Page:ISC-China.pdf/141

Methodology: Overt present a threat to UK national security ***. Due to China's legal requirement for co-operation by its companies and citizens, and its Civil-Military Integration doctrine, it is highly likely that defence-relevant technologies in China will be incorporated into its military supply chain, which is dominated by state-owned enterprises.

Civil-Military Integration is a key driver of Chinese military modernisation as it exploits civilian technology for military applications with no acquisition cost to the state. The Intelligence Community told the Committee that as China advances economically this will almost inevitably lead to Chinese military advancement, since commercial power in the technology field provides "extensive opportunities to support military technological advancement and expansion". Commenting on the highly integrated nature of the Chinese state, MI5 told the Committee:

"China … is absolutely determined to accelerate as rapidly as it can its rise to global pre-eminence across a range of economic and technological fronts, and I don't think within their system that a distinction is drawn between national security or economic prosperity. I think they absolutely see these two things as intertwined and … within their own doctrine of Civil-Military Integration, they are very explicit about that and they are also very explicit about expecting both state-owned enterprises and private sector companies, as so far as that means anything in a communist state, to contribute to the whole-state strategic goals. So we … [have] a China that integrates its own efforts in a very strong and effective way."

The threat is exacerbated by the fact that the provenance of an investor is not always readily apparent. While in most cases Chinese investment in a foreign company is overt, it is highly likely that the Chinese state, and some Chinese companies, would attempt to obfuscate Chinese ownership in order to avoid scrutiny when purchasing or investing in UK companies.

Despite increased scrutiny, Chinese investment remains a significant concern. In September 2020, *** assessed that there was a risk that China would seek to buy companies in financial difficulties (particularly due to Covid-19) at cheap prices in order to acquire valuable IP in areas including emerging technology, advanced manufacturing and military development.

In addition to China's own foreign investment plans, inward investment into China has offered opportunities for technology acquisition. A foreign company investing in certain industries in China was, until 2019, required by law to enter into a joint venture with a Chinese company. In such joint ventures, the foreign company could not hold the controlling interest and may have been subject to requirements under which they had, in effect, to