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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 question
00:37I'm Celia Hatton I've been following the Chinese state money that's flowed into Britain we are
00:44looking to uncover the hidden hand of the state and investigating whether sensitive knowledge
00:51flowed back the other way this is going to be recognized as the biggest intelligence failure
00:57since the Cambridge Five as China's strength grows how should Britain deal with a rising superpower
01:06this September president Xi Jinping of China staged a military parade
01:15the optic of China conducting the show of calling the shots it was certainly a narrative that was
01:30heard loud and clear around the world Vladimir Putin and North Korea's Kim Jong-un were
01:39alongside their host what he's trying to say is that this isn't a Western dominated world order that we
01:45have to accept by right there is an alternative out there and I am starting to propose it and he's also
01:54positioning China as the leader of that the parade came at a time when two Britons were about to go on trial
02:00accused of spying for China Christopher Cash and Christopher Berry have always denied the charges the
02:09case collapsed because the prosecution said it didn't have enough evidence the government class China as a threat to
02:15national security the one good thing that came out of the attempted prosecution was that at least it raised the issue in the
02:24minds of the public are they a friend are they a foe what is our relationship with China
02:30now we're in a situation where the next superpower alongside America doesn't share our values
02:37would you say that China is a threat to the UK China poses a direct threat to our national security
02:43the one good thing that came out of the attempted prosecution was that at least it raised the issue in the minds of the public
02:48are they a friend are they a foe what is our relationship with China
02:51now we're in a situation where the next superpower alongside America doesn't share our values
02:55would you say that China is a threat to the UK
02:58direct threat to our national security and our economic prosperity and we need to be really clear-eyed about that
03:08more than just missiles China has financial firepower too
03:15at William & Mary a university on the east coast of the US
03:19a team of researchers has been tracing how Beijing spends its money overseas
03:25China does not disclose its foreign lending or its foreign grant giving activities
03:30it considers it to be a state secret
03:33yeah let's zoom in on London
03:35Aid data gets its funding from governments and charitable foundations around the world
03:41for the past 10 years they've had a major focus on China
03:46we are looking to uncover the hidden hand of the state
03:50we do that by reviewing bond prospectuses stock exchange filings
03:55audited financial statements you name it
03:58highly decentralized information in more than a dozen languages across 200 countries
04:03and the goal is to understand which money flows are ultimately coming from the Chinese state
04:10aid 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 world
04:41from ports to railways as part of its Belt and Road initiative
04:47China wanted to come up with its own model of globalization
04:51Belt and Road is both a diplomatic tool an economic strategy and industrial policy
05:00it wants to build more ties with friends around the world
05:04wants to make more friends around the world
05:1410 years ago the British government thought it could make new friends too
05:19it was an extraordinary occasion we wanted to roll out the red carpet
05:24a UK that wanted to be best friends with a rising China
05:30Xi Jinping toured Britain on a state visit
05:34as we do in the UK we put on a great show
05:39we want the UK to be China's best partner in the West
05:43and we think there is an opportunity for a golden decade
05:46for the UK it was a business play
05:51here was a chance to be the most pro-business open European economy
05:56to track this wave of Chinese investment that we could see coming
06:01David Cameron and Xi Jinping even found time for a pint
06:05we 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?
