When Xi Jinping met Theresa May on the sidelines of the G20 summit in Hangzhou this month he said he was prepared to be patient on a high-profile investment by China General Nuclear Corporation (CGN) in a British power plant.
He didn’t have to wait too long. The deal had been thrown into doubt by a last-minute delay from Britain’s new prime minister in July but last Thursday her government gave the go-ahead to the new nuclear plant, with the proviso that the British could veto changes in ownership at the facility in future.
CGN is providing a third of the £18 billion ($23.4 billion) in funding for French utility giant Electricité de France’s construction of two European-designed reactors at Hinkley Point in Somerset. The Chinese are also committed to a minority investment in two more reactors at Sizewell in Suffolk. But it’s the third part of the tie-up – the chance to install reactors of Chinese design at another plant at Bradwell in Essex – that is the key part of the arrangement, something that CGN made clear in welcoming the Hinkley decision as a “package deal”.
The Chinese regard the Bradwell deal as the proof of concept for their nuclear technology, which it would like to sell to other developed markets. Yet the British government’s statement on Hinkley made no mention of the other projects or any Chinese involvement in the plan. Instead it highlighted that “significant new safeguards” would be introduced for foreign investment in critical infrastructure, including the ‘golden share’ arrangement that allows the authorities to block changes in ownership at Hinkley.
May’s earlier decision to review the terms of the contract (see WiC336) was interpreted as a sign of a break with the pro-Chinese stance of George Osborne, formerly Chancellor of the Exchequer, who has positioned Britain as Beijing’s best friend in the West (see WiC300).
Thus news of the approval was greeted with relief for Beijing. “May has managed a good deal – she has managed to satisfy her domestic critics, satisfy her own cautious nature, and keep the Chinese on side,” an unnamed official told China Daily.
Elsewhere frustration remained. “Let us not forget that the programme, despite its various benefits for all parties, was on the brink of being killed by groundless worries that China’s investment would be a threat to Britain’s national security,” Xinhua warned. “Had the programme gone under, all sides were to lose dearly, while China-Britain relations could have been tossed into uncertainty.”
The statement from the British government made clear that deals like Hinkley are going to be reviewed differently in future, while the stipulation preventing changes in ownership clearly implies that May’s government is uncomfortable about the Chinese taking control.
In the case of Bradwell, however, this will resurface as a political issue. In a reversal of the terms for Hinkley, the Chinese are supposed to take two-thirds of the project, with the French the remainder.
In the meantime CGN is pushing ahead with its proposals to install the reactors at Bradwell and it is expected to submit its technical plans in the next few weeks. The review process should take at least four years, which will give a little more leeway for both sides to work on the politics of the deal. But the signal that foreign ownership is going to come under greater scrutiny will embolden opponents of Chinese investment in British energy infrastructure in general, especially when other governments have been blocking similar bids (see WiC338).
Indeed another awkward decision beckons for May: Chinese interest in the upcoming auction of a controlling stake in National Grid’s gas distribution business, which is valued at £11 billion. China Gas – another state-controlled giant – is said to be joining forces with the investment conglomerate Fosun in pursuit of the pipeline network, putting May’s pledge to scrutinise foreign bidders to an early test.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.