Time to stop worrying and learn to love China's nuclear investment

Beijing also genuinely wants to move up the value chain by developing a niche in nuclear engineering for export. China’s fear of falling into the middle income trap (where states tend to grow very fast and reach a certain level of prosperity before stagnating) is palpable

Theresa May last month paused giving the go ahead to Hinkley Point (AFP/Getty)

In his 1791 Report on Manufactures Alexander Hamilton, one of America’s founding fathers, made it clear that the new United States government was prepared to break the laws of other countries to appropriate their industrial know-how.

And it was a successful project. In 1810 a Boston merchant named Francis Cabot Lowell travelled to Glasgow and memorised the mechanics of the impressive new textile machines he saw in operation. A few years later Lowell successfully brought the industrial revolution to America. They named a city in Massachusetts after him.

“The most remarkable case of industrial espionage in American history,” is how Lowell’s illicit knowledge transfer is described by Professor Peter Andreas of Brown University in the US.

But the Americans are less keen on such intellectual piracy now they’re on the receiving end. It’s unlikely the Chinese will name a city after Allen Ho. But that’s probably because Ho got caught, rather than because Beijing disapproves of what he (allegedly) did.

Ho is being prosecuted by the US Justice Department, accused of stealing US nuclear technology secrets on behalf of the China General Nuclear Power (CGN) company.

He is alleged to have tapped up six nuclear experts in the US to funnel information to CGN with the alleged aim of speeding up the development of reactor technology in China.

“China has the budget to spend. They want to bypass the research stage and go directly to the final design and manufacturing phase,” Ho is quoted as writing in a 2009 email.

Michael Steinbach of the FBI says Ho was acting as “an agent of a foreign government” and suggests his activity could have resulted in “significant damage to our national security.”

The words “nuclear” and “national security” and “agent of a foreign government” make for some sexy headlines. But it’s important to stress that the subject of the Ho case is civil nuclear power, not military weapons. Like it or not, Beijing already has the atom bomb.

The fact that the Ho case has grabbed attention here in the UK is unsurprising. CGN is lined up to fund a third of the new Hinkley Point reactor in Somerset, and the company also hopes to develop another new plant at Bradwell in Essex.

Theresa May last month paused giving the go-ahead to the Hinkley Point deal and her new chief of staff, Nick Timothy, has previously raised national security concerns about Chinese involvement in our nuclear infrastructure.

The US indictment stresses that CGN is a state-owned company and answers to Beijing’s State Council. To anyone who knows anything about the Chinese economy, the fact that a nuclear power company has close links to the Beijing government is as startling as the revelation that pandas occasionally defecate in bamboo groves.

Such links riddle China’s big banks, many of its steel companies, its ship builders, and even telecom firms and property companies. At least 30 per cent of the Chinese economy is reckoned to be directly or indirectly in the hands of state-owned enterprises. Some estimates put it as high as 50 per cent.

Chinese firms have the trappings of economic independence: stock market listings, brands and glossy advertising campaigns. To the unwitting non-local they can appear like any other private company in the West. But behind the scenes the state is dominant.

Assuming there is something in the case against Ho, how should our own government respond? Some have already called on Theresa May to pull the plug on the Hinkley deal and to follow the example of the Australian government which this week blocked Chinese investors from buying the country’s largest electricity network on national security grounds.

There are good reasons for Downing Street to reconsider the Hinkley deal, not least the exorbitant cost the electricity purchasing deal signed by the Coalition would likely impose on UK households over the next 40 or so years. But to tear up the agreement on the basis of the Ho charges would seem like an overreaction.

The idea that the Chinese state will install computer programmes to shut down UK nuclear energy supplies in future, as Nick Timothy suggested might happen in a blog for Conservative Home last year, seems like something out of a Fu Manchu thriller. As Lord Mandelson has said, it would be “commercial global suicide” for China to sabotage its own investment in this way.

One shouldn’t underestimate the brutishness, or even incompetence, of the Chinese Communist Party. But at the same time it’s worth considering this from the perspective of Beijing.

One doesn’t need to reach for conspiracy theories to explain why China is keen to invest abroad. Thanks to the unbalanced way it has run its economy, the Chinese state has amassed huge piles of foreign currency reserves. These reserves have fallen in recent years but they are still worth an extraordinary $3.2 trillion (that’s equivalent to 30 per cent of China’s entire GDP).

These reserves are sitting largely in US government debt earning next to nothing in interest. Beijing wants to get a decent (if unspectacular) return on this cash by investing in, among other things, foreign states’ energy infrastructure.

Beijing also genuinely wants to move up the value chain by developing a niche in nuclear engineering for export. China’s fear of falling into the middle income trap (where states tend to grow very fast and reach a certain level of prosperity before stagnating) is palpable.

There is little doubt that Beijing steals Western intellectual property. But this is for commercial advantage and economic catch-up, not world domination. And China is hardly the first rising power to do this. Remember Lowell.

The irony is that the Chinese could be purloining know-how from the Americans to help us keep the lights on here in the UK because our own governments have failed to invest enough in developing our domestic nuclear construction capability. Call it payback for that Glasgow textile machine.

Ben Chu is the author of Chinese Whispers: Why Everything You’ve Heard About China is Wrong