China’s nuclear option in Essex

This Mecca for birdwatchers and hikers may seem an unlikely global flashpoint, but what happens here on the mouth of the Blackwater River will be a key test of UK-China relations and Britain’s resolve to take a tougher line on investment that could threaten national security.

Although a decision on construction has yet to be taken, Ofgem, the electricity market regulator, has granted a generating licence to a company that plans to build a Chinese-designed nuclear reactor in Bradwell. The little-noticed December decision was hailed by the China-controlled Bradwell Power Generation Company as an “important milestone”.

Under a deal struck in 2015, at the height of David Cameron’s so-called ‘golden era’ of relations, China’s state-owned nuclear group CGN would be allowed to build its own nuclear power station at Bradwell in exchange for financially backing two French-led projects. This, in spite of CGN being accused by the US government of stealing US technology for military use and placed on the US ‘entity list’, which effectively bans US companies from doing business with it. Washington has warned against partnering with the company.

The first French project, at Hinkley Point in southwest England, is now well under way and well over budget. It is expected to cost more than £22 billion and CGN has a 33% stake. The second French project, at Sizewell in Suffolk, has yet to begin construction. As is so often the way with Chinese investment, the goals are strategic, with Bradwell as the real prize – the first Chinese-designed plant outside its own borders, which Beijing sees as springboard for international sales of its technology.

There are parallels here with Huawei. It was Britain who gave the Chinese telecoms giant its first foothold outside China. In 2005, BT awarded the company a contract as part of its £10 billion network modernisation. BT’s decision to exclude Marconi sounded the death knell for Britain’s once mighty technology giant, and provided a launch pad for Huawei’s international expansion.

The importance of the nuclear deal to China goes some way to explain why Beijing has been relatively restrained in its response to Britain’s banning of Huawei from its next generation 5G networks in spite of dark threats to make Britain “suffer”. It is also rapidly becoming a lightning rod for China critics on the Conservative backbenches. Former leader, Iain Duncan Smith is among those who have has called for a review, saying China is not “trusted vendor”, likening commercial dealings with Beijing to 1930s appeasement.

The Cameron ‘golden era’ that spawned the nuclear deal is dead. His chancellor George Osborne’s pledge to make Britain China’s “best friend in the West” now seems cringeworthy in its naivety. Britain’s intelligence services have become increasingly alarmed at Chinese investment in sensitive parts of the UK economy and critical infrastructure – and it doesn’t come much more sensitive than nuclear power.

Johnson has vowed to take a tougher line, yet his new policy is muddled at best. He has pledged to be robust in condemning human rights abuses, such as the atrocities against the Uyghurs and repression in Hong Kong, but at the same time to pursue a “positive economic relationship, including deeper trade links and more Chinese investment in the UK”.

The government has also watered down its new National Security and Investment Bill, raising the threshold above which an overseas stake must be examined from 15% to 25%, which will sharply reduce the number of deals facing scrutiny. This follows lobbying from industry, fearful that British companies will lose out as they emerge bruised and battered from the Covid pandemic.

The problem with Johnson’s attempt to separate the pricklier political issues from economic relations is that this is not a distinction China makes. Under Xi Jinping, the country has stepped up the use of trade, investment and market access as tools of coercion.

Australia is the most egregious recent example, with Beijing heaping abuse and imposing trade sanctions after Canberra had the audacity to call for an independent enquiry into the origin of Covid-19. The spat has sent Australia scrambling to lessen its heavy economic dependence on China.

Western companies are also discovering that the price of doing business with Xi’s China requires a growing level of fealty to the Communist Party. In a February virtual address to American business leaders, Yang Jiechi, the Party’s top diplomat, gave a glowing account of opportunities for them in China – just as long as they followed the Chinese narrative on Tibet, Xinjiang, Hong Kong and Taiwan.

International shoe and clothing brands, including Nike, Adidas, Burberry, Uniqlo and Lacoste have faced state-orchestrated criticism and threats in China for expressing concern about the alleged use of forced Uyghur labour to pick cotton in Xinjiang. H & M, which last year said it would no longer source cotton from Xinjiang, was wiped from the internet, its approximately 500 stores in China erased from map services, and its smartphone app removed from app stores.

