Posted by: John Elliott | July 30, 2016

Theresa May dares to risk upsetting China

New Prime Minister delays Cameron government power project 

LONDON: At last Britain seems to have a prime minister in Theresa May (below) who means business, and is not primarily interested in playing to the gallery like her predecessor, David Cameron, and his Chancellor of the Exchequer henchman, George Osborne, did both at home and abroad.

A Financial Times columnist has reported that Whitehall officials are saying it feels like having a new government rather than just a change of prime minister.

theresa mayThis means that old assumptions about how the government will react and about who matters around town have to be re-calibrated.

People in India, and especially in Delhi (where I live), have been experiencing that with Narendra Modi’s government replacing the Gandhi dynasty two years ago. He has over-turned an established elite and governs on his own terms.

In Britain the change has been dramatically illustrated by May’s unexpected decision on the evening of July 28 to delay final confirmation of an £18bn ($26bn) nuclear power station at Hinkley Point in Somerset that would lead to China having direct involvement in Britain’s electricity supplies.

The plan is for state-owned China General Nuclear Power to provide about a  third of the finance in a joint venture with EDF, a French utility company with UK electric power interests. The UK government would buy electricity for £92.50 per megawatt hour – double the current wholesale price – for 35 years. The European Pressurised Reactor (EPF) technology involved is unproven because two projects in Finland and France have yet to be commissioned and are years behind schedule and far over budget.

China expects, as part of a deal struck by the Cameron-Osborne government, to follow this with its own Hualong technology for two more power projects at Sizewell in Suffolk and Bradwell in Essex.

That breathtakingly irrational gift of control over sizeable chunks of Britain’s electricity supplies (Hinkley would be a significant beginning at 7%) has been aptly dubbed by critics as the most extravagant of Osborne’s and Cameron’s “vanity projects”.

cameron-osborne

David Cameron (left) and George Osborne in the House of Commons

Another is HS2, a widely-criticised plan for a high speed railway link of dubious financial viability between London and Birmingham, for which Chinese investment has also been desperately sought despite cost estimates as high as £90bn, up from an official 2011 figure of around £50bn. (Other funding for this project has been offered by the controversial Gulf state of Qatar).

There has been extensive debate and concern internationally over the security risk of doing business with China in sensitive areas – most of its current $30bn investments in the UK  are not sensitive though it does have a stake in Thames Water.

The debate has focussed in the past mostly on telecom networks, especially as I noted on this blog in 2012, those made by Huawei for countries such as the US (which has banned it on government contracts), the UK (where BT and others use it extensively) and India where it is well entrenched.

It was argued then (by John Gapper, a leading Financial Times columnist) that it was too late to eliminate Huawei because “the time to declare telecoms a strategic, protected industry like defence, was 20 years ago”.

Well, the time to declare and make nuclear power a protected strategic industry is surely now. China has to be regarded as a potential future enemy by the west, as it already is by several of its Asian neighbours. Hinkley would be operating for around 50 years and no-one – not even Beijing’s leaders – can predict where and what fights China will begin over that timescale.

Currently China is challenging its neighbours in the South China Sea by asserting no-fly zones and by claiming sovereignty over islands and sea lanes and challenging international maritime rules, despite a recent international court ruling in the Hague rejecting its claims. This could lead to confrontations with countries in that area and with the US.

If Hinkley goes ahead with Chinese money, the UK would presumably have to remain a silent spectator instead of backing its allies in such a situation. Would a Cameron-Osborne government have even dared to vote against China at the United Nations?

The investments crystallised into a £30bn wish list when President Xi Jinping made a state visit to the UK last October. He was given a royal welcome and rode down the ceremonial Mall to Buckingham Palace in a gilded carriage with Queen Elizabeth. (Narendra Modi got invited to the palace for lunch a few weeks later but went by car).

Osborne rejected security concerns

Cameron – and Osborne, whom May sacked from the government immediately she became prime minister – had spent years courting Chinese investment. But May, formerly the former home secretary, raised security concerns with cabinet colleagues when the Hinkley decisions were being made.

Two ministers in the Cameron’s Conservative-LibDem coalition government (2010-15) have said that Osborne blocked attempts both to give the British government a “special share” that would restrict China’s ability to act at Hinkley against the UK’s interest and  to introduce security-oriented restrictions on Chinese business visitors’ visas.

May’s chief of staff warned that China would be able “to use their role to build weaknesses into computer systems which will allow them to shut down Britain’s energy production at will”. He also said China would be buying British silence on human rights abuses, which was proved right when Cameron and Osborne duly Kowtowed to Xi.

So it is not really surprising that May stepped in on Thursday evening and got her energy minister to announce a review of the project instead of the expected confirmation.