06:14very good, excellent
06:16but under the surface we were beginning to sense a much more assertive China
06:22a data's new research shows just how assertive China was becoming
06:27it came as a great surprise to us when we realized that actually there were hundreds of billions of dollars flowing into places like the US and the UK and Germany
06:38you know, happening right underneath our noses
06:41we were stunned to learn that the UK is one of the biggest beneficiaries of credit from Chinese state-owned entities
06:48a data has tracked more than 59 billion dollars of Chinese state money flowing into the UK since 2000
07:01the investments and lending span property
07:05the high street
07:07energy
07:09education
07:11and tech
07:12there are benign and less benign transactions
07:16and that's really the trick
07:18to be able to figure out which of these transactions is potentially problematic
07:24the data shows Chinese money has followed strategic goals of the state
07:32the state plays a role in mobilization, coordination and allocation of capital
07:38and these things are very very important to kind of thrust the agenda forward and push everyone towards a certain strategic goal
07:46to go after one thing which is technological supremacy
07:51three simple words have reshaped the global manufacturing industry
07:55made in China
07:59made in China
08:022025 was a directive from the Chinese Communist Party 10 years ago
08:08Beijing was clear
08:10it wanted China to become the leader in 10 cutting-edge industries
08:15including robotics
08:17aerospace
08:18electric vehicles
08:20and AI
08:22by this year 2025
08:23made in China 2025
08:25made in China 2025
08:27was a way to galvanize that energy and that incentive to overcome some of these key strategic challenges
08:36it did have the consequence of sounding alarm bells for the rest of the world
08:44alarm bells were ringing in Washington DC
08:50John 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
09:01ingenious ways that China could engage in economic transactions that look perfectly innocent
09:07but which were not
09:09I thought there was a lot of naivete across Europe generally
09:13the UK through successive governments had invested a lot in the bilateral relationship with China
09:18particularly in business terms
09:21we saw lots of examples of US regulators rejecting transactions that were then picked up elsewhere
09:29a wake-up call would soon come for the British government
09:34well there's a cautionary tale from the United States and that was that a company called Canyon Bridge
09:43which was headquartered in Palo Alto in Silicon Valley
09:48this 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
10:10but the difference in the UK is that there were no cops on the beat
10:15we live in a world of exponential technological progress
10:23Imagination Technologies is a Hertfordshire based semiconductor company
10:28their designs process the graphics in computers and phones
10:32and they also have AI applications
10:34this is our reality
10:35all semiconductor technology is ubiquitous today
10:41it's in essentially everything that you see and do
10:45and especially defense related systems
10:50every time you see a missile
10:52every time you see a drone
10:54every time you see somebody giving a targeting package
10:57that allows you to know where to drop the bomb
10:59that's using AI
11:00this is what drives the defense industry today
11:04it's all built on tech
11:06that'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
11:25I think in the fullness of time this is going to be recognized as the biggest intelligence failure
11:35since the Cambridge Five
11:37back in 2017
11:40Imagination Technologies had recently lost its main customer
11:44Apple
11:46its share price had tanked by 71% in a single day
11:50and the company was vulnerable
11:51I would call it a crown jewel of the UK tech industry that had fallen on hard times
12:02Imagination was snapped up by Canyon Bridge for 550 million pounds
12:08the Canyon Bridge entity that purchased imagination technologies
12:14its ownership is split 99% and 1%
12:1799% is owned by Chinese state owned enterprise known as Yatai Capital
12:24we've learned that the single largest owner of Yatai Capital is an entity called China Reform Holdings Corporation
12:33if you press upward further up the ownership tree and try to figure out
12:38well who does China Reform Holdings Corporation report to
12:42it reports ultimately to China State Council which is the highest level policy making body in the country
12:52in 2018 Ron Black got a call from Canyon Bridge offering him the job of turning imagination around
13:01I did rather significant amount of diligence Canyon Bridge unequivocally told me that China Reform
13:09China Reform which is the source of the money was a passive investor interested in only making money
13:17and then even more importantly is the UK government had vetted it
13:24there was no way China Reform would be involved in anything other than as a passive investor
13:31I mean spoiler alert they were and that just took some time to come out
13:40United Kingdom has been a very successful place for semiconductor design
13:48when you look back at that period and you look back at the semiconductor sector
13:51you'd have to say that we weren't thinking about that as strategically as perhaps hindsight would suggest we should have done
