How will the UK’s National Security and Investment Act affect UK-China collaboration?

The National Security and Investment Act grants the UK government powers to restrict – and block – investment by potentially harmful foreign actors in 17 crucial sectors. Jason Teng from Potter Clarkson looks at its potential impact on UK and Chinese businesses

The UK government has implemented the National Security and Investment Act, which came into force on 4 January 2022.  The Act allows the government to scrutinise and intervene in certain acquisitions that could harm the UK’s national security.  This includes imposing certain conditions on an acquisition, including unwinding it or blocking it completely.  The Act applies to acquisitions that are in progress, in contemplation or have been contemplated but excludes acquisitions completed before 12 November 2020.

How will the new Act affect UK-China collaboration?

Under the Act, investors and businesses have a legal obligation to notify the government about certain acquisitions across 17 sensitive areas of the economy:  

• Advanced materials
• Advanced robotics
• Artificial intelligence
• Civil nuclear
• Communications
• Computing hardware
• Critical suppliers to government
• Cryptographic authentication
• Data infrastructure
• Defence
• Energy
• Military and dual-use
• Quantum technologies
• Satellite and space technologies
• Suppliers to the emergency services
• Synthetic biology
• Transport

This could have an impact on UK companies looking to collaborate with Chinese companies and on UK start-ups seeking Chinese capital investment.

Depending on the nature of the acquisition, the notification may be mandatory, such as in the acquisition of a controlling right or interest in a qualifying entity above a certain threshold or voluntary, such as in the acquisition of a qualifying asset, including intellectual property (IP).  Interestingly, the term “qualifying entity” applies not only to UK entities but also to non-UK entities carrying out activities in the UK or supplying goods and services to the UK.  From an IP perspective, the Act could be interpreted as applying to non-UK IP rights that can be enforced in the country of origin to restrict the supply of goods and services to the UK.

Non-compliance with the Act will result in the acquisition being deemed void and the offender risking exposure to civil and criminal penalties.  A civil penalty could be as much as 5% of an organisation’s global turnover or £10 million, whichever is greater.

Will a government intervention delay my company’s acquisition? 

As recently as September 2021, the proposed acquisition of the Perpetuus Group by a China-linked group of companies, led by Taurus International, was the subject of a public interest intervention under the Enterprise Act 2002, which provided the government with similar powers to intervene on grounds of national security.  The intervention process is ongoing as of the date of this article.

Nevertheless, the government has provided assurance that the vast majority of acquisitions will require no intervention and will be able to proceed quickly.  Nevertheless, it is critical to consider government guidance and professional advice for any acquisition in the named sensitive areas to avoid downstream problems.  This is particularly relevant to the growing collaboration between UK and Chinese entities in company mergers and acquisitions, investments and IP purchase and licensing.

Government legislation and guidance to help investors and businesses understand their obligations under the new rules can be found here:

https://www.gov.uk/government/collections/national-security-and-investment-act

Jason Teng is a partner with Potter Clarkson LLP, a full-service intellectual property law firm.