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13 July 2020updated 30 Aug 2021 10:56am

China’s ownership of UK assets exposes Britain’s broken model

Weak rules have allowed China to acquire significant stakes in British nuclear power, oil, steel, water and transport.

By George Eaton

In September 2015, during his ministerial visit to China, George Osborne tweeted: “China and Britain stand on brink of golden decade of cooperation. No economy in world as open to Chinese investment as UK. #UKChina.” 

The former chancellor’s words have not aged well. Less than five years later, the “golden decade” has ended (as Isabel Hilton writes in this week’s NS). The UK government is set to announce the removal of the Chinese tech giant Huawei from Britain’s 5G network, and has offered citizenship to 350,000 British National Overseas passport holders in Hong Kong (with a further 2.6 million residents eligible), in response to China’s draconian new security law in the region. 

Huawei’s immersion in Britains telecoms network is the most prominent example of Chinese investment (its equipment is also used in 2G, 3G and 4G networks) – but it is far from the only one. The state-owned China General Nuclear Power holds a 33.5 per cent stake in the Hinkley Point C nuclear plant under construction in Somerset (the UK’s first since 1995). In return for its investment in Hinkley, CGN was rewarded with a 20 per stake in the planned Sizewell C nuclear power station in Suffolk, and with the chance to build its own reactor in Bradwell, Essex (which would be the first Chinese-built nuclear plant outside China). 

China has also become the largest operator in the North Sea through the China National Offshore Oil Corporation (CNOOC), which boasts on its website that it accounts for “more than 25 per cent of the UK’s oil production, and 10 per cent of the country’s energy needs”. CNOOC, which benefited from billions of pounds of tax breaks introduced by Osborne for oil companies, was gifted this privileged position despite the firm’s chairman, Wang Yilin, declaring to employees in 2012 that “large-scale deep-water rigs are our mobile national territory and a strategic weapon”. 

Another Chinese state company, China Huaneng Group, is building what is billed as “Europe’s largest battery storage project” in Wiltshire. China has also ventured into the UK’s transport sector: MTR, a Hong Kong company, holds a 30 per cent stake in South Western Railway, and has been awarded the London Crossrail franchise. The China Investment Corporation, China’s sovereign wealth fund, owns a 10 per cent stake in Heathrow airport (as well as a 9 per cent stake in Thames Water). Geely, a privately-held Chinese firm, is the sole owner of the London Electric Vehicle Company, which produces London black cabs, and has a majority stake in Lotus, the sports car manufacturer.

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More recently, the Chinese firm Jingye bought British Steel in November 2019 for the paltry sum of £50m, prompting the Labour peer and former transport secretary Andrew Adonis to observe: “China destroys British Steel by dumping cheap steel, courtesy of the Cameron/Osborne government which resisted tough EU anti-dumping measures because they were sucking up to President Xi. Now it buys the remnants for a pittance.” 

China’s long march through UK industry – which until recently attracted stunningly little scrutiny – is a symptom of Britain’s broken economic model. As this week’s NS leader notes: “No other major Western country has allowed so many of its strategic industries, assets and pre-eminent companies to fall into foreign ownership”. 

The majority of the UK’s rail franchises are run by foreign owners, including the French, German, Dutch and Italian states. And more than 70 per cent of the shares in England’s nine privatised water companies are held by overseas firms, including hedge funds and private equity companies based in tax havens.

For decades, rather than investing adequately in infrastructure, the British state has preferred to subcontract this task to foreign or private companies (allowing for borrowing to be kept off the government’s balance sheet). In the case of China, some wagered that increased trade would push the country towards Western-style democracy: economic liberalisation would beget political liberalisation. But the reverse has proved the case. Xi Jinping, who abolished presidential term limits in 2018, is China’s most unashamedly authoritarian leader since Mao Zedong. In Xinjiang, the Chinese government is detaining one million Uighur people and other Muslim minorities in concentration camps. 

Confronted by China’s defiant unreformism, Europe is tightening rules on foreign ownership. On 17 June, the European Commission announced proposals designed to prevent China and others from using government subsidies to outbid competitors for European assets. “We don’t want critical infrastructure, like electricity, water and streets, to be taken over by companies when we’re not 100 per cent sure what their intentions are,” Germany’s economy minister, Peter Altmaier, said earlier this year. 

Brexit has left Britain more geopolitically vulnerable: as it severs ties with the EU, dare it alienate another of the world’s economic superpowers? But faced with internal party pressure, Boris Johnson’s administration has adopted the most Sinosceptic stance of any recent government. Labour, too, is challenging ministers to take a less laissez-faire position towards China. “We’ve been going ahead with Chinese investment without regard for consequences for national security for too long,” the shadow foreign secretary, Lisa Nandy, said recently. 

Brexit was once anticipated as the moment that the UK would complete the Thatcherite revolution through the trinity of privatisation, deregulation and tax cuts, as well as ultra-liberal trade deals. But the post-EU era is instead coinciding with a larger state and a more restrictive ownership regime. In short, one could say that Britain’s economy is becoming more European.