14:01In March 2019 Ron Black was summoned to a meeting in Beijing
14:06I landed on a Sunday
14:08and there's a meeting been arranged with China Reform
14:13so I showed up late at night at some tea house
14:19the Chinese tea is great so it was very enjoyable
14:23this guy he said
14:27look 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
14:37is transfer the technology but also the knowledge from the British engineers
14:42from the British engineers
14:44I think he said specific from the heads of the British engineers
14:47to the Chinese engineers
14:50then lay off the British engineers
14:53and you'll make a lot of money
14:56this is not good for the company
15:00so no
15:02right just absolutely not
15:04so that moment I realized
15:09that there is something wrong
15:15Later in 2019 the investors China Reform
15:19tried to install four new directors
15:22straight onto the board of Imagination Technologies
15:25They had no domain expertise to help the company
15:29with no understanding of semiconductors
15:30the only attributes they appeared to have
15:34was a relationship with China Reform
15:37my reaction to this was to constantly say no
15:41and push back
15:44I contacted the limited groups that I knew in the British government
15:52all of them were sympathetic
15:55but they basically took the stance like this would be bad
15:58but it's a private industry matter and there's not much that we could do
16:04it was at that point in time where I realized
16:09we're at the end of the rope
16:11I can't stop this to happen
16:13I know in my heart we're going to transfer military grade technology
16:17and the capabilities to do it
16:19so I have only one choice
16:21I have to resign
16:22that did cause the British government to let's say get more involved
16:29China Reform stopped their attempt to install new directors
16:36Ron Black withdrew his resignation
16:39but was fired three days later
16:41an employment tribunal found he was unfairly dismissed
16:44after he left homegrown technology was transferred to China
16:51if somebody wants it
16:55why do they want it
16:57right and if there's any use that it can have for military
17:01you should just plan that that's going to be used
17:04I have to say some of this is self-inflicted
17:06you know you can blame a lot of people you can blame China but if you allow it to happen
17:12well then you're allowing it to happen
17:15According to Imagination its technology is not used in military products
17:21it told Panorama
17:23Imagination has always complied with applicable export and trade compliance laws
17:28in respect of its commercial licensing of semiconductor IP technology and related transactions
17:33Canyon Bridge told Panorama
17:37the Imagination transaction was sourced and led exclusively by Canyon Bridge and its advisors
17:43it says Yitai Capital provides capital
17:47but has no operational or management control whatsoever in the fund
17:51China Reform did not respond to our request for comment
17:55As well as semiconductors there were other UK sectors which China had in its sights
18:09Made in China 2025 is an industrial policy
18:13which means the state is intervening in the economy
18:17and they're trying to direct corporations to behave in ways that they might not behave on their own
18:22and what they're saying is if we can dominate these sectors then we are going to win the future
18:31Aerospace was a key industry where Britain excelled
18:37China wanted to up its game
18:39They said here are our needs and what does the UK have that addresses those needs
18:44Jason Steen is a deal maker who brokers the sale of aerospace companies
18:51It was 2016 and 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 and could we help them
19:05Based in the city of Chengdu, SLMR or Shaanxi Lijian's Mineral Resources was a mining company
19:15We eventually decided with them that Gardner had the right attributes
19:23Gardner is a British company making parts for planes
19:26It's based in Derby with factories around the UK and overseas
19:31At the time it employed around 1,400 people
19:35but had experienced mixed fortunes
19:39The 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
19:51The value of Gardner at the time was they had contracts with Airbus
19:57Acquiring Gardner would help China's aerospace sector build its own planes
20:04and get a foothold in the European market
20:07SLMR gave Jason the green light
20:12Literally until the last minute we weren't sure that they were going to be able to pay for the deal
20:17and suddenly at 2am in the morning it sort of arrived in one lump sum
20:22So there was a lot of uncertainty dealing with them
20:25but the point was they did deliver in the end
20:29At the time it wasn't widely known how SLMR would finance the deal
20:35but ADATA say they've traced the source
20:38The total cost of the acquisition was about £326 million
20:43and it was facilitated by a loan that had not been previously identified
20:50The loan came from Chengdu Xiongliu Xingcheng Construction Investment
20:56a fund owned by the Chinese government
20:59It covered roughly 65% of the cost of the acquisition
21:04So this demonstrates again the hidden hand of the party state
21:08It'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
21:17Was the deal good for China?
