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00:00Britain faces a big China challenge no one can ignore China it's the second biggest economy in
00:13the world we are going to need to have a conversation about it could Britain benefit
00:21from some of China's riches the UK actually needs investment it's lacking in investments
00:28or could the cost to national security be too great this is the probably trillion dollar
00:36question I'm Celia Hatton I've been following the Chinese state money that's flowed into Britain
00:44we are looking to uncover the hidden hand of the state and investigating whether sensitive
00:50knowledge flowed back the other way this is going to be recognized as the biggest intelligence
00:56failure since the Cambridge Five as China's strength grows how should Britain deal with a rising super
01:05power this September president Xi Jinping of China staged a military parade
01:29the optic of of China conducting the show of calling the shots it was certainly a narrative
01:43that was heard loud and clear around the world Vladimir Putin and North Korea's Kim Jong-un were
01:51alongside their host what he's trying to say is that this isn't a Western dominated world order that
02:00we have to accept by right there is a an alternative out there and I am starting to propose it and he's
02:06also positioning China as the leader of that the parade came at a time when two Britons were about
02:13to go to go on trial accused of spying for China Christopher Cash and Christopher Berry have always denied the
02:20charges the case collapsed because the prosecution said it didn't have enough evidence the government classed China as a threat to
02:29national security the one good thing that came out of the attempted prosecution was that at least it raised the issue in the minds of the
02:39the public are they a friend are they a foe what is our relationship with China now we're in a situation where the next
02:48superpower alongside America doesn't share our values would you say that China is a threat to the UK China poses a direct threat to
02:58our national security and our economic prosperity and we need to be really clear-eyed about that
03:04more than just missiles China has financial firepower too
03:12at William and Mary a university on the east coast of the US
03:19a team of researchers has been tracing how Beijing spends its money overseas China does not disclose
03:27its foreign lending or its foreign grant giving activities it considers it to be a state secret
03:33yeah let's zoom in on London a data gets its funding from governments and charitable foundations around
03:41the world for the past 10 years they've had a major focus on China we are looking to uncover the hidden hand of
03:50the state we do that by reviewing bond prospectuses stock exchange filings audited financial statements you name
03:58it highly decentralized information in more than a dozen languages across 200 countries and the goal is to
04:05understand which money flows are ultimately coming from the Chinese state
04:11aid data has given panorama exclusive access to their latest China data set
04:19for the better part of a decade we were focused like a laser on grants and loans to low-income and middle-income countries
04:30China was pouring billions into funding big-ticket infrastructure projects across the developing
04:40world from ports to railways as part of its Belt and Road initiative China wanted to come up with its own model of globalization
04:51Belt and Road is both a diplomatic tool and economic strategy and industrial policy it wants to build more ties with
05:02friends around the world wants to make more friends around the world
05:0610 years ago the British government thought it could make new friends too it was an extraordinary occasion we wanted to roll out the red carpet
05:23a UK that wanted to be best friends with a rising China
05:28Xi Jinping toured Britain on a state visit
05:33as we do in the UK we put on a great show
05:38we want the UK to be China's best partner in the West and we think there is an opportunity for a golden decade
05:47for the UK it was a business play here was a chance to be the most pro-business
05:54open European economy to track this wave of Chinese investment that we could see coming
06:00David Cameron and Xi Jinping even found time for a pint
06:06we thought China was basically a very friendly power and there was lots of money to be made
06:12how were the fish and chips sir very good excellent but under the surface we were beginning to sense
06:20a much more assertive China a data's new research shows just how assertive China was becoming it came
06:29as a great surprise to us when we realized that actually there were hundreds of billions of dollars
06:34flowing into places like the US and the UK and Germany you know happening right underneath our noses
06:40we were stunned to learn that the UK is one of the biggest beneficiaries of credit from Chinese state-owned entities
06:47a data has tracked more than 59 billion dollars of Chinese state money flowing into the UK since 2000
06:58the investments and lending span property the high street energy education
07:09and tech there are benign and less benign transactions and that's really the trick to be able to figure out which of these transactions
07:20is potentially problematic the data shows Chinese money has followed strategic goals of the state
07:30the state plays a role in mobilization coordination and allocation of capital and these things are very very important
07:40to kind of thrust the agenda forward and push everyone towards a certain strategic goal to go after one thing which is
07:48technological supremacy
07:50three simple words have reshaped the global manufacturing industry
07:54made in China
08:01made in China 2025 was a directive from the Chinese Communist Party 10 years ago
08:07Beijing was clear it wanted China to become the leader in 10 cutting-edge industries including robotics
08:15aerospace electric vehicles and AI by this year 2025
08:25made in China 2025 was a way to galvanize that energy and that incentive to overcome some of these key strategic challenges
08:34It did have the consequence of sounding alarm bells for the rest of the world
08:47Alarm bells were ringing in Washington DC