Sweden was recently treated to the bizarre spectacle of the boss of Ericsson, its own 5G champion, criticising the banning of his rival Huawei. This seems counterintuitive, but analysts quickly pointed out that Ericsson has a large business in China, and may have come under pressure from the Chinese authorities. The Global Times, a Communist Party tabloid, explicitly linked the fate of the two companies, reporting that Sweden faced a “last chance” and should “correct its mistakes” over Huawei.

The uncomfortable position facing many firms doing business with China was encapsulated by HSBC chief executive Noel Quinn’s awkward appearance before the House of Commons foreign affairs committee in January. He was asked to explain why his bank had endorsed China’s repressive new security law in Hong Kong before it was even published and why it had frozen the accounts of democracy activists, thereby “aiding and abetting one of the biggest crackdowns on democracy in the world”, as Labour MP Chris Bryant put it.

Quinn replied awkwardly that it was not his “position to make a moral or political judgment on these matters”, adding that “as a CEO I cannot cherry pick what law to follow or not”.

Tesla provides another cautionary tale. Its Shanghai plant, which opened in late 2019, is capable of assembling half a million vehicles a year and was built at astonishing speed. The company received from Beijing tax breaks, cheap loans and permission to wholly own its Chinese operations.

China is now Tesla’s most important market outside the US, and the company intends to do original research and development there. China’s leaders – who have identified AI-enhanced electric vehicles as a technology in which they want to lead the world – see Tesla’s presence as a way of galvanising their own industry and its supply chains. A happy Elon Musk told a recent podcast, “China rocks”.

For a while his interests and those of the Party were in alignment. Then last month a Party regulator accused the company of being “arrogant and unreasonable” amid a storm of orchestrated criticism over quality and security, forcing Tesla to issue a public apology.

It was all wearily familiar: The infatuation with the China market on the part of a foreign company combined with a willingness by Beijing to open its door in an area where it needs tech and expertise – though never wide and always closely policed by a capricious Communist Party doorkeeper, slamming it shut just as soon as the foreign company has outlived its usefulness or seen to have over-reached itself.

For global companies with complicated supply chains, Xi’s China is becoming a minefield. Beijing wants to control not just what they do, but also what they think as a price for market entry. It is increasingly demanding they take sides.

China is a master of what has been dubbed ‘geo-economics’, the use of economic instruments to achieve geo-political objectives, and the European Union and UK are struggling to find an effective answer.

An EU-China trade and investment deal agreed with much fanfare late last year is now unlikely to be ratified by the European parliament after tit-for-tat sanctions over China’s treatment of the Uyghurs. MEPs have voted to freeze any further discussion of the deal. The EU this month also proposed stronger steps to limit competition from government-subsidised companies and moves to limit dependence for key goods such as computer chips and pharmaceuticals.

The EU and UK are both wary of opaque state-backed Chinese companies picking off strategic assets as their weakened economies emerge from the Covid pandemic.

They do not want a repeat of the desperate free-for-all that followed the 2008 financial meltdown, when due diligence frequently consisted of little more than counting the number of zeros on the Chinese cheque. Perceptions of China have changed since then. We are told that deals will be scrutinised far more closely, though it remains to be seen whether that resolve survives contact with post-Covid Chinese cash and blandishments.

An immediate test could come over the future of Liberty Steel, whose owner, Sanjay Gupta, is struggling to secure new funding. China’s Jingye Group, which acquired British Steel in 2019, has reportedly approached the government. Not only would a deal with Jingye tighten China’s grip over what remains of Britain’s steel industry, but there are security implications since Liberty makes speciality steel for the aerospace and other defence companies.

But Britain’s biggest test is its nuclear entanglement with China. Boris Johnson’s backbench critics have it firmly in their sights, their next target after successfully pushing for the exclusion of Huawei from Britain’s 5G set-ups. Britain remains committed to nuclear as part of its ‘clean’ energy mix, but it remains as hard a sell to private investors as it was when Cameron went cap in hand to China in 2015.

Beijing knows that. It’s prepared to stump up the money for its wider strategic goals, and doesn’t want those goals to be thwarted. Tearing up the deal will certainly escalate tensions, but allowing CGN a place in such a critical piece of national infrastructure would be foolhardy in the extreme. Bradwell is best left to the birdwatchers.

Ian Williams is author of Every Breath You Take: China’s New Tyranny, published by Birlinn. www.birlinn.co.uk

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