China says it is highly concerned about safety of its UK investments

China has said it is highly concerned about the future openness and safety of Chinese investments in the UK after the Commons defence select committee said the presence of Huawei in UK 5G networks represented “a significant risk to individuals and government”.

The committee also dismissed claims by Huawei that it was independent from the Chinese Communist party.

A Chinese foreign ministry spokeswoman, Hua Chunying, said in response to the report that some in the UK should think before they speak and that the legitimate interests of Chinese companies were being damaged.

“The openness and fairness of the UK market, as well as the security of foreign investments there, is highly concerning,” she said, speaking at a daily news conference in Beijing on Friday.

Huawei responded to the report by saying it lacked credibility. “It is built on opinion rather than fact. We’re sure people will see through these groundless accusations of collusion and remember instead what Huawei has delivered for Britain over the past 20 years,” a company spokesman said.

Q&A What is Huawei and why is its role in 5G so controversial?

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Fast-growing Huawei is arguably China’s first global multinational. The Shenzhen-based company makes mobile phones, base stations and the intelligent routers that facilitate communications around the world.

But its success increasingly concerns the US, which argues Huawei is ultimately beholden to the Chinese Communist party and has the capability to engage in covert surveillance where its equipment is used.

Huawei is by some distance the world’s largest supplier of telecoms equipment with an estimated 28% market share in 2019. It was also the second largest phone maker in 2019, after Samsung and ahead of Apple.

But Australia banned Huawei from 5G in 2018, with its spy agencies declaring they were worried the company could shut down power networks and other parts of its infrastructure in a diplomatic crisis.

Trump banned US companies from working with Huawei last year and has strenuously lobbied others to follow suit, venting “apoplectic fury” in a phone call to Boris Johnson after the UK agreed to allow the Chinese company into 5G.

The company had successfully targeted the UK early on. It has supplied BT since 2003 and gradually expanded to the point where it agreed to create a special unit in Banbury, known as the Cell, where the spy agency GCHQ could review and monitor its software code. Vodafone is another key customer.

Britain’s intelligence agencies said in January that any Huawei risk could be managed as long as the company was not allowed to have a monopoly. As a result, Boris Johnson concluded Huawei’s market share should be capped at 35% for forthcoming high-speed 5G networks.

In July 2020 the UK position changed, and it was announced that Huawei is to be stripped out of Britain’s 5G phone networks by 2027. Oliver Dowden, the UK culture secretary, also announced that no new Huawei 5G kit can be bought after 31 December 2020 – but said that older 2G, 3G and 4G kit can remain until it is no longer needed.

Dan Sabbagh Defence and security editor

Photograph: Mark Schiefelbein/AP

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The Chinese foreign ministry reaction, although in line with other recent criticism of UK policy towards China, underlines the risks British and Chinese firms face as they seek to trade in each other’s markets.

The MPs had admitted that “ending China’s involvement in the UK’s critical infrastructure would be a radical step with huge implications for the UK’s economy”, but they also warned that “if threats by the Chinese state continue and worsen, the government should carefully consider China’s future presence in critical sectors of the economy”.

The latest comments from China are likely to add to calls for the government to use the imminent national security and investment bill to take wider powers to block new or existing foreign investments that threaten Britain’s national interest.

Chinese investments in the nuclear industry and potentially HS2 are judged to be the most controversial.

The Chinese reaction comes despite the select committee holding back from assessing Huawei’s presence in UK 5G as a major risk. The MPs point out the UK government’s cyber experts had been clear that the original UK plan, set out in January 2020 but subsequently abandoned under US pressure in July, to restrict Huawei to 35% of the market had been correct.

The MPs also found there was no risk of Huawei being able to access UK intelligence communications through its access to 5G.

The committee said the UK ministers had in effect been forced to change their position to a complete removal of Huawei by 2027 mainly due to the US decision in May to ban the use of reliable US chips in the Huawei network. That meant Huawei 5G in turn was no longer as reliable.

“From our public and private conversations with the government,” the MPs reported, “we were confident that GCHQ and the National Cyber Security Centre (NCSC) were able to appropriately manage any increased risk posed by the presence of Huawei or other high-risk vendors in the UK’s 5G. Furthermore, we recognised that whilst the risk remained manageable, it was important to remember the benefits in having a greater number of vendors involved in 5G network provision.”

The NCSC told the committee there was no technical reason for the UK’s close intelligence allies – the US and Australia – to ban Huawei outright, leading the MPs to conclude that steps had been taken for geopolitical reasons.

The MPs also warned of blackouts across the network if the government tried to speed up the Huawei phaseout to a date as early as 2025.

In one of the most damning passages of the report, the committee said Huawei “is clearly strongly linked to the Chinese state and the Chinese Communist party, despite its statements to the contrary, as evidenced by its ownership model and the subsidies it has received. Additionally, Huawei’s apparent willingness to support China’s intelligence agencies and China’s 2017 national intelligence law are further cause for concern.”

The MPs also expressed concern that the recent discussions about UK allies cooperating to form an alternative to Huawei remained hazy, pointing out that the ejection of Huawei would leave the UK with a three-company vendor market, which presents a resilience risk of its own. They said one of the three firms still active in the UK market – the Swedish firm Ericsson – was highly dependent on Chinese products.