08:51John Bolton was a key advisor to Donald Trump on China during the president's first term
08:57The more we thought about the threat the more we saw ingenious ways that China could engage in economic transactions that look perfectly innocent
09:07but which were not
09:08I thought there was a lot of naivete across Europe generally
09:12The UK through successive governments had invested a lot in the bilateral relationship with China
09:18particularly in business terms
09:20We saw lots of examples of US regulators rejecting transactions that were then picked up elsewhere
09:31A wake-up call would soon come for the British government
09:37Well there's a cautionary tale from the United States
09:40and that was that a company called Canyon Bridge
09:43which was headquartered in Palo Alto in Silicon Valley
09:47This company with a mystery buyer tried to obtain an ownership stake in Lattice Semiconductor Corporation
09:58The deal was blocked in the US in September 2017
10:02By November 2017 they had a different target
10:06There was a semiconductor company in the UK called Imagination Technologies
10:11But the difference in the UK is that there were no cops on the beat
10:17We live in a world of exponential technological progress
10:23Imagination Technologies is a Hertfordshire based semiconductor company
10:27Their designs process the graphics in computers and phones
10:31and they also have AI applications
10:34This is our reality
10:36All semiconductor technology is ubiquitous today
10:40It's in essentially everything that you see and do
10:44And especially defense related systems
10:47Every time you see a missile
10:51Every time you see a drone
10:53Every time you see somebody giving a targeting package
10:56That allows you to know where to drop the bomb
10:58That's using AI
11:00This is what drives the defense industry today
11:04It's all built on tech
11:05That's why imagination was an incredible asset
11:10If you can transfer the knowledge and the technology
11:15Ron Black has 30 years experience managing tech companies
11:20This is the first time he's spoken publicly about his experience at imagination
11:26I think in the fullness of time
11:30This is going to be recognized as the biggest intelligence failure
11:34Since the Cambridge Five
11:36Back in 2017, Imagination Technologies had recently lost its main customer, Apple
11:43Its share price had tanked by 71% in a single day
11:49And the company was vulnerable
11:51I would call it a crown jewel of the UK tech industry
11:57That had fallen on hard times
12:00Imagination was snapped up by Canyon Bridge
12:04For 550 million pounds
12:07The Canyon Bridge entity that purchased imagination technologies
12:13Its ownership is split 99% and 1%
12:1799% is owned by Chinese state owned enterprise known as Yatai Capital
12:23We've learned that the single largest owner of Yatai Capital
12:28Is an entity called China Reform Holdings Corporation
12:32If you press upward, further up the ownership tree
12:36And try to figure out, well, who does China Reform Holdings Corporation report to?
12:42It reports ultimately to China State Council
12:47Which is the highest level policy making body in the country
12:51In 2018, Ron Black got a call from Canyon Bridge
12:57Offering him the job of turning imagination around
13:01I did a rather significant amount of diligence
13:05Canyon Bridge unequivocally told me that China Reform
13:09China Reform, which is the source of the money
13:12Was a passive investor interested in only making money
13:16And then even more importantly
13:19Is the UK government had vetted it
13:23There was no way China Reform
13:26Would be involved in anything other than as a passive investor
13:31I mean, spoiler alert, they were
13:34And that just took some time to come out
13:39The United Kingdom has been a very successful place for semiconductor design
13:47When you look back at that period
13:49And you look back at the semiconductor sector
13:52You'd have to say that we weren't thinking about that as strategically
13:55As perhaps hindsight would suggest we should have done
13:58In March 2019, Ron Black was summoned to a meeting in Beijing
14:05I landed on a Sunday
14:07And there's a meeting been arranged with China Reform
14:13So I showed up late at night at some tea house
14:18The Chinese tea is great, so it was very enjoyable
14:23This guy, he said, look Ron, what we would like you to do
14:30Is to work directly for China Reform
14:34What we would specifically like you to do
14:38Is transfer the technology
14:41But also the knowledge
14:43From the British engineers
14:45I think he said specifically
14:46From the heads of the British engineers
14:48To the Chinese engineers
14:50Then lay off the British engineers
14:53And you'll make a lot of money
14:55This is not good for the company
15:00So no
15:01Right
15:02Just absolutely not
15:04So that moment
15:07I realized that there is something wrong
15:13Later in 2019
15:16The investors, China Reform
15:18Tried to install four new directors
15:21Straight onto the board of Imagination Technologies
15:24They had no domain expertise to help the company
15:28With no understanding of semiconductors
15:31The only attributes they appeared to have
15:34Was a relationship with China Reform
15:36My reaction to this
15:38Was to constantly say no
15:41And push back
15:43I contacted the limited groups that I knew
15:49And the British government
15:51All of them were sympathetic
15:54But they basically took this stance
15:57Like this would be bad
15:59But it's a private industry matter
16:01And there's not much that we could do
16:05It was at that point in time
16:07Where I realized
16:08We're at the end of the rope
16:10I can't stop this to happen
16:12I know in my heart
16:13We're going to transfer military grade technology
16:16And the capabilities to do it
16:18So I have only one choice
16:21I have to resign
16:23That did cause the British government
16:27Let's say get more involved
16:31China Reform stopped their attempt
16:33To install new directors
16:35Ron Black withdrew his resignation
16:38But was fired three days later
16:41An employment tribunal found
16:43He was unfairly dismissed
16:45After he left
16:47Homegrown technology was transferred to China
16:53If somebody wants it
16:55Why do they want it?
