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13 July 2022

In south Wales, a crisis is brewing for the next prime minister

The sale of Newport Wafer Fab will be a major test of the government’s commitment to a high-tech industrial strategy.

By Oscar Williams

On a leafy business park in south Wales, Britain’s largest plant making computer chips is overlooked by several government agencies, including the headquarters of the Intellectual Property Office. But as hundreds of civil servants worked diligently across the road to protect British patents last summer, Newport Wafer Fab was quietly acquired. A Dutch semiconductor company wholly owned by a Chinese business, Wingtech, became the sole shareholder, seizing control of production and Newport’s valuable IP. The government was due to make a decision on whether to stop the deal, but has put it back.

Semiconductors – the chips used in cars, appliances, consumer electronics, aircraft, medical devices and more – are hard to manufacture but essential to modern supply chains, and their production is increasingly important to a country’s economic stability and defence. The Chinese government, which owns a nearly 30 per cent stake in Wingtech, according to the analysts Datenna, was described by the heads of MI5 and the FBI last week (8 July) as “the biggest long-term threat to our economic and national security”.

This is not the first time that Chinese technological imperialism has raised concerns in Westminster; the long-running debate over Huawei, a technology provider that the government has banned from further involvement in UK mobile infrastructure, has been the source of much political intrigue. The Newport deal, however, could be the most significant test of the UK’s industrial strategy. A government review published last March stated that “sustaining strategic advantage through science and technology” was a key priority as ministers sought to gain an edge over foreign adversaries. As the G7 met in the following weeks, leaders from the UK, US, Germany and other allies agreed to work together to promote secure and resilient supply chains.

Critics say that if the government allows the Newport acquisition, it will be reneging on that promise. Beijing is trying to to develop self-sufficiency in semiconductor production and industry watchers say Newport could play a key role. They fear the plant could be used to bypass sanctions on semiconductor production imposed by the US, and that the facility is at risk of being relocated to China.

A former senior government security official told the New Statesman: “If there is a decision to let the deal go ahead, the government is going to struggle to explain how it fits with its lofty ambitions, both to impose its own strategy in the integrated review and in its G7 commitments at the Cornwall summit, to make the UK a leading champion of free and open technology within the West.”

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While Nexperia, Newport’s new Dutch owner, says it is committed to the site, the takeover has only become more contentious with time. In April it emerged that a review by Stephen Lovegrove, the national security adviser, had not raised concerns. Explaining the verdict, a government official told Politico that the 20-year-old technology used at the site was already available to China. The government has stressed, however, that Kwasi Kwarteng, the Business Secretary, could still intervene retrospectively under new legislation empowering ministers to block foreign takeovers of critical assets.

The £63m deal has also attracted scrutiny in the US. A group of congressmen wrote to the president, Joe Biden, this year calling for Britain’s position on the US Committee on Foreign Investment’s “white list” to be reconsidered if the deal is approved, meaning Brits seeking to make investments in American businesses would face further scrutiny.

Critics of the deal contend that while the technology produced at Newport might no longer be cutting-edge, it would be significantly easier to invest in the production facility than build a new site. The cost of creating a semiconductor fabrication facility is estimated to be more than £12bn.

In China, meanwhile, the government is taking steps to develop its domestic tech infrastructure. Last year Xi Jinping, the Chinese president, outlined commitments to building the world’s most advanced “hard tech” sector. Investment in fields such as chipmaking, artificial intelligence and data science are central to Xi’s vision.

“China could very well end up as the largest economy in the world,” Alan Woodward, a professor of cyber security at Surrey University, said. “This matters if they can exercise that power over all strategic assets or strategic technologies. [Xi] has said he wants to be the world leader in all those technologies.” The takeover of Newport, Woodward added, “would aid them in doing that”.

One of the gravest concerns within national security circles about China is that the US campaign against Huawei may ultimately play into Beijing’s hands. While the campaign prompted Xi to accelerate investment in critical technologies, it has not provoked a similar response in the West. Despite commitments made at G7 summits, the UK and its allies now risk falling behind in key fields of technology unless they adopt more proactive industrial strategies.

After the government delayed its verdict on Newport’s future last week, the decision is expected to fall to the next prime minister. It may come to be one of the defining decisions of their tenure.

[See also: China’s espionage poses urgent threat to the UK and US]

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