilst this is a positive development, there is still no effective independent oversight of decisions made under the NSI Act. Therefore, we cannot be confident that security is actually being taken into account or if, for Ministers drawn to the siren call of investment, that is still regarded as a trade-off.
20. During the course of this Inquiry, the Government argued that such decisions could be scrutinised effectively by the Chair of the Business, Energy and Industrial Strategy (BEIS) Select Committee^[5] through a business lens, with the relevant supporting intelligence provided to the BEIS Select Committee Chair on an 'ad hoc basis'. We were told that the ISC should be satisfied by simply seeing the intelligence case that was fed into investment decisions. We considered this to be wholly unsatisfactory, as it means that no one oversight body will routinely have the full picture and be in a position to scrutinise the totality of the evidence before the Minister. Effective oversight is a key function of democracy and is particularly important in this case, given the length of time that Chinese investment in the UK has gone unchecked.
21. The fact that the Government does not want there to be any meaningful scrutiny of sensitive investment deals—and deliberately chose not to extend the ISC's oversight remit to cover this at the outset of the new legislation—is of serious concern. It is for this reason that we are still formally seeking to amend the Committee's Memorandum of Understanding (MoU) with the Prime Minister to include several relevant policy departments within the purview of the Committee's oversight remit. This is a small change which will have a significant impact on national security—and upon the trust placed by the public in Ministers who are charged with weighing up fundamental interests behind closed doors.^[6]

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1. 'ISC Statement on 5G suppliers', Intelligence and Security Committee website, 19 July 2019.
2. The Committee began this Inquiry in 2019. Shortly afterwards followed: the dissolution of the Intelligence and Security Committee in November 2019 ahead of the General Election; a series of national lockdowns in 2020 and 2021 in the wake of the global Covid-19 pandemic; and the excessive delay in appointing a new Committee from December 2019 to July 2020. These events have impeded the conclusion of this Inquiry and the publication of our Report. Throughout this period, we continued to question, and take evidence from, the Intelligence Community on this important and timely Inquiry. (In preparing this Report, the Committee has considered evidence up to 2021.)
3. The two Parts of the Report are designed to be read in conjunction.
4. Written evidence—HMG, 18 April 2019.
5. Now the Business and Trade Committee, as of 26 April 2023.
6. On 7 February 2023, HMG announced a restructure of several government departments, including BEIS. This led to the creation of the Department for Energy Security and Net Zero, the Department for Business and Trade, and the Department for Science, Innovation and Technology, and the scaling back of the Department for Culture, Media and Sport (previously the Department for Digital, Culture, Media and Sport). Shortly afterwards, it was confirmed that the Investment Security Unit (ISU)—the body established to scrutinise investment decisions under the NSI Act—would be moved from BEIS to the Cabinet Office.

   We presumed that this meant that the Government would confirm the ISC's responsibility for oversight of the ISU—in line with the Committee's MoU with the Government, which provides for ISC oversight over the National Security Secretariat in the Cabinet Office. However, on 21 March 2023, we received correspondence from the Minister of State for the Investment Security Unit advising that the ISU would still be overseen by the BEIS Select Committee—despite no longer sitting in the department which that Committee oversees. An MoU had been agreed between the BEIS Select Committee and the Chancellor of the Duchy of Lancaster (as the relevant Secretary of State now for the ISU) to this effect. The Deputy National Security Adviser wrote to this Committee on 23 March 2023 to clarify that HMG does not consider the ISC's remit under the current MoU to automatically extend to the activities of the Chancellor of the Duchy of Lancaster, as the Secretary of State now responsible for the ISU. This is a quite extraordinary decision. It is clear that the argument that the ISC's oversight does not extend to the activities of the Chancellor of the Duchy of Lancaster holds no weight (we note that the Chancellor of the Duchy of Lancaster is not overseen by the BEIS Select Committee either) and it is absurd that the ISC's oversight is being denied in this manner. The Committee will be pursuing this matter and reporting in due course.

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