The timing however was curious – the EDF board had earlier that day voted to go ahead and officials from France and China as well as the UK were about to travel to the site for a celebration ceremony. Even more curious, Philip Hammond, May’s Chancellor of the Exchequer, had said during a visit to China for a G20 meeting a week earlier that “we must make sure the project goes ahead.”

May was presumably concerned primarily about the Chinese angle and also maybe about disagreements in the EDF, as well as about the unproven technology and risk of delays and cost over-runs. The EDF finance director resigned last March, fearing the project would ruin EDF financially, and another director resigned just before the board vote. After those two had gone, the board only approved the project on Thursday by ten votes to seven. One executive is reported to have said that the vote might have gone the other way if May’s intentions had been known.

modi-xi-swing1 - IndianExpressMay has risked upsetting both President Hollande of France and China’s Xi. They will no doubt both understand that, having been in office for just two weeks, May needs time to approve such a massive project for which she will now bear prime ministerial responsibility.

But they will be extremely annoyed if she were to cancel the deal, which could make Xi unwilling to help the UK negotiate a quick post-Brexit bilateral trade deal with China, while Hollande could cause problems in Europe.

Such political considerations however are surely less important than Britain putting its future in a Chinese noose, and on a project of unproven technology and uncertain financial viability. A compromise solution will probably be found – maybe restricting the Chinese involvement in some way.

Narendra Modi might learn something if May takes a tough line. He is split between his inclination to serenade Xi, as he did (above) when the Chinese president visited India in September 2014, and the reality that China blocks India’s advancement internationally, encourages neighbouring Pakistan to cause problems, and hassles India on their common border.

How, one might ask, could Cameron and Osborne ever have decided to trust China with the projects. Did they really think China would treat Britain differently from the rest of the world?


Responses

  1. Thanks John, for such a brilliant analysis. Even I myself couldn’t digest the fact that, Cameron and crew had been so lethargic or hellbent to support such a highly sensitive project as Power with China’s backing.

    Were they nuts or arm-twisted ?

  2. Kudos to Theresa May.
    China is the new hegemonist and Imperialist pig and needs ( their coined term for the West) to be told its limits.
    If the West is to survive with its culture ( I am a votary of Britishness as I am of Indianness).
    China seeks to control and someone needs to stand up. It will be years before India can but India is the best lost cost partner of USA and Great Britain.

  3. John this is an excellent analysis. Spot on and shows how lucky Britain is to have got rid of 2 useless and bumptious politicians; Cameron & Osborne. Lets hope Theresa May sticks to her guns. China is the most dangerous nation on earth, and has been responsible for supporting, conniving at and financing the terrorist activities in Pakistan.

  4. I like your blog posts, especially those that point out the glaring perception errors that the current Indian dispensation shows. Xi needs a lesson in rationale. It is necessary for all, today, to realise how devastating a Chinese influence and money could be tomorrow (as Africa would surely soon realise). Every single project that the Chinese have taken up has a hidden clause/cause. And if it is technology, why would you buy (as India is buying – Metro rail rakes for the Kolkata metro) second hand ideas from a non-developer rather than pay some more for real stuff?
    It would be nice if you could find time to write on how, in its hurry to promote ‘Make in India’, Mr Narendra Modi has forgotten a basic principle: ‘Invent in India’. This is a technology driven world, and financial sleight can get you that far only. We need to re-invent ourselves for the modern world.
    Sujit Bhar

  5. I for one am very glad that the new Prime Minister has decided albeit last minute to reflect on this huge contract with its potential to do Great Britain a disservice somewhere down the line. India should reflect that China continues to try and push the boundaries of their two countries and those of us who were in India, myself at a young age, in 1962 when China walked into India on two fronts are only too well aware how awful it was and the humiliation and complete debacle it was for Nehru from which he never recovered his reputation.
    For reasons known only to him but presumably deeply influenced by Krishna Menon he seemed to think Hindi Chini Bhai Bhai was sincere…..pigs might fly – and he found out the hard way. The Indian Army had been severely run down because Nehru was always afraid of the Indian Army and fearful that it might take its lead from the Pakistan Army.
    He treated Indian Forces very shabbily and their commanders were humiliated…fine men who were good soldiers but not given the arms, the equipment or the confidence of the prime minister.
    India must never let her guard down with China. My old tutor taught me when studying the origins of imperialism 20 years ago…the Chinese will be the last great imperialists. Those of us with an Indian Army heritage and culture were appalled by it all and my late father a retired colonel of the Jat Regiment and others all did whatever they could to make Calcutta ready if there was an invasion…it was that serious…..we think the Chinese ran out of fuel. A serious and bad time


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: