THE U.K.’s deteriorating relations with China are casting a pall over venture capital firms, with investors saying that a lack of clarity over what further restrictions could be imposed is leaving them in limbo.

Foreign Secretary Dominic Raab told the House of Commons on July 20 that the U.K. “won’t accept any investment that compromises our domestic or national security.”

Without a definition of what constitutes technology critical to national security, venture capitalists say investments into the U.K. are facing heightened scrutiny — and deals are drying up. The Chinese mainland and Hong Kong is the fifth-biggest source of foreign direct investment into projects in the U.K., according to the Department for International Trade.

The government has promised more details on what it will allow when it publishes the National Security and Infrastructure Bill later this year.

Ian Harvey, former CEO of BTG Plc, the once state-owned British Technology Group, is skeptical that a distinction between secure and non-secure technologies can be made.

“You can’t ring-fence technology,” he said. “The boundaries are very hard to define.”

Any widening of the definition of critical technologies is a cause for concern, said Martin Rigby, co-founder of ET Capital, a Cambridge, England-based venture firm that oversees a fund backed solely by Chinese investors.

He said he’s thinking twice about investing in any firm active in cyber security, telecommunications and, more broadly, any technology that could be “subverted for surveillance.”

“We don’t know, given the present climate, what the government’s attitude is going to be,” he said.

U.K. firms are more closely scrutinizing their Chinese partners in potential joint ventures, said Julian Godding, head of Business Development at Shanghai-based Dipole Tech, a clean energy data firm.(SD-Agencies)