Not sure why people are fussing about an uncertain UK investment climate post-Brexit? Look no further than the current controversy over Chinese investment in the Hinkley Point C nuclear plant.
A day after EDF’s board voted by a slim majority to approve the £18 billion ($24 billion; €21 billion) project, the UK government decided to hit pause on Hinkley Point until the autumn. Allegedly at the behest of new Prime Minister Theresa May, government wanted more time to make a final decision on the controversial project, which carries an eye-watering strike price of £92.50 per megawatt/hour, double the current market rate.
Majority investor EDF had planned to mark the milestone with a media event, and like the proverbial groom stood up by the runaway bride, had to embarrassingly call off the celebrations at the last minute and put the bubbly back on ice.
But when it emerged that May’s doubts on the project might have more to do with security concerns over state-backed China General Nuclear Power Corporation – EDF’s junior partner, contributing £6 billion to Hinkley Point – than the project itself, China reacted with barely concealed fury.
As so often happens, the message came via an English-language editorial by official news agency Xinhua. While paying lip service to the UK’s decision to take time to consider the project, the editorial quickly got to the point: “China can wait for a rational British government to make responsible decisions, but can not tolerate any unwanted accusation against its sincere and benign willingness for win-win cooperation.”
And then came the clincher: “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out.” Failure to remain an open economy, Xinhua continued, “will surely stain [the UK’s] credibility [..] and might deter possible investors from China and other parts of the world in the future”.
China’s reaction is somewhat understandable. Last October, the UK and China had proclaimed a ‘golden era’ of commercial and diplomatic relations and Chinese investors had, arguably, found the UK a more welcoming investment destination than other parts of the western world.
Chinese sovereign wealth fund China Investment Corporation owns stakes in Heathrow Airport and utility Thames Water. Huawei supplies equipment for key parts of the UK’s telecoms network, even though it was barred from doing the same in the US and other western countries. Some £100 billion of Chinese capital had been earmarked for UK infrastructure till 2025, including for two other nuclear stations in Suffolk and Essex. That all seems threatened now.
And that, in a way, neatly encapsulates the UK’s post-Brexit foreign investment dilemma: with £400 billion-plus of infrastructure projects planned till 2021, the UK obviously needs all the help it can get; yet May, first in a July 11 speech stressing a willingness to protect certain strategic sectors against foreign takeovers, and now, seemingly, in her actions, is signaling she may put some limits on where foreign capital can invest.
Investors are thus scrutinising every post-Brexit deal done – or delayed – for what it might say about official policy. Who knows? A Hinkley delay might turn out to be just a blip on the radar; or a cancellation might signify less openness to Chinese investment in strategic sectors, but not necessarily general hostility to foreign direct investment; or it might just be about Hinkley, which many decry as an expensive white elephant. Only time will tell.
But with a recession looming, a messy EU divorce pending and a £400 billion infrastructure bill to foot, time is not on the UK government’s side.