17 November 2020
Sir Iain Duncan Smith backs the National Security and Investment Bill

Sir Iain Duncan Smith welcomes the Bill but raises concerns about China's civil-military fusion strategy where intellectual property designed for civilian use may be purchased for military gain and calls on the Government to set up an external screening body to establish and investigate cases where this may now affect UK investments.

Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)

It is always a pleasure to follow the right hon. Member for Doncaster North (Edward Miliband), not only because he followed me into leadership and discovered just exactly how pointless that really was. On that we can immediately agree, and he may well have stumbled into another point of agreement; he should know, now that he is a Cummings-ite, that I once employed him and then let him go, so maybe it is time for the right hon. Gentleman to do the same. Anyway, beyond that, I want to congratulate him, because there were things on which I did agree with him, as well as, obviously, things that would need further discussion.

I thank my right hon. Friend the Secretary of State for his deliberations on the Bill, which I will support tonight. It is long overdue. The debates around the Huawei stuff at the beginning of the year really exposed the fact that the UK had lost its way in this area in terms of threats and so on. We were behind the others—Australia, the United States; some of our big Five Eyes compatriots—but at least my right hon. Friend has grasped the nettle and brought this Bill forward, which is laudable. I also thank him for his courtesy in the ​course of this, in the sense that he spoke to me and, I know, to others. I particularly commend the courtesy of his Minister, the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is a very good friend. He went out of his way to talk this through with colleagues on both sides of the House.

This debate is in that context. This is right. I particularly like clauses 32 to 39 and onwards, which deal with penalties, fines and incarcerations, the scope of which is up to five years. These are strong recommendations—slightly stronger than I expected, to be quite frank, but they are well worth it. There are many other good things about the Bill. I will not run through them all, because the Secretary of State did that, and I want to tease out a few points that I think are relevant and need inquiry.

The Bill gives the Secretary of State great powers for industrial strategy—powers to screen these investments that we have been discussing and to address the national security risk that they involve. It also gives him the power to call in investments. We have been through those already. However, I want to pick up on the things that I think are missing from the Bill and that I hope the Secretary of State will look at again in the course of its passage.

First, we have to accept that parked across this space are two very big threats: Russia and, of course, China. In fact, I think China is now the single biggest threat and problem posed to the United Kingdom and the free world. The way it is going—its problems, its difficulties, and the way it is focusing on internal suppression, external expansion and trashing both World Trade Organisation rules and laws—means that we will have to deal with that, and I suspect that this Bill will progressively be right in the middle of that. In dealing with that, I want to raise a couple of issues. In dealing with that, I want to raise a couple of issues.

Without this definition of national security, the Government are giving a stick to beat themselves with at the moment. Having such a definition is important for two reasons. First, it helps to improve clarity—a couple of my hon. Friends wanted clarity. I have looked at some of the definitions out there, including the American definition, which may not be perfect but it does cover some of the wider areas that I will talk about soon under transnational crimes and goes into things such as threats from drug trafficking. It is important for the Government to think carefully about this because it will help to define the Bill.

Bob Seely

On what the shadow Secretary of State said, there is obviously a genuine and good debate to be had on the elements of the Bill. This is not necessarily about industrial policy—I say with great respect to those on the Benches opposite—which is part and parcel of another debate. It is about the modern definition of national security and whether we see it as narrow or broad, and there is a strong argument today for having a broader definition of national security.

Sir Iain Duncan Smith

I agree with my hon. Friend and I agree that this is not the Bill to discuss industrial strategy. The right hon. Member for Doncaster North made wider points which I think are worthy of discussion, but I am not sure that that discussion should take place in relation to this Bill and I want to keep this narrow.​

First, in China something very special is taking place: the idea of civil-military fusion, which is now infecting every single enterprise and company in China. The Chinese military, as we have already heard, uses this concept and strategy to acquire intellectual property, technologies and research for civilian use and for military use. An external investment screening body, therefore, should be set up under this legislation, to establish and investigate cases where this may now affect UK investments. This is very important, because the rules are very strictly applied in China: you co-operate with the intelligence services or you are out of business. You may be out of not just your livelihood but your freedoms.

Ms Ghani

Is it not even more dangerous in that, under the national security law in China, not only do people have to hand over data, but if asked by a foreign state they have to deny they are handing over data? If that is the case, should we not have a bigger debate about social media companies based in this country harvesting our data and our children’s data and where that data might end up down the line?

Sir Iain Duncan Smith

I of course completely agree with my hon. Friend and I was just going to come on to the data harvesting point, because it is caught in this. She is right that China’s national intelligence law requires all Chinese firms to assist with state intelligence work and to deny that if they are asked. Let us say the Secretary of State wants to investigate and says he has strong penalties for non-compliance. By law in China they are not allowed to comply with that process at all, so there is already a national conflict in this. TikTok is owned by ByteDance, which is a very dodgy company set up in China that has huge links with the Chinese Communist Government. So we need to be very careful about where we go with this because UK nationals might get caught up and get punished for what is essentially a refusal by the Chinese Government to allow others to do this.

