EU-China joint ventures in the nuclear sector: KSB Gmbh and EDF International
Datenna tracks and conducts research on China-EU joint ventures in Europe. In this series of articles, we have decided to highlight our research and data on interesting joint venture cases. This article analyses the joint ventures set up by the German KSB Gmbh and the French EDF International with Chinese entities.
- This case study looks at the nuclear power sector in China and the implications resulting from limitations to market access imposed by the Chinese Negative List on Foreign Investment.
- Two foreign companies operating in the Chinese nuclear sector through joint venture (JV) agreements, the German KSB and the French EDF, show us how the establishment of independent foreign-owned entities in the field is still restricted.
- The foreign JVs and caps on foreign investment can be seen as an avenue by China to acquire and control advanced foreign technology in nuclear power production.
Europe-China joint ventures in the nuclear sector
This company case study looks at the Chinese nuclear power sector. European investors seeking market access in this field in China mainly do so by partnering up with a local company. This is because nuclear power energy production remains one of the fields included in 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 mainly concerns coal, oil, gas, and power generation. Relaxation on investment caps is primarily geared towards attracting foreign investment into the renewable energy sector. At present, 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 access relevant technology and manufacturing processes. Examples can be found in the cases of the German KSB and the French Électricité de France (EDF).
European nuclear firms venturing to China
KSB SE & Co. KGaA
The German KSB SE & Co. KGaA can trace its activities back to 1871 when it was established in the city of 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. Being one of the global leaders in the production of these items, KSB holds much appeal for Chinese companies as a JV partner.
In 2008 the German company signed a joint venture agreement with Shanghai Electric Group Co., Ltd, a significant state-owned manufacturing group specialized in the production of energy equipment. The joint venture is called Shanghai Electric KSB Nuclear Power Pump Valve Co., Ltd. and manufactures pumps and valves for nuclear power plants. The ownership of the joint venture is divided 55% to 45%, 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 in China
The second example concerns the entry into the Chinese market of Électricité de France (EDF) through a joint venture called Taishan Nuclear Power Ltd. It was set up in 2007 through cooperation between the French EDF and China General Nuclear Power Co., Ltd. Both partners are important energy suppliers in their respective countries. The French partner, EDF, is the main electricity generation and distribution company within France. EDF is also mainly state-owned and it thus enjoys a monopoly in energy generation in the country. At present, EDF generates 98GW of electricity in France, of which 73GW is from nuclear power. EDF is also a leading foreign investor in electricity generation in China, with around 378.5 million euro invested, mainly in companies operating coal-fired power plants or renewables.
Both companies are major 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.
The Chinese partner: China General Nuclear Power Group
The Chinese side and 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. The cooperation between the two companies traces back to 1984, when the two groups decided to work together for the construction of the Daya Bay and Ling Ao nuclear power plants in the Shenzhen region. At the time, EDF only acted as a technical contractor during the construction process of the plant, and it remains involved in operations at Daya Bay through assistance contracts. The French side only owns 30% of the joint venture’s shares, with the rest held by China General Nuclear Power Co., Ltd through an ad-hoc investment vehicle, Taishan Nuclear Power Industry Investment Co., Ltd., as well as other subsidiaries of the company.
The Nuclear Energy Sector in China
These two joint venture cases demonstrate ownership restrictions on foreign companies seeking entry into the nuclear power sector in China. This can skew the playing field in investment between the two blocs. The Negative List provisions state that “Chinese control is required for investment by foreign investors in building or operation of nuclear power stations.” This explains why a big multinational company like EDF could only get a minority share when deciding to establish a JV in the Chinese nuclear sector. Due to these limitations, foreign presence in the nuclear sector in China is still limited.
Yet the same cannot be said for the reverse. In recent years, China has shown increasing interest in the EU nuclear sector. The energy sector tends to feature relatively heavy investment restrictions partly due to its security significance. Nevertheless, large parts of the European energy sector are open to FDI from non-European investors. This can be seen in recent acquisitions by China in Spain’s nuclear energy field.
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 of them are major companies in the Spanish energy sector and with a main focus on nuclear power production.
Such investments have made European decision makers increasingly concerned about Europe’s commitment to investment openness, which it extends to Chinese investments, not being reciprocated. The Chinese government continues to strategically limit access for foreign investments in crucial sectors of its economy.
The obligation of establishing a joint venture when investing in China can entail the risk of technology transfer. In both examples above, the foreign party does not 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 trade secrets and confidential information. In these cases, technology and know-how transfers could constitute a threat for European companies’ competitive advantage in the future.
Continued risks to European IP from joint ventures
The high level of state influence in the joint ventures, China’s high ambitions in the nuclear energy sector as well as the restrictions for foreign investments, all imply that the Chinese government sees a strategic interest in these joint ventures.
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 against technology transfer. It has been criticised for the use of vaguely worded provisions and discretionary and non-transparent administrative reviews and licensing processes. Due to the importance of the activities carried out by the two companies in strategic sectors worldwide, the large amounts of strategic technology they possess, and the strategic interests of the Chinese government, the knowledge security of the foreign investors cannot be guaranteed.
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