16:56Right?
16:57And if there's any use that it can have for military
17:01You should just plan that that's going to be used
17:03I have to say some of this is self-inflicted
17:06You know you can blame a lot of people
17:09You can blame China
17:10But if you allow it to happen
17:12Well then you're allowing it to happen
17:15According to Imagination
17:17Its technology is not used in military products
17:20It told Panorama
17:22Imagination has always complied
17:24With applicable export and trade compliance laws
17:27In respect of its commercial licensing
17:29Of semiconductor IP technology
17:31And related transactions
17:33Canyon Bridge told Panorama
17:36The Imagination transaction
17:38Was sourced and led exclusively
17:40By Canyon Bridge and its advisors
17:42It says Yitai Capital provides capital
17:46But has no operational or management control
17:49Whatsoever in the fund
17:51China Reform did not respond to our request for comment
17:55As well as semiconductors
18:03There were other UK sectors
18:05Which China had in its sights
18:07Made in China 2025 is an industrial policy
18:12Which means the state is intervening in the economy
18:16And they're trying to direct corporations
18:19To behave in ways that they might not behave on their own
18:22And what they're saying is
18:24If we can dominate these sectors
18:26Then we are going to win the future
18:30Aerospace was a key industry where Britain excelled
18:36China wanted to up its game
18:39They said here are our needs
18:41And what does the UK have that addresses those needs?
18:44Jason Steen is a dealmaker
18:49Who brokers the sale of aerospace companies
18:52It was 2016
18:54And Jason was at work
18:56We got a phone call from a Chinese company called SLMR
19:01Saying that they were interested in acquiring in the UK
19:04And could we help them?
19:06Based in the city of Chengdu
19:08SLMR, or Shaanxi Lijiang's Mineral Resources
19:12Was a mining company
19:14We eventually decided with them
19:17That Gardner had the right attributes
19:20Gardner is a British company making parts for planes
19:26It's based in Derby
19:27With factories around the UK and overseas
19:30At the time it employed around 1400 people
19:34But had experienced mixed fortunes
19:37The fact that the performance was so erratic
19:43Was really the opportunity for the Chinese
19:47Because it would allow them to smooth out that wave, if you like
19:52The value of Gardner at the time
19:54Was they had contracts with Airbus
19:56Acquiring Gardner would help China's aerospace sector build its own planes
20:03And get a foothold in the European market
20:07SLMR gave Jason the green light
20:12Literally until the last minute
20:14We weren't sure that they were going to be able to pay for the deal
20:17And suddenly at 2am in the morning
20:19It sort of arrived in one lump sum
20:22So there was a lot of uncertainty dealing with them
20:24But the point was they did deliver in the end
20:28At the time it wasn't widely known how SLMR would finance the deal
20:34But ADATA say they've traced the source
20:37The total cost of the acquisition was about ÂŁ326 million
20:43And it was facilitated by a loan that had not been previously identified
20:49The loan came from Chengdu Shuangliu Xingcheng Construction Investment
20:55A fund owned by the Chinese government
20:58It covered roughly 65% of the cost of the acquisition
21:03So this demonstrates again the hidden hand of the party state
21:07It's like having a credit card with a sky-high limit
21:10So was it good for SLMR as if it was an independent company?
21:15Probably not
21:16Was the deal good for China?
