EU-China joint ventures in the nuclear sector: KSB GmbH and EDF International

At Datenna, our China experts continuously track and conduct detailed investigations into joint ventures established between European and Chinese entities located in China. Through a series of articles in our resource library, we highlight striking EU-China joint venture case studies, analysed based on Datenna's in-depth, unique data on China's techno-economic landscape. This article analyses the joint ventures set up by German KSB GmbH and French EDF International with Chinese entities.

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Europe-China Joint Ventures in the Nuclear Sector

This case study examines the Chinese nuclear power sector. European investors seeking market access in China mainly do so by partnering with a local company, because nuclear power energy production remains on China's Negative List on inward foreign investments. Although the most recent version of the document, released in June 2020, brought significantly relaxed investment caps in the energy sector, this primarily concerns coal, oil, gas, and power generation — with relaxation mainly geared towards attracting foreign investment into renewables. No similar concessions have been made for the nuclear sector.

This does not prevent China from seeking collaborations and partnerships with European companies in the sector and accessing relevant technology and manufacturing processes. Examples can be found in the cases of German KSB and French Électricité de France (EDF).

European Nuclear Firms Venturing to China

KSB SE & Co. KGaA

The German KSB SE & Co. KGaA traces its activities back to 1871, when it was established in Frankenthal. Its business scope does not directly involve nuclear power production, but rather the manufacturing of nuclear reactor components such as nuclear pumps and valves. As one of the global leaders in the production of these items, KSB holds significant appeal for Chinese companies as a joint venture partner.

In 2008, KSB signed a joint venture agreement with Shanghai Electric Group Co., Ltd. — a significant state-owned manufacturing group specialised in energy equipment. The joint venture, Shanghai Electric KSB Nuclear Power Pump Valve Co., Ltd., manufactures pumps and valves for nuclear power plants. The majority stake of 55% is held by the Chinese conglomerate, with KSB holding 45%. The total registered capital of the entity equals €41.5 million.

Électricité de France in China

The second example involves EDF's entry into the Chinese market through the joint venture Taishan Nuclear Power Ltd., established in 2007 in partnership with China General Nuclear Power Co., Ltd. EDF is France's primary electricity generation and distribution company — predominantly state-owned, with a monopoly on energy production in France, generating 98GW of electricity of which 73GW comes from nuclear power. EDF is also a leading foreign investor in China's electricity sector, with around €378.5 million invested primarily in coal-fired and renewable energy companies.

The Chinese Partner: China General Nuclear Power Group

The controlling party in the joint venture with EDF is China General Nuclear Power Group, a conglomerate under the State-owned Assets Supervision and Administration Commission of the State Council. Cooperation between the two companies traces back to 1984, when they began working together on the construction of the Daya Bay and Ling Ao nuclear power plants in the Shenzhen region. EDF holds only 30% of the joint venture's shares, with the remainder held by China General Nuclear Power Co., Ltd. through an ad-hoc investment vehicle, Taishan Nuclear Power Industry Investment Co., Ltd., and other subsidiaries.

The Nuclear Energy Sector in China

These two joint venture cases demonstrate the ownership restrictions facing foreign companies seeking entry into China's nuclear power sector. China's Negative List states that "Chinese control is required for investment by foreign investors in building or operation of nuclear power stations." This explains why a major multinational like EDF could only secure a minority share. Due to these limitations, foreign presence in China's nuclear sector remains limited.

Yet the same cannot be said in reverse. China has shown increasing interest in the EU nuclear sector in recent years. At the beginning of 2020, the Chinese state-owned China Energy Engineering Co., Ltd. acquired stakes in the Spanish nuclear power sector, purchasing 48% of Técnicas Reunidas, 75.8% of Iberdrola, and 75.8% of Naturgy — all major companies in Spain's energy sector with a primary focus on nuclear power. Such investments have made European decision-makers increasingly concerned about Europe's commitment to investment openness not being reciprocated.

Continued Risks to European IP from Joint Ventures

The obligation to establish a joint venture when investing in China carries an inherent risk of technology transfer. In both examples above, the foreign party does not hold a majority share in the partnership. Chinese control over the partnership can lead to the disclosure of trade secrets and confidential information, and technology and know-how transfers could threaten European companies' competitive advantage in the future.

The Foreign Investment Law (FIL) released in 2020 commits China to phasing out forced technology transfer practices. Nevertheless, it is doubtful whether the law constitutes an effective shield. It has been criticised for vaguely worded provisions and discretionary, non-transparent administrative reviews and licensing processes. Given the strategic sectors in which these companies operate, the large amounts of strategic technology they possess, and the strategic interests of the Chinese government, the knowledge security of foreign investors cannot be guaranteed.