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Imagination takeover ‘could put UK security at risk’

A former spy chief has demanded action on Chinese takeovers amid fears the sale of a top British technology firm could put military secrets at risk.

Imagination Technologies is being bought for £550million by private equity company Canyon Bridge, which is secretly backed by Beijing-controlled Yitai Capital.

Experts including former MI6 deputy head Nigel Inkster said Britain lacks a clear policy on China and called for deals to be carefully examined to protect national security and business.

Hertfordshire-based microchip maker Imagination’s technology is used in billions of devices worldwide, including many smartphones and computers.

Imagination Technologies, which among other things creates chips for iPhones (pictured), is being bought for £550million by private equity company secretly backed by Beijing-controlled Yitai Capital

Critics warned that its sale was part of an effort by the Communist dictatorship in Beijing to create a microchip monopoly that could endanger Western technology. They said this might force the British military to rely on Chinese components that could incorporate hidden features.

Earlier this month, the US government blocked Canyon Bridge from buying American chipmaker Lattice Semiconductor on grounds of national security. Pressure will now be piled on Theresa May to follow suit with Imagination.

Mr Inkster said Britain needs far more scepticism when approaching such deals. The former spy chief, who is now a director at the International Institute for Strategic Studies, said: ‘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. 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.’

Chips in millions of phones

Imagination Technologies has long been a jewel in Britain’s technology crown – making microchips for billions of products from Apple smartphones to wireless speakers.

Founded in 1985, it is one of the few firms outside Silicon Valley to play a leading role in the global computing industry. Apple, the company’s biggest customer, uses many of the 1.2billion chips produced every year in its iPhones and iPads.

But this year Imagination’s share price crashed when the US tech giant said it wanted to make its own chips instead. It set the scene for a legal case that could drag on for years.

Apple is also said to have poached several key staff from Imagination, which employs more than 1,000 people in 20 countries and has its HQ in Kings Langley, Hertfordshire.

Ministers have powers to block the Chinese takeover under the 2002 Enterprise Act, which lets the Business Secretary refuse bids that could damage national security.

John Hemmings, of The Henry Jackson Society think-tank, said the deal has ‘all sorts of implications in the military sphere’.

‘If the military suddenly has to start buying semiconductors from China, there are very serious concerns,’ he said. Chinese firms might build ‘back doors’ into their chips which allow devices to be hacked into by the state. Consumer electronics could also be at risk, he added.

Mrs May has pledged to stand up to overseas predators. However, no objections were raised when British tech giant ARM Holdings was sold to the Japanese, and Chinese involvement in the Hinkley Point nuclear power station was allowed to proceed as planned after a short ‘pause’. Dr Hemmings said it was as if George Osborne – who wooed the Chinese while Chancellor – was still in power. ‘Osborne has gone, but it’s as if his ghost was still at the wheel of the ship,’ he said.

‘We need trained lawyers and civil servants to really have time to look into these deals and to make sure we’re not selling the future of defence.’

Liberal Democrat leader Vince Cable, a former business secretary, said the government has ‘done nothing to put in place a more satisfactory regime for corporate takeovers’.

Labour MP Wes Streeting, a member of the Treasury select committee, said: ‘It’s something the Government ought to take a close interest in.’ A spokesman for the Department for Digital, Culture, Media and Sport said it could not comment on the ‘commercially sensitive’ case.’ Imagination could not be reached for comment.