An impending Chinese takeover of Imagination Technologies may put the UK's military and national security at risk, experts warn.
Experts fear that a Chinese takeover of Imagination Technologies will allow China to enjoy a microchip monopoly and to spy on the military.
Hertfordshire-based Imagination Technologies is a world leader in microchip manufacturing and billions of its chips are powering smartphones, tablets and other devices around the world. Earlier this year, the company received a major jolt after Apple announced that it would start developing its own GPUs instead of buying them from Imagination.
While share prices nosedived, to the relief of shareholders, the company announced its sale in April this year and that it was "engaged in preliminary discussions with potential bidders".
It has now come to light that Canyon Bridge, a California-based private equity firm has won the bid by offering to buy Imagination Technologies for £550m, or 182p-a-share. Following the announcement, Imagination's share price went up by 40% and it seems that the company may somehow survive the shock dealt by Apple.
However, things aren't as smooth as they seem to be. Canyon Bridge is secretly backed by Yitai Capital and has been created with funds from the Chinese government. Earlier this month, Canyon Bridge's acquisition of Lattice Semiconductor, a US chip-maker, was blocked by the Trump administration who feared that the acquisition would place national security at risk.
The U.S. government's decision came after Reuters revealed how Canyon Bridge was funded partly by cash originating from China’s central government and was also linked to China's space programme. Security experts in the UK are now calling for the acquisition of Imagination Technologies by Canyon Bridge to be investigated and blocked for good reason.
‘Quite a lot of UK policymakers have a somewhat Pollyannaish [over-optimistic] view of China. There needs to be some recognition of this issue, and some systematic way of looking at these deals,' says Nigel Inkster, former deputy head of MI6.
'When you’re dealing with a very powerful state like China that’s a practitioner of state corporatism rather than a genuine proponent of free trade, you don’t have a level playing field and you need to make allowance for that,' he adds.
Other security experts have expressed concern over the fact that selling British technology firms to the Chinese may force the military to buy semiconductors and communication devices from China. This will allow the Chinese to spy on the military as well as on private citizens by inserting hidden features and backdoors in their chips and semiconductors.
The 2002 Enterprise Act allows the government to block foreign takeovers of businesses in order to safeguard national security. However, the government has not confirmed if it will investigate or block the takeover of Imagination Technologies by Canyon Bridge.
While Labour MP Wes Streeting has stated that the takeover is 'something the Government ought to take a close interest in', the government has said it will not comment on the 'commercially sensitive' case.