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Government blocks Chinese takeover of UK tech firm on national security grounds

Posted on 19 August 2022

The UK's Business Secretary, Kwasi Kwarteng, has blocked the proposed takeover of UK technology company, Pulsic, by a Chinese entity, Super Orange HK.

Pulsic is a Bristol-based electronic design automation company, with offices in Newcastle, San Jose and Tokyo, which develops software used to build electrical circuits. Super Orange HK proposed to acquire the entire share capital of Pulsic, but the deal has been blocked by the Government under the National Security and Investment Act 2021 (the NSI Act). The NSI Act came into force in January this year and grants the Government powers to intervene in UK-based transactions on grounds of national security.

In its ruling, the Department for Business, Energy and Industrial Strategy states that its decision is "necessary and proportionate to mitigate the risk to national security," and cites the risks that could arise on the transfer of Pulsic as follows:

  • The use of Pulsic's software development techniques, knowledges, processes and intellectual property to "facilitate the building of cutting-edge integrated circuits that could be used in a civilian or military supply chain".
  • The exploitation of Pulsic's electronic design automation products to "build defence or technological capabilities".

This decision is not the UK's first attempt to limit Chinese involvement in British technology. In 2020, the Government banned Huawei Technologies from Britain's 5G network and, in July of this year, University of Manchester was prohibited from selling vision sensor technology to Chinese company Beijing Infinte Vision Technology. Whilst the proposed purchase had apparently been for use in children's toys, the Government warned of the “potential that the technology could be used to build defence or technological capabilities which may present national security risk to the United Kingdom”, fearing the technology may have military applications in drones or missiles.

These interventions signal the UK's growing opposition towards Chinese investment and follow a warning from MI5's Director General, Ken McCallum, that the UK's "world-leading expertise, technology, research and commercial advantage" is at risk from "Chinese Communist Party aggression". Indeed, earlier this week, Foreign Secretary Liz Truss told a leadership husting that the Government should "look at making sure we're not exporting technology that can be used against us," and that the UK has developed clear investment screening "to make sure that we can't have acquisitions of key strategic assets."

For further information on the NSI Act, see our latest article on National Security and Investment Act and National Security and Investment Act online checker.

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