China’s Nuclear Gambit

Publication: China Brief Volume: 8 Issue: 6

Economic factors are clearly driving Chinese interest in strengthening their country’s underdeveloped nuclear energy sector. At present, China’s 11 operating nuclear reactors produce less than 2 percent of the country’s electricity, compared with over 25 percent in Japan and approximately 75 percent in France [1]. According to the Chinese National Bureau of Statistics, nuclear energy produced only 1.9 percent of the 3.28 trillion kilowatt hours of electricity produced in China in 2007 (People’s Daily, March 9).

Last year, the Chinese government adopted a nuclear power development plan that aims to double the share of atomic energy in China’s energy mix, to 4 percent by 2020, with an aggregate capacity of 40,000 megawatts (MW) (Xinhua, March 12). On March 8, however, Zhang Guobao, a vice minister of the National Development and Reform Commission, stated that, due to the more rapid than expected pace of construction in this sector, the country’s installed nuclear power capacity could exceed 60,000 MW by that date (Xinhua, March 8).

Zhang also indicated that, while all the country’s current nuclear energy plants are located in Guangdong, Jiangsu, and other coastal provinces, the authorities in Hunan, Jiangxi, and other inland provinces were now were now studying the possible construction of nuclear power plants (Xinhua, March 8). On March 4, the Hubei provincial government and China Guangdong Nuclear Power Group signed an agreement to build the country’s first inland nuclear power plant (Xinhua, March 5).

In addition to domestic considerations, Beijing also recognizes the foreign policy opportunities offered by its plans to increase China’s reliance on nuclear power. During the past year, the Chinese government has deftly managed international interest in China’s civilian nuclear energy program to enhance the country’s economic welfare and diplomatic stature.

Last year, the Chinese government purchased advanced nuclear reactors from the United States, France, and Russia. In July, China finalized an estimated $8 billion deal with U.S.-based Westinghouse to construct four advanced nuclear reactors, each with a capacity of 1,000 MW. The two plants due to be built in Haiyang in Shandong Province will involve a partnership between Westinghouse and China Power Investment. The remaining two reactors, to be constructed in Sanmen in Zhejiang Province, will be primarily financed by China National Nuclear (Reuters, July 24, 2007).

On November 26, 2007, the China Guangdong Nuclear Power Group Co. agreed to purchase two advanced nuclear reactors and other nuclear services from the French nuclear giant Areva for an estimated $12 billion, the most valuable deal in the industry’s history (Xinhua, November 26, 2007). That same month, China signed a preliminary agreement with Russia to build two more 1,000 MW nuclear reactors at Tianwan. The parties expect to sign a formal contract later this year. Russia’s Atomstroyexsport Corporation has already constructed two reactors at Tianwan. Russian energy experts eventually hope to build eight reactors in total at the site (China Daily, December 20, 2007).

China’s diverse selection of foreign commercial partners is no accident. Their governments have been leading critics of various Chinese commercial practices. Americans and Europeans have complained that Beijing has not been very cooperative in working to reduce their enormous bilateral trade gaps. They have also pressed the Chinese government to permit an appreciation in the value of the yuan as well as to better protect Western intellectual property against misuse. Russian authorities have expressed discontent with the Chinese for purchasing mostly energy and other natural resources from Russian suppliers rather than high-technology goods.

The multi-million dollar purchases of advanced nuclear reactors from Westinghouse Electric Corporation, Russia’s Atomstroyexsport, and France’s Areva could help lessen complaints about China’s commercial practices. By dispersing their purchases, the Chinese have also shown that they have multiple potential foreign partners for future nuclear deals—an arrangement that enhances their bargaining leverage with each individual seller.

In addition, gaining access to advanced foreign technology will improve the quality of China’s nuclear power industry, making it more competitive in both national and foreign markets. China’s eleven existing reactors employ first- or second-generation technologies, capable of producing 300 MW and 600 MW, respectively. Although these units were originally purchased from Canada, France, and Russia, Chinese companies can now manufacture their own first- and second-generation reactors. However, neither China National Nuclear Corp, China Guangdong Nuclear Power Corp nor other Chinese firms are yet able to construct third-generation reactors capable of generating 1,000 MW, like those purchased from Westinghouse, Atomstroyexsport, and Areva (China Daily, December 20, 2007).

At the end of November 2007, Chinese Vice Premier Zeng Peiyan said China should aim to become a leading international supplier of third-generation nuclear power plants as soon as possible “by combining foreign expertise with self-innovation” (Xinhua, November 30, 2007). Beijing aspires to sell civilian nuclear power equipment and services to many developing countries—including those in Africa, Asia, and Latin America—that have traditionally purchased nuclear materials from Western or Russian suppliers.

Despite its long-standing military competition with India, the Chinese government has not openly opposed the U.S.-Indian nuclear energy agreement announced in July 2005, which would grant India unprecedented exemptions from American law and global export rules. Rather than antagonize New Delhi by blocking the deal, which may fail anyway due to reasons unrelated to China, Chinese representatives have expressed some interest in selling Chinese nuclear technologies and materials to India, which plans to triple its number of nuclear power plants by 2020 (Washington Post, January 6, 2007). The joint Chinese-Indian communiqué issued after President Hu Jintao met Prime Minister Manmohan Singh during his November 2006 visit to India calls for “innovative and forward-looking approaches” to civilian nuclear power cooperation that simultaneously abide by non-proliferation principles (China Daily, November 22, 2006). Scholars at Chinese research institutes have even explicitly suggested possible bilateral civil nuclear energy cooperation if India accepts International Atomic Energy Agency (IAEA) safeguards (Press Trust of India, September 5, 2007).

