The head of the UK parliament’s foreign affairs select committee has called for a retroactive national security review into the completed sale of a domestic semiconductor start-up to a Chinese special-purpose vehicle.
Alicia Kearns, who has chaired the foreign affairs select committee since October 2022, sent a letter to business secretary Grant Shapps yesterday expressing concerns that the government failed to conduct a review under the National Security and Investment Act into Shanghai Sierchi Enterprise Management Partnership’s acquisition of Flusso.
Shanghai Sierchi is a Chinese special-purpose vehicle, while Flusso was spun out of the University of Cambridge’s electrical engineering department and designs sensors used to regulate liquid and airflow in advanced technologies.
“The deal sees a British company, critical to our economic security and future prosperity, falling into the hands of an entity that was set up to serve the needs of a systemic competitor,” Kearns said.
She noted that the special-purpose vehicle did not reveal the companies behind the proposed deal in the August 2022 transaction announcement. At the time, Flusso said a “company and global private equity fund” bought it.
“The opacity surrounding this takeover suggests that the buyers intended it to be carried out by stealth,” Kearns wrote.
It has since emerged that Shanghai Sierchi is controlled by Shanghai Baoding Investment – which is 73% owned by the Chinese government – and another unnamed Chinese business, Kearns said. Shortly after the merger, Shanghai Sierchi appointed two Chinese nationals as directors at Flusso, Kearns added
“In waving through this transaction, we are granting the Chinese Communist Party direct access to one of our leading tech start-ups in an area of vital strategic importance,” Kearns wrote. She asked Shapps to inform whether the government would review the deal.
The NSIA came into force in January 2022, ushering in a new era of foreign investment control in the UK. The law allows the government to intervene in deals to protect national security in 17 markets of strategic importance. Companies completing acquisitions that could harm national security in those markets are also required to notify the government.
Kearns asked Shapps whether Flusso met the legal requirements for mandatory notification given that it operates in the “advanced materials” sector.
She noted that the government has strengthened its powers to protect against Chinese takeovers of the UK’s strategic assets and commended it for unwinding Nexperia’s acquisition of Newport Wafer Fab and preventing a Beijing-based company from licensing vision-sensing technology from the University of Manchester.
“We now need to ensure we are using our new powers in a coherent, consistent manner,” Kearns said.
She said President Xi Jinping has extended the Chinese Communist Party’s reach into the private sector, adding that Chinese entities are buying the UK’s most innovative businesses to make China the world’s dominant tech superpower.
That strategy undermines UK security and creates “chokepoints” to establish geopolitical leverage, Kearns said.
“I must stress that having a UK company leading on the design and selling of flow sensors – key in consumer and industrial products produced by world-leading companies – being taken over by a Chinese entity represents a significant economic and national security concern,” she said.
Kearns said the UK’s allies are treating self-sufficiency in semiconductor supply chains as a national security imperative, noting that the US has introduced export controls to prevent Chinese companies from accessing advanced tech, while Germany recently blocked Chinese investment in two domestic chipmakers.
