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China: Supply Chains

Volume 804: debated on Wednesday 1 July 2020


Asked by

To ask Her Majesty’s Government what assessment they have made of the report by the Henry Jackson Society Breaking the China Supply Chain: How the ‘Five Eyes’ can Decouple from Strategic Dependency, published on 14 May; what plans they have to conduct an assessment with industry based in the United Kingdom of the supply of goods sourced from China; and what steps they are taking to encourage such goods to be sourced from the United Kingdom.

My Lords, coronavirus has highlighted the importance of access to critical goods. Having a diverse and reliable pool of suppliers is clearly in our interest, whether from a security, sustainability or value-for-money perspective. The Henry Jackson Society report makes a useful contribution as we consider resilience in our supply chains. We are supporting businesses to diversify supply chains by opening new markets through free trade agreements, reducing barriers to exports and maintaining a competitive business environment.

I give a very warm welcome to my noble friend the Minister on his first appearance at the real Dispatch Box. Recent events have shown the extreme danger of depending on vital supplies from foreign powers, even close allies. Since the Chinese Communist regime is now behaving like a hostile state, threatening Taiwan, commandeering islands in the South China Sea, covering up its Wuhan virus failures and terrorising Hong Kong, will my noble friend now step up work with UK companies to urgently reshore those vital 229 strategic goods and services that we currently get from China?

The noble Lord makes some strong points. My department is considering import dependency and will continue to analyse imports, including from China, to determine whether the UK is particularly reliant on certain of our trading relationships. Project Defend is looking at our trading relationships with a range of international partners. It will analyse critical supply chains for a range of non-food items in addition to medical supplies. We will continue working to keep trade flowing by reducing tariff and non-tariff barriers and through our programme of FTAs.

My Lords, yesterday, in his neo-Keynesian “spend, spend, spend” speech in Dudley, the Prime Minister said that he was not a Sinophobe but that

“we need to … protect critical infrastructure from hostile vendors”.

Can the Minister tell your Lordships’ House whether this now includes China and, if so, will Her Majesty’s Government let China build new nuclear power stations at Bradwell and Sizewell?

My Lords, in general, as an open economy, we welcome foreign trade and investment where it supports UK growth and jobs. We do not accept investment that will compromise our national security. The noble Lord will be aware that the nuclear industry is one of our most highly regulated industries. He can rest assured that we would not accept any involvement from any party that did not meet our strict criteria.

I add my congratulations to the Minister. First, the report referred to in my noble friend’s Question mentions the possibility of a free trade zone with the Five Eyes. Have Her Majesty’s Government specifically examined that proposal? Secondly, given the critical importance to China of the belt and road initiative, what approaches have we made to the countries of Asia and the Caucasus to join in putting moral pressure on China over Hong Kong, and about trade possibilities to assist us and those countries in dealing with China?

At the moment, we are consulting on various areas where it might be possible to launch a free trade zone, but I am not aware that Five Eyes membership will be a qualification for that. UK engagement with the belt and road initiative is focused on practical steps and collaboration to help ensure that infrastructure investments are delivered in line with recognised standards in four key areas: transparency; environmental impact, including carbon emissions; social standards; and debt sustainability. Such standards lead to good projects, which benefit all parties. With their world-leading experience, British companies have an important role to play in contributing to that effort.

Does the Minister agree that not much electronic equipment is manufactured in the UK so we will always be strategically dependent on foreign companies? Is not the important thing to ensure interoperability and spread the risk across suppliers in different countries, and to realise that we cannot rely on any country when it comes to security and spying? What we need is end-to-end encryption that works. Should we not also support UK companies to build equipment in the new, innovative 5G space?

It is certainly a great priority for us to do that. It falls into the general area where it is very important to secure diversity of supplies for the United Kingdom. The pandemic has taught us many lessons about the importance of diversity of supplies. The noble Earl can rest assured that we are observing and watching this very carefully, including developing with our allies alternative sources of supplies to give us much greater diversity in these matters.

My Lords, it is understandable that there have been growing concerns about Chinese state involvement in the UK, which is focused in a number of key areas that could have implications for national security. Not only do the Chinese have a key part of our nuclear infrastructure, telecoms, CCTV network, steel and so on, but they fill courses at UK universities relating to AI, quantum engineering, use of big data and the internet of things. They have poured investment into higher learning in these areas in the UK, and have stolen IP on an industrial scale from our companies. When taken in conjunction with statements by Xi Jinping about the global ambitions of China, it is not surprising that we are worried—we should be. Have the Government made an overall assessment of Chinese involvement in the UK and the level of threat that poses? Who is responsible for compiling this list and what, if any, action we have taken so far?

We continue to implement a comprehensive and co-ordinated approach to China, which identifies and pursues UK interests. I have to say that we take a very clear-eyed view of the challenges and risks from China. In many areas, we have a strong and constructive relationship with China but, equally, we are very aware that items may not coincide with our national security. Our approach to China is co-ordinated across government. The FCO is at the heart of the cross-Whitehall strategy approach to China, and the importance of this is shown in that the work is led by the National Security Council and the China National Strategy Implementation Group. We will continue to implement a comprehensive and co-ordinated approach to China that identifies and pursues UK interests in these areas and, of course, engage our like-minded international partners as we do so.

My Lords, to follow up the question from the noble Lord, Lord West, I ask the Minister: given the symbiotic relationship between the Chinese Government and Chinese companies, what level does Chinese investment have to reach in the United Kingdom before it prejudices our national interest?

At the moment, trade between China and the UK amounts to around £80 billion a year. It is a very important trading partner for us, but I repeat that we are very clear-eyed about this. We take good care as to where our national interest lies, and we will not hesitate to intervene in any areas where we feel that it is jeopardised.

I too welcome my noble friend the Minister to the Dispatch Box. We know that China ignores World Trade Organization rules. He mentioned our attitude towards the belt and road initiative, but should we now see it as a means of spreading Chinese economic power and influence while expecting deference or even subservience over any Chinese misbehaviour? I think particularly of the ban on Australian beef, tariffs and threats of more sanctions against our Five Eyes ally, Australia. Should we not act accordingly on Chinese trade and the BRI?

My Lords, I do not think that subservience is a safe way to conduct policy with China. I have a very strong belief that mutual respect is the way forward and, I repeat again, it is mutual respect while having our eyes wide open. We recognise that some countries have had a difficult experience with BRI projects, including regarding debt sustainability, transparency and negative local impacts. We are much engaged in dialogue with China to make sure that all investments of that sort benefit the world rather than just China.