China’s security threat to Britain’s energy infrastructure

Clive Hamilton

After banning Huawei from Britain’s communications system, investment from China in the country’s energy system poses a greater security risk.

It’s often said that investment from China should be treated in the same way as investment from other countries. If only it were true.

But China is different because businesses in China cooperate with the CCP. Known as a “party-corporate conglomerate”, it arises partly from the deep intermingling of China’s business elite with the “red aristocracy”, that is, the Communist Party families that rule the nation. Even the “corruption-busting” President Xi Jinping has family members with secret offshore bank accounts and hundreds of millions in assets squirreled away.

The party-corporate conglomerate is also built on the strength of China’s powerful state-owned enterprises. While we in the West believed that drawing China into the global economy would see independent private enterprise prevail, under Xi Jinping the opposite has occurred.

In 2016, President Xi Jinping declared that the party’s leadership is the “root and soul” of state-owned companies and they should “become important forces to implement” the decisions of the party. More worryingly, in 2017 China’s parliament passed a law that obliges all Chinese citizens overseas to provide assistance to China’s intelligence services if requested.

Article Seven stipulates that “any organization or citizen shall support, assist, and cooperate with state intelligence work according to law.” And that applies to heads of Chinese corporations as much as to any other citizen. If China’s shadowy Ministry of State Security tells the boss of Huawei in Britain to do some spying, then he is obliged to obey. If he refused he would be escorted back to China quick smart and then disappear.

So the Communist Party insists on having the last say in all Chinese companies of any size, whether private or state-owned. That’s why they each have Communist Party cells active inside them. The secretary of the party cell is the most powerful person in the company, because he represents the masters in Beijing. He can over-rule the company’s board.

In fact, in 2016 President Xi Jinping told Chinese companies that the positions of party secretary and chairman of the board should be occupied by the same person.

“Comrade Zheng”

All of this applies to the Chinese state-owned company CGN that owns a third of the nuclear power station being built at Hinkley Point. CGN now plans to build two more nuclear plants, at Sizewell in Suffolk and Bradwell in Essex.

CGN’s Chairman is He Yu. He doubles as the secretary of the company’s Communist Party cell. A party member for three decades, he was appointed to his positions by the powerful Organisation Department of the CCP. So while he may want to give priority to CGN’s commercial interests, he is beholden to the party.

In Britain, the man who runs CGN’s UK subsidiary is Zheng Dongshan. He too has been a member of the parent company’s “CCP Leadership Group”. Before he arrived in Britain in 2017, “Comrade Zheng” took the precaution of resigning from his party positions. Even so, he must always have Beijing’s political interests at the front of his mind. CGN UK will never do anything that CCP bosses in Beijing don’t like. And if Beijing asks CGN UK to do something then it must.

CGN UK has set up a UK advisory board featuring knights of the realm, including former Chairman of Crossrail Sir Terry Morgan and former top civil servant Sir Brian Bender. Knights are, apparently, more credible. This board serves to present an acceptable face for the company to the British public. Like Huawei’s local board, which bristles with titles (Lord Brown, Dame Helen Alexander, Sir Andrew Cahn, Sir Michael Rake), they are paid to do the company’s public relations.

And CGN needs all the good PR it can get. Last year, the United States government blacklisted the company, accusing it of stealing American nuclear technology. In 