After Singh visited Beijing in January 2008, the Indian prime minister said that his Chinese interlocutors in Beijing had given him the impression that the Chinese government would not block the proposed U.S.-Indian civil nuclear energy cooperation agreement when the 45-nation Nuclear Suppliers Group (NSG)—which operates by consensus—votes on whether to permit New Delhi to import nuclear material and technology despite India’s refusal to accede to the Nuclear Nonproliferation Treaty [2].

If the international community agrees to waive NSG rules for India, the Chinese government might seek comparable status for Pakistan. As with India, the NSG restricts nuclear cooperation with Pakistan because its government tested a nuclear weapon in 1998, refuses to sign the Non-Proliferation Treaty, and excludes IAEA inspectors from its nuclear facilities. Pakistani authorities have expressed interest in China’s constructing as many as six additional nuclear reactors in Pakistan [3].

Beijing’s decision to expand its domestic nuclear power sector could also improve its stature among the global environmental community. Activists, scientists, and policy makers alarmed by climate change have warned that China’s use of coal as its main energy source is generating a large volume of harmful greenhouse gases that contribute to global warming. As of late 2007, coal-fired power plants accounted for 78 percent of China’s total installed capacity of 713.29 million kilowatts (Xinhua, March 12).

China is in the process of surpassing the United States as the largest emitter (Thomson Financial, December 25, 2007). Environmentalists have therefore called on the international community to stop exempting China from the requirements of major global environmental agreements such as the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change.

In addition, China’s heavy air pollution has become an international embarrassment now that Beijing is preparing to host the Summer Olympics, where climatic conditions often visibly affect athletic performance. Thus far, Chinese authorities have made limited progress in promoting energy conservation (China Brief, February 7, 2007). The government has achieved more success by encouraging the use of renewable energy resources such as solar, wind, and hydropower (The Independent, November 16, 2007). Nevertheless, analysts predict that China will become even more dependent on coal to meet anticipated increases in energy demand. Coal use as a percentage of total energy consumption—70 percent in 2006—is expected to rise to 84 percent by 2030 [4]. Expanding the use of nuclear power could, along with increased use of renewable resources, decrease the growth rate of China’s coal consumption and compensate for its lagging progress in making domestic energy consumption practices more efficient.

Increasing national nuclear energy production could also help reduce China’s dependence on foreign energy supplies. A combination of a booming economy and declining domestic energy production has resulted in China’s becoming a net importer of coal for the first time in its history (Bloomberg, November 29, 2007). Beijing is also the world’s third-largest importer of oil, requiring China to engage in a costly, and often divisive, competition with other countries [5].

Chinese policy makers appear particularly worried by China’s dependence on Persian Gulf energy sources, which amount to over half its oil imports despite vigorous Chinese efforts in recent years to diversify energy sources to include African, Central Asian, and Latin American countries. Not only is China’s access to the Persian Gulf uncomfortably vulnerable to interception by foreign navies, but the tumultuous situation in Iraq and the dispute over Iran’s nuclear program also threaten to disrupt oil exports from the region’s other oil producers.

Although last year China signed a contract to import uranium from Australia, in February 2008 China National Nuclear Corp., the main domestic nuclear power conglomerate, announced that it had verified the largest uranium ore deposit in the Ordos Basin in the northern Inner Mongolia Autonomous Region. Although the company did not disclose the precise amount of proven uranium ore reserves located there, Wang Sen, a senior executive of the CNNC, stated that, “The newly proven uranium amount each year in China is larger than the country’s demand, so it is not only sufficient to meet current demand but also lays a solid foundation for Chinese nuclear power development for the long run” (Xinhua, February 27).

Recent Chinese government decisions have shown that Beijing can deftly wage energy diplomacy. The government’s nuclear policies have simultaneously enhanced its influence in Washington, Europe, Moscow, New Delhi, and within the environmental community. Future deals with Westinghouse could even help China improve its strained ties with Japan since Toshiba maintains a controlling interest in the company.

China will invariably seek to expand the role of Chinese nuclear energy firms in generating domestic electricity as well as in exporting nuclear technologies to Egypt, Iran, Pakistan and other developing countries. Nonetheless, the rapid expansion of its domestic nuclear power sector will likely make it the largest national importer of foreign nuclear technology and equipment during the next few decades, further boosting its influence in the global market as both a consumer and future supplier.

Notes

1. See the map, “Power Up Nuclear Reactors in China,” based on data provided by the World Nuclear Association, at http://www.bloomberg.com/apps/data?pid=avimage&iid=iUd8BLclJyvk.

2. “China to Allow U.S.-Indian Nuclear Deal, Singh Says,” Global Security Newsletter, January 17, 2008, http://www.nti.org/d_newswire/issues/2008_1_17.html.

3. Subhash Kapila, “China: President Hu Jintao’s Visit to South Asia Reviewed,” South Asia Analysis Group Paper No. 2040 (November 30, 2006), at http://www.saag.org/%5Cpapers21%5Cpaper2040.html.

4. Energy Information Administration, “International Energy Outlook 2007: Chapter 6- Electricity,” 2007, http://www.eia.doe.gov/oiaf/ieo/electricity.html.

5. Energy Information Administration, U.S. Department of Energy, “Country Analysis Briefs: China” (August 2006), at http://www.eia.doe.gov/emeu/cabs/china.html.