Joint Ventures in the Nuclear Sectors
The topic of this company case study revolves around the Chinese nuclear power sector. European investors seeking market access in this specific field in China mainly do so by partnering up with a local company. This common trend is explained by the fact that nuclear power energy production is still among the items included in China’s Negative List (2020) on inward foreign investments. In fact, although the most recent version of the document released in June 2020 entails substantial relaxation on investment caps in the energy sector, this mainly concerns coal, oil, gas, and power generation activities. Relaxation on investment caps is primarily geared towards the attraction of foreign investment into the renewable energy sector. At present, no similar concession has been made to the nuclear sector.
This does not prevent China from seeking collaborations and partnerships with relevant European companies in the sector, allegedly to access relevant technology and manufacturing processes. Examples can be found in the experiences of the German KSB and the French Électricité de France (EDF).
The Examples of German KBS and French EDF
KSB SE & Co. KGaA
The German KSB SE & Co. KGaA manufacturing activities trace back to 1871, when it got established in the city of Frankenthal. Its scope of business does not directly involve nuclear power production, but rather the manufacturing of relevant nuclear reactors’ components, such as nuclear pumps and valves. Being one of the leaders in the production of mentioned items worldwide, German KSB is high on the list of appealing foreign partners for a joint venture in the field.
In fact, in 2008 the German company settled a joint venture agreement with the Chinese Shanghai Electric Group Co., Ltd, a huge state-owned manufacturing group specialized in the production of energy equipment. The joint venture at stake is called Shanghai Electric KSB Nuclear Power Pump Valve Co., Ltd. and mostly manufacture pumps and valves for nuclear power plants. In terms of ownership, the joint venture is owned through a 55% – 45% ratio, with the majority stake being held by the Chinese conglomerate. The total registered capital of the entity equals 41.5 M euros.
Électricité de France
The second proposed example concerns the exploration of the Chinese market by the Électricité de France (EDF). The joint venture at stake is called Taishan Nuclear Power Ltd. It was set up in 2007 through the synergic cooperation between the French EDF and China General Nuclear Power Co., Ltd. Both the actors involved are relevant energy suppliers within their respective countries. The foreign partner, EDF, is the main electricity generation and distribution company within France. Important to mention, the French company is mainly state-owned and it thus enjoys a monopoly in energy generation in the country. At present, EDF generates 98GW of electricity in France out of which 73GW is from nuclear power. EDF can also be regarded as the leading foreign investor in electricity generation in China, with around 378.5 million euro invested in the country, especially in companies operating coal-fired power plants or renewables.
Both the actors involved are relevant energy suppliers within their respective countries.
The foreign partner, EDF, is the main electricity generation and distribution company within France. Important to mention, the French company is mainly state-owned and it thus enjoys a monopoly in energy generation in the country. At present, EDF generates 98GW of electricity in France out of which 73GW is from nuclear power. EDF can also be regarded as the leading foreign investor in electricity generation in China, with around 378.5 million euro invested in the country, especially in companies operating coal-fired power plants or renewables.
China General Nuclear Power Group
The Chinese actor, and also the controlling part into the joint venture, is China General Nuclear Power Group, a company conglomerate supervised by the State-owned Assets Supervision and Administration Commission of the State Council. The cooperation between the two companies traces back to 1984, when the two groups decided to work together for the construction of Daya Bay and Ling Ao nuclear power plants located in the Shenzhen area. At the time, EDF only acted as a technical contractor during the construction process of the plant. Nowadays, EDF still remains involved in operations at Daya Bay through assistance contracts. Despite its relevance, the French party only owns 30% of the joint venture’s shares. The rest of the shares are held by China General Nuclear Power Co., Ltd through ad-hoc investment vehicle Taishan Nuclear Power Industry Investment Co., Ltd. and other subsidiaries of the company.
The Nuclear Energy Sector
These two joint venture cases are a demonstration of the ownership restrictions concerning foreign companies seeking their entry in the nuclear power sector in China. This can affect the level-playing field in investment between the two blocs. As seen in the Negative list’s provisions, “Chinese control is required for investment by foreign investors in building or operation of nuclear power stations.” This explains why a big multinational company as EDF could only get a minority share if deciding to operate in the Chinese nuclear sector. Due to present limitations, foreign presence into the nuclear sector in China is still limited.
Yet, the same cannot be said for the reverse case. Especially in recent years, China has been more and more interested into EU nuclear sector. The energy sector is a crucial one, even due to security reasons, and it is for sure an area where more restrictions tend to apply. Even then, large parts of the European energy sector are, in principle, open to FDI from non-European investors. This can also be seen in recent acquisitions from China into Spain’s nuclear power field.
At the beginning of 2020, the Chinese state-owned China Energy Engineering Co., Ltd. acquired relevant stakes into the Spanish nuclear power sector purchasing 48% of Técnicas Reunidas, 75.8% of Iberdrola and 75.8% of Naturgy. All of them are relevant companies operating in the Spanish energy sector and with a main focus on nuclear power production.
For these reasons, European decision makers are increasingly concerned that Europe’s commitment to investment openness, which it extends to Chinese investments, is not reciprocated by China. On the contrary, the Chinese government continues to strategically limit access for foreign investments in crucial sectors of its economy.
The obligation of settling a joint venture when deciding to invest in China can entail the risk of technology transfer. In both proposed examples the foreign party fails to have a majority share in the partnership. The fact that the Chinese party can exercise control over the partnership can lead to the disclosure of relevant trade secrets and confidential information. In these cases, technology and know-how transfer could constitute a threat for the European firms’ competitive advantage in the future.
Considering that there is a high level of state influence in the joint venture, that China has high ambitions in the nuclear energy sector, and that the restrictions for foreign investments in the sector, we can imply that the Chinese government has strategic interests in joint ventures like these.
In the Foreign Investment Law (FIL) released in 2020, China commits to stop alleged forced technology transfers practices. Nevertheless, it is arguable that the law somehow fails to constitute an effective shield against alleged technology transfer mainly because of the use of “vaguely worded provisions” and “discretionary and non-transparent administrative reviews and licensing processes”. Due to the relevance of the activities carried out by KSB Germany worldwide, and the strategic interests of the Chinese government, protection of the foreign investors cannot be guarante