21:19It was an outstanding deal for China, in my opinion
21:22Because they'd been able to get into the European aerospace supply chain
21:27Jason believes that being bought by SLMR saved Gardner
21:32As it happened, because we then go into Covid quite rapidly
21:36Having that security of finance and security of ownership
21:41Allowed Gardner to ride out the downturn
21:44When many others in the British commercial aerospace supply chain went to the wall
21:50But it also meant that a valuable British company in a key sector
21:56Had quietly been snapped up with money from the Chinese state
22:00Once Gardner was in their possession
22:04They turned around and tried to purchase other UK companies in the aerospace sector
22:12In 2018, Gardner, now under Chinese ownership, bought another UK company, Northern Aerospace
22:19They wanted to consolidate other aspects of the aerospace supply chain
22:25And they liked Britain, they really liked Britain
22:28A year later, Gardner also tried to buy another British aerospace company, Imcross
22:34But the then Conservative government intervened as Imcross had contracts with the MOD
22:41Gardner dropped its pursuit
22:45But by now, China had strengthened its position in the global aerospace supply chain
22:52Gardner did not respond to Panorama's request for comment
22:56One of the key advantages of China's political system is the ability to set multi-decade long goals
23:07And you do the planning, you set the strategy, you influence the financing
23:13This is not a three-year thing, it's not a five-year thing
23:17The Gardner deal came at the peak of Beijing's strategy
23:21Using its money to boost its power
23:24A-Data's research reveals that this century, China is the world's largest overseas lender
23:31To the tune of $2.1 trillion
23:35The high watermark of China's overseas lending was 2016 and 2017
23:42And so they flooded the zone with credit
23:45By 2017, the cops on the beat were onto them
23:48And they started tightening the noose
23:51And strengthening the screening mechanisms on national security grounds
23:59The US and other major economies had all tightened security vetting on foreign investment by 2018
24:07The UK followed suit four years later
24:10We have a much stronger regime in place now
24:13We have a much stronger regime in place now
24:14You'd have to say that there is a process here that is starting to work
24:18But would I say the process is watertight? Absolutely not
24:21Absolutely not
24:26Keir Starmer came to power in 2024
24:28Promising the UK would cooperate with China where possible
24:33And challenge where it must
24:35We knew, as Labour, that we were going to need to be clear about what our relationship with China was going to be
24:44But that hasn't proved easy
24:46The government needs the economy to grow
24:48Chinese money could help
24:50The UK actually needs investment
24:54It's lacking in investments
24:56China is very happy to finance some of these projects
25:01And there are lots of areas where there's no real threat of national security
25:09The Chancellor Rachel Reeves has already been on a mission to Beijing to secure foreign investment
25:15The total value of what we have agreed today is worth ÂŁ600 million over the next five years for the UK economy
25:25There's been a positive signal sent from the UK to China that the UK is interested in exploring more opportunities
25:36The Chinese are waiting to see if new opportunities will materialise
25:42Labour's election manifesto promised a China audit to set out a long-term strategy for dealing with Beijing
25:52I was promised by the foreign secretary that it would be published
25:57Then we hear that the China audit has happened
26:02But we're not going to be told about it
26:04We're only going to get a few lines
26:07And that's it
26:09And there's also a strategy but that's a secret too
26:11How can you have a secret strategy?
26:14We need to be approaching this with a bit more confidence, a bit more honesty
26:19Let's be straightforward about it
26:21The Foreign Office has said it didn't publish the full audit because of its security classification
26:27It told Panorama it takes a consistent and strategic approach to China, the UK's third largest trading partner
26:34It says it's committed to supporting UK businesses to trade securely
26:41And it will use its powers to protect UK interests
26:45The Chinese Embassy says its government has always required Chinese enterprises operating overseas to strictly comply with local laws and regulations
26:54And that these enterprises also contribute actively to local economic growth, social development and job creation
27:04Efforts that have been widely welcomed by many countries
27:08All countries are now having to reckon with China as a rising superpower
27:18At recent talks between Donald Trump and Xi Jinping, the two men agreed a ceasefire in their trade war
27:25The great leader, the leader of the very powerful, very strong country, China
27:34Britain must choose how it deals with China
27:38No one can ignore China, China's not going away, it's the second biggest economy in the world
27:49If you said, what we don't want to trade with China, we can give you a very quick answer
27:55We don't want to trade sensitive technologies
27:59But if you said, what do we want to trade with China, I think we struggle to give an answer
28:03Can the government find a way to do business with China while keeping Britain safe?
28:12This is the probably trillion dollar question
28:16My hope is that we'll learn the lesson from the last couple of decades
28:20We'll be more strategic about where our vital security and economic interests come into play
28:26For years, China has planned for the long term
28:29Now, Britain will have to do the same
28:59I所 visite, the world if we were in the past
29:02epistemology of China
29:05And the lowest deleteie engine
29:08This industry refers to countries with the only health of the world
29:11We are not going to trade through the realm
29:14Of any infrastructure thatitelieveância
29:16Serious joint decisions
29:19Fund:「 Australia?
29:21How are the questions with Australia?
29:24ails from Australia
29:26lij tragedies
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