21:19It was an outstanding deal for China in my opinion
21:23because 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
21:37having that security of finance and security of ownership
21:42allowed Gardner to ride out the downturn
21:45when 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
21:55had quietly been snapped up with money from the Chinese state
22:01Once Gardner was in their possession
22:05they turned around and tried to purchase other UK companies in the aerospace sector
22:12In 2018, Gardner, now under Chinese ownership
22:16bought 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
22:29A year later, Gardner also tried to buy another British aerospace company, ImpCross
22:35but the then Conservative government intervened
22:38as ImpCross had contracts with the MOD
22:41Gardner dropped its pursuit
22:43But by now, China had strengthened its position in the global aerospace supply chain
22:52Gardner did not respond to Panorama's request for comment
22:57One of the key advantages of China's political system
23:03is the ability to set multi-decade long goals
23:07And you do the planning, you set the strategy
23:09you influence the financing
23:14This is not a three-year thing
23:16It's not a five-year thing
23:18The Gardner deal came at the peak of Beijing's strategy
23:22using its money to boost its power
23:25A-Data's research reveals that this century
23:29China is the world's largest overseas lender
23:32to the tune of $2.1 trillion
23:36The high watermark of China's overseas lending
23:40was 2016 and 2017
23:43and so they flooded the zone with credit
23:46By 2017, the cops on the beat were onto them
23:49and they started tightening the noose
23:52and strengthening the screening mechanisms
23:56on national security grounds
23:57The US and other major economies had all tightened security vetting on foreign investment by 2018
24:08The UK followed suit four years later
24:12We have a much stronger regime in place now
24:15You'd have to say that there is a process here that is starting to work
24:19But would I say the process is watertight? Absolutely not
24:22Keir 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
24:43But that hasn't proved easy
24:47The government needs the economy to grow
24:50Chinese money could help
24:52The UK actually needs investment
24:55It's lacking in investments
24:57China's very happy to finance some of these projects
25:00And there are lots of areas where there's no real threat of national security
25:08The 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 £600 million over the next five years for the UK economy
25:23There'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, waiting to see if new opportunities will materialise
25:45Labour'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
26:12How can you have a secret strategy?
26:14We need to be approaching this with a bit more confidence
26:18A bit more honesty
26:19Let's be straightforward about it
26:20The Foreign Office has said it didn't publish the full audit
26:25Because of its security classification
26:27It told Panorama it takes a consistent and strategic approach to China
26:32The UK's third largest trading partner
26:35It says it's committed to supporting UK businesses to trade securely
26:40And it will use its powers to protect UK interests
26:43The Chinese Embassy says its government has always required Chinese enterprises operating overseas to strictly comply with local laws and regulations
26:56And 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
27:07All countries are now having to reckon with China as a rising superpower
27:16At recent talks between Donald Trump and Xi Jinping
27:22The two men agree to cease fire in their trade war
27:25He's a great leader
27:28He's a great leader
27:29A great leader of the very powerful, very strong country China
27:34Britain must choose how it deals with China
27:38No one can ignore China
27:43No one can ignore China
27:45China's not going away
27:46It's the second biggest economy in the world
27:50If you said what we don't want to trade with China
27:54We can give you a very quick answer
27:55We don't want to trade sensitive technologies
27:57But if you said what do we want to trade with China
28:02I think we struggle to give an answer
28:06Can 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
28:25For years China has planned for the long term
28:30Now, Britain will have to do the same
28:55She ties in Zealand
28:56Police durante the rules
28:59For decades j illegal
29:02wealth
29:04Not concrete
29:07Muslim
29:09Mague
29:112
29:12Osborne
29:1421
29:15T
29:1720
29:1915
29:2020
29:2121
29:2320
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