Hinkley Point: Theresa May's China calculus

Artist's impression of Hinkley Point C plant Image copyright PA
Image caption No other major developed economy has invited Chinese involvement in a key nuclear energy project

In explaining its shock decision to delay the deal on Hinkley Point, the government said it needed time to consider all components of the deal, but speculation is growing that China questions may be at the heart of the reassessment.

Under the existing terms of the £18bn project, a Chinese company is to finance a third of the new Hinkley Point C reactors and may later build a Chinese-designed nuclear power station in Essex.

So what's the difference between a French company and a Chinese one when it comes to the UK's critical infrastructure?

How you answer that question depends on your assessment of China and its intentions.

This is a fiendishly difficult calculation.

China is a moving target, and a huge, contradictory and complex one at that.

In 2016 it is already not the country that David Cameron faced when he became prime minister six years ago. and not the China that former George Osborne set out to woo for investment in the UK's infrastructure upgrade.

Beijing is more powerful and its global agenda more assertive. At home, its political crackdown puts it increasingly at odds with British values.

Should any of this matter? The UK already has a Chinese company, Huawei, running key parts of its telecommunications network.

Arguably nuclear energy is likewise a business relationship subject to similar national security safeguards.

But led by the United States, several other western countries have barred Huawei's involvement in key telecommunications networks on national security grounds.

And no other major developed economy has invited Chinese involvement in a key nuclear energy project.

'Fear and greed'

Image copyright HayesDavidson
Image caption The diggers are standing by to start work on Hinkley Point

Two years ago the German Chancellor Angela Merkel asked her Australian counterpart what drove his country's policy on China, and he answered "fear and greed".

In the absence of political change in China, this blunt assessment sums up the calculus for many countries, though the exact proportions of each differ depending on circumstance.

Some in the British political and security establishment felt that under the previous government's declared "golden era" with China, there was not enough fear in London and too much greed.

One such was the prime minister's joint chief of staff Nick Timothy.

In comments which have received enormous scrutiny since Thursday night's surprise announcement that the Hinkley Point deal would be delayed, Mr Timothy wrote last October on the eve of the Chinese president's state visit to the UK:

"Security experts - reportedly inside as well as outside government - are worried that the Chinese could use their role to build weaknesses into computer systems which will allow them to shut down Britain's energy production at will…

"MI5 believes that 'the intelligence services of… China… continue to work against UK interests at home and abroad'."

Is Mrs May worried?

Image copyright Getty Images

According to the former Business Secretary Vince Cable, the then home secretary did raise national security concerns about the Hinkley Point deal in cabinet.

Sir Vince described Mrs May as "unhappy about the rather gung-ho approach to Chinese investment that we had, and that George Osborne in particular was promoting and, as I recall, raised objections to Hinkley at that time".

Interestingly, Mrs May's less "gung ho" attitude on China was already evident in another dimension.

As home secretary, she intervened personally when it emerged that the dissident Chinese artist Ai Weiwei had been granted only a 20-day visa to launch his exhibition at London's Royal Academy.

Ms May overturned that decision, ordered a six-month visa and apologised to Mr Ai.

So perhaps we will see a more nuanced policy to China under this new government.

But this, too, is hard to get right.

Some in the business and political community will remind Mrs May that her predecessor learned early what it was to feel Beijing's wrath when he ignored Chinese protests and met the Dalai Lama in 2012.

As a result, no senior figure in the British government was invited to China for the following 18 months - and when Mr Cameron did finally visit, it was after George Osborne had wrested control of UK-China policy from the more cautious Foreign Office to launch what he called "the next big step", a very business-oriented relationship which culminated in President Xi's state visit to the UK last October.

It's worth remembering that the Hinkley Point deal was the centrepiece of that visit, the symbol of the "golden era" in relations that both governments hoped to launch.

And Beijing has good reason for investing political capital in the nuclear energy relationship.

China has more than 30 nuclear power stations at home and nearly as many under construction.

Exporting its nuclear technology is now the priority, and although it has customers like Pakistan in the developing world, the UK's track record and internationally respected safety regime would make it a hugely valuable showcase.

The price of making China angry

Image copyright Getty Images
Image caption The Chinese leader acknowledged that the UK Parliament was the oldest in the world, when he visited the UK in October last year

China's embassy in London said on Saturday that Chinese involvement in Hinkley Point is a "win-win", and UK enthusiasts insists Chinese technology is cheap and safe and that China has too much at stake to want to "shut down Britain's energy production at will", as Mr Timothy put it.

But if at the end of her review, Mrs May does decide she's unsure about future Chinese intentions and wants to renegotiate, what will happen?

Could she have Chinese investment for Hinkley Point without any strings attached about a Chinese-designed and built nuclear power station down the line?

At this point, we just don't know, but one answer may be no, and if she then walks away, she risks making China angry.

Now that would cause problems for another stated government goal.

Mrs May is only prime minister because of the Brexit vote, and in a world where the UK stands outside the European Union, it may want to work harder at its economic relationship China.

Last weekend, Chancellor Philip Hammond was in Beijing and raised the possibility of a free trade agreement.

If Chinese pique over a reverse on nuclear energy landed the British government back on what many in Whitehall called China's "naughty step", trade negotiations would go into the freezer and howls of protest would follow from those in the business community who were hoping to realise Mr Osborne's "golden decade" in economic relations.

It's possible that Mrs May won't get to this point in her reassessment, but if she does, she may reflect that if China is minded to exact a price for a change of heart on a business deal, the price for other differences of opinion might become unacceptably high if the same China was in control of a British nuclear power station.

Which then brings the prime minister to the question of how other world leaders manage difficulties in their relationship with China.

Size and strategic dominance puts the United States in a different class, but there's an interesting model closer to home.

The German Chancellor Angela Merkel manages to have a close and profitable business relationship with Beijing at the same time as being much more robust in defence of German interests, and much more vocal on other issues like China's territorial assertiveness and its crackdown on human rights and freedom of speech.

In Mr Cameron and Mr Osborne, Chinese leaders have grown used to British partners who kept most differences behind closed doors, whether on steel dumping, Hong Kong, locking up lawyers or the South China Sea.

It would be an ironic twist if one result of the Brexit vote was a reset of UK China policy which put that policy back in line with its more robust EU partners.

China's calculus

Image copyright Reuters

A month ago, Brexit looked like one set of problems for China, mostly focused on economic fears. Now with her Hinkley Point pause, Ms May has delivered a wholly new set of problems.

But while Chinese leaders may not like the unpredictable and inconvenient U-turns in policy and style that come with messy democracies, they are increasingly adept at handling them.

From the United States to Sri Lanka and Myanmar, Beijing plays a long and pragmatic game when it comes to new governments.

So China liked the Cameron-Osborne team and got used to the chancellor calling the tune on UK-China policy.

But with this signal that key decision making has moved from No 11 to No 10 Downing St, Beijing will be working hard to map the players in the May team, and when the prime minister finishes her assessment of the Hinkley Point deal and announces the outcome, you can be sure Beijing will be ready for her.

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