I am also slightly concerned about some of the things that happened in the past not being caught by the Bill. The Henry Jackson Society has today announced that, having looked through the Bill, only 23 of the 117 Chinese acquisitions over the last decade would have actually been caught. The areas that are outside of this include pharmaceuticals. The Chinese takeover of Bio Products Laboratory, which has a very significant technology with regard to blood products, would not have been caught. In education, 10 universities have many thousands of obligations to Chinese investors, where they get a trade-off on technology, some linked to defence firms. That would not have been caught. Interestingly, Thames Water and Veolia Water have significant share ownership from Chinese firms, but that certainly would not have been called into question.

Richard Fuller

My right hon. Friend is referring a lot to China, and I am sure he will not be alone in that this afternoon. Is his perspective that we should be looking in the Bill to restrict all Chinese investments in the UK, or investment in particular sectors, and what is the differentiation if the origins of that is the Chinese state, in this fusion of the state with business?

Sir Iain Duncan Smith

My view is that the Bill should help us to identify exactly which of these are genuinely private and not located in China under Chinese law. ​That will be a big issue. I have to tell my hon. Friend that, on that question he is right, because I believe we are now facing a very significant threat from China. So we now need to use the Bill to figure out how we deal with that threat on a wider basis, not just on individual takeovers. The Government need to look at that. Huawei was a very good example of Government policy having to be reversed on that basis. It is a growing problem and he is right to raise it.

Richard Graham (Gloucester) (Con)

Does my right hon. Friend agree that it is incredibly important that we recognise that the Bill is not aimed at one particular country or any particular identified sovereign threat? It is a more general Bill about the importance and value of national security assets in this country. Does he also agree that referring to China as communist—although, of course, it is ruled by the Communist party—is a misnomer in the context of a successful model of authoritarian state capitalism with which we will have to deal and the world will have to deal? We will have to separate those companies that offer attractive investment opportunities from those that are genuine threats.

Sir Iain Duncan Smith

I thank my hon. Friend for that intervention. I know he has been a big champion of that relationship. We do not agree with each other on this matter because I think that China, with its dictatorial Government, poses a very significant threat. But I did speak about other countries—I did say that Russia also poses a threat—so I recognise his defence.

I want to move on to the national interest test. This year, the Australian Government invoked the national interest in looking at tests and they used it in similar legislation to block the acquisition of a minor stake—this might deal with the issue that my hon. Friend was talking about—in AVZ Minerals by a Chinese firm. They needed to intervene because the asset, given what has happened with covid and so on, had lowered in value unusually and unnecessarily, and that had opened it up to a takeover which they felt would have been very unhelpful. The other point I want to raise in passing is that we need to look at things like the Confucius Institute, which is here investing in universities with offers but is actually acting on behalf of the Chinese Government to follow lots of Chinese students around.

Other Members wish to speak, so I will finish my remarks. My main point is that without that national security test the Bill will lack clarity and definition, and fail to understand sometimes where it is actually looking. It could be open to pressures to turn this more into an industrial policy statement, rather than a national security issue.

The Bill also falls short of similar legislation by Five Eyes partners. My right hon. Friend the Secretary of State is absolutely right to say that they have looked across the scope of what others have done, but other Five Eyes partners have gone further on this. They are competitor countries to us, so it is not as though they have any kind of dictatorial regimes. The Committee on Foreign Investment in the United States and the Australian Foreign Investment Review Board are external bodies.

This is the point that I wanted to make to my right hon. Friend. I just wonder whether he might want to reflect on the nature of the pressure on somebody such as him, who, under the Bill, will have to sum up and make final decisions on the advice peculiarly to him. ​The other two organisations, in Australia and in the United States, have the ability to say that everybody on the panel makes a group decision on the evidence. I know he will argue that that process takes longer—yes, he may be right about that—but I feel that the pressure is on him.

I was in government for six years and I know what Downing Street does. It gives you a call and says, “I don’t think you have to go very far with this sort of stuff, do you? After all, this is worth a lot of money to us. Come on.” Others will say that and the Secretary of State will be sitting there thinking, “This is a balanced judgment. Where do I go on this?” I just wonder whether that pressure is fair on the Secretary of State. He would be questioned later on why certain decisions were made. If I was the Secretary of State, I would want to release myself from that situation. I would not want to be dragged to the courts to be accused of being biased in that decision and making a decision that was not agreeable. So I would look for more external bodies to be able to make that judgment.

I also say to the Government that human rights are vital nowadays. We cannot walk away from it; it is part of what makes us. The reality for us is that far too many companies have allowed themselves to quietly get sucked into the use of slave labour and other labour. We know about that, in Xinjiang province and in other areas too. My right hon. Friend does need to think about that very carefully. I do not want to make the Bill a Christmas tree, but elements of that are involved.

I congratulate the Government on bringing forward the Bill. It is the right legislation to bring forward. It is overdue, no question. However, the balance still needs to be widened somewhat. I hope that in the course of the Committee and Report stages the Secretary of State will accept that good amendments may come forward from brilliant people—not just me—who may well be able to help him in his adventures.

Hansard