It must have been a shock. Just hours after the board of the French energy company EDF decided to go ahead with the plan to build a new nuclear reactor in Hinkley Point in Somerset, after a months-long impasse, Britain’s new prime minister Theresa May let it be known that she wanted to reconsider the whole project. The French shook their head in disbelief. After all the back and forth, after all the wrangling, multiple delays and the resignation of a board member? May’s announcement was an unpleasant surprise, to say the least.
Admittedly, there are huge doubts about the economics of the project. The nuclear plant will cost around 18 billion pounds to construct and could, according to new forecasts, gobble up another 19 billion pounds during the length of its lifetime. The so called “strike price” on which the previous government and the energy company agreed is still around twice as much as today’s price of a kilowatt hour of energy. Thanks to the global stock market turmoil earlier this year, EDF is worth much less than it was before, adding further to the doubts that have engulfed the project since its early days.
Still, from a French perspective, Hinkley Point C seems worth taking some risk. The reasoning behind this is clear. France prides itself to be a world leader in nuclear energy. Unluckily, in Europe, this energy source has lost a lot of its allure in the wake of Fukushima. Consequently, the majority of new nuclear plants that are being planned or constructed happens to be located outside of Europe. China is, with a huge margin, the country that is and will be building the largest amount of nuclear power plants on earth, for the foreseeable future.
And that’s where it gets interesting. In order for France to retain its status as a leading nuclear power, it needs to demonstrate that it can successfully develop and build new nuclear plants, ideally in Europe, its home market. China, on the other side, has started to compete aggressively for business outside of Asia and is trying to sell its Hualong One reactor – it is, according to Chinese officials “their own” design – to governments in Latin America, in Africa and the UK. Therefore, the predominantly state-owned French energy company has decided to go ahead with Hinkley Point C, even if the numbers don`t stack up.
Ironically, EDF still needs Chinese capital in order to lift the financial burden that comes along with building the new reactor. About a third of the investment comes from a Chinese consortium, among them CGN, China General Nuclear Power Group. For the Chinese side, the project functions as a bridgehead into the UK. Already in 2014 did the Chinese and the British government sign a Memorandum of Understanding according to which the Chinese would be given the right to design, build and operate a reactor on British soil. To start, a so called test-reactor was to be build in Bradwell in Essex. This agreement fit quite nicely into the Chinese strategy to export its Hualong One technology to foreign countries. That it was the UK, once the most powerful nation on earth, that accepted this, must have appeared as an extremely lucky pull.
But then came the vote for Brexit and with it, the new Prime Minister. Contrary to her predecessor, Theresa May does not have the reputation of being too China-friendly. She is said to have been sceptical about the advances that David Cameron and his Chancellor George Osborne have made to the Chinese, an abrupt U-turn after Cameron’s meeting with the Dalai Lama that led to a sudden shock-freeze of Sino-British relationships.
Only last October did President Xi Jinping travel to the UK, ending a ten-year period during which the Chinese President did not visit the country. He was given everything the UK had to offer: A stay at Buckingham Palace, a ride in the Royal Carriage, a beer with “Dave” in a local pub. Add to that trade deals worth nearly 40 billion pounds and you had both a happy PM and a happy Mr. Xi (whose country was courted by its former oppressor – the Chinese view on the UK – with the world to watch).
Not only the French, but also the Chinese have recently shaken their head in disbelief. For them, a lot is at stake. Will their Hualong One export-strategy fail, now that the UK is no longer that interested in the deal? It seems that Beijing thinks exactly that. Both the Chinese media as well as the Chinese ambassador to the UK, Liu Xiaoming, have criticised May’s decision heavily. Ambassador Liu even went as far as to indirectly threaten the UK: “Right now, the China-UK relationship is at a crucial historical juncture . . . I hope the UK will keep its door open to China,” Mr Liu wrote in the Financial Times.
This happens at a time when the UK has lost some of its attraction for Chinese investors already. Once outside the EU, the country will no longer function as a gateway into the EU. Still, because of its openness, the weakened Pound Sterling and the relative ease of doing business, investors will retain some interest in the UK. Given that there will likely be less investment from Continental Europe, once the UK has left the EU, the country needs these Chinese investors more than ever. But – what an irony – the new government does the opposite: It works very hard on harming its reputation as an open, China-friendly country in the center of Europe. Very bad timing, I guess.
I am of course aware that some people think that Hinkley Point is just one example out of many where China poors money into the UK. Yes, overall, there is still a case for Chinese investments in the UK, after all, assets are now dirt-cheap, compared to the price levels they were at before the 23rd of June. But, don’t forget: Chinese overseas investments are heavily influenced by the central government and by priorities that have been formulated by Beijing. State investments and private investments are often intertwined. Should the British government go ahead and scrap the project – for budgeting reasons, for security reasons – this will consequently have a lasting, negative impact on the relationship between China and the UK.
That’s not to say that the British concerns should be overlooked. Both costs as well as national security are valid arguments when assessing the feasibility of an endeavour such as Hinkley Point C. Tragically, it’s not as if these issues weren’t obvious before. Already two, three years ago, it was clear that Hinkley Point would be expensive, maybe too expensive.
It was also clear that you would have concerns about national security if you handed control over nuclear power plants to companies from an autocratic country such as China – even if those Chinese nuclear companies were controlled by the same regulators as their British counterparts. The plan to have the Chinese design, build and operate a nuclear plant in Britain did raise a lot of eyebrows at the time, in Germany, but also in other countries. I remember having had strong debates with some of my German readers at the time who thought this was really, really dangerous.
But on the British side, optimism prevailed. Only once you digged a bit deeper, you realised why this was the case: The government desperately needs new power plants. It is already behind schedule in replacing the old fleet and cannot find Western firms except EDF to commit to expensive and large-scale projects anymore. Thus, although there might have been security concerns before, Prime Minister Cameron decided to go for the Franco-Chinese solution, making sure to lobby for additional Chinese investment for big infrastructure projects such as HS2. Theresa May, at that time Home Secretary, did reportedly raise her concerns but did not manage to gain much traction.
Unfortunately, Cameron’s strategy no longer looks as good as it did some years ago. Now, after its U-turn with the Dalai Lama-crisis, the UK risks a second U-turn, away from China. Both issues, the desperate need for new power stations as well as the hot-cold-hot-cold-attitude to China stem from the same problem: The lack of long-term, strategic thinking in this country. That makes the UK government look a bit foolish, in comparison to other European countries, but especially in comparison with countries like China that – thanks to their autocratic, undemocratic form of government – plan in decades, not in months.
The fact that CGN is now under investigation in the US for alleged espionage complicates matters even further. With security becoming an ever bigger issue, will Prime Minister May dare to rebuke the Chinese, risking the relationship that was deemed to be so important by her predecessor? I guess I won’t be the only one watching this space.