In a significant move, the UK government has decided to take control of British Steel, which was previously owned by the Chinese firm Jingye. This decision has ignited a call for increased scrutiny of Chinese investments throughout the United Kingdom. In recent years, the Chinese presence in the British economy has expanded dramatically, and unraveling the complex web of financial ties established by Beijing will be no small feat.

Since the year 2000, over $100 billion has poured into the UK from Chinese investors, a figure highlighted by the Rhodium Group, a prominent research organization specializing in global investment trends. This influx of capital has raised alarms among various stakeholders, particularly concerning areas deemed strategically vital to national security.

According to analysis from the American Enterprise Institute (AEI), approximately one-third of Chinese financial outlays in the UK have been directed toward key sectors such as energy, technology, and transport. These sectors are essential to the country's infrastructure and economy, prompting serious questions about the implications of Chinese ownership and influence.

Prominent figures within the Labour Party have voiced concerns regarding critical infrastructures like nuclear energy, telecommunications, and transportation. They argue that continued Chinese ownership in these sectors poses a potential risk to Britain's economic security and could disrupt crucial supply chains.

Focusing specifically on energy, it has been reported that nearly 20% of all major Chinese investments in the UK since 2005 have been allocated to this sector. Investments have spanned a variety of projects, including wind farms off the coast of Scotland and gas networks serving Wales and Northern Ireland.

Derek Scissors, a senior fellow at AEI, emphasized the appeal of Chinese state-owned enterprises due to their considerable size and expertise, especially in large-scale infrastructure projects like nuclear power plants. However, he also expressed concern over the potential risks associated with allowing the Chinese state to play a role in such critical national infrastructure.

Among the leading Chinese state investors are the China Investment Corporation, which holds an 8.7% stake in Thames Water and a 10% stake in Heathrow Airport, as well as China General Nuclear (CGN), which owns a minority share in the Hinkley Point C nuclear power station in Somerset. CGN was also in line to partner with French energy giant EDF on a new nuclear power station in Bradwell, Essex. However, recent developments indicate that UK officials are likely to block CGNs investment in this project, reflecting the growing pressure to diminish Beijing's influence on critical infrastructure.

While state-owned enterprises have channeled their investments primarily into energy and infrastructure, private Chinese investors have been more concentrated in the real estate and strategic manufacturing sectors, such as semiconductors, steel, and transportation. For instance, Geely, the owner of Volvo Cars, has made headlines by acquiring the British taxi manufacturer LEVC and the renowned sports car brand Lotus, both of which operate factories in the UK.

Chinese foreign direct investment (FDI) in major UK projects has been on a downward trajectory in recent years, dropping to just 3% of its peak in 2017. Scissors attributed this decline to a combination of a less welcoming environment in the UK and Beijing's tightening of capital controls. Additionally, private investors have been discouraged by the poor performance of property investments, which have seen significant devaluation.

Interestingly, the UK is not isolated in witnessing a sharp fall in Chinese funding. Data from AEI shows that Chinese investment in major projects has plummeted by 97% in the United States and 87% in Europe from their peak levels in the mid-2010s to 2023.

Armand Meyer, a senior research analyst at the Rhodium Group, pointed out that increased scrutiny from UK regulators has played a significant role in curbing investments in recent years. Nevertheless, he noted that the UK has historically been one of the top destinations for Chinese funding over the past two decades, with state-owned companies contributing a notably high share of that funding.

According to Meyer, the UK's comparatively open approach to foreign ownership in strategic sectors has attracted more infrastructure investment from China than most other OECD economies. Looking ahead, one of the primary challenges facing the UK and similar OECD countries lies in dealing with the legacy of acquisitions made prior to the tightening of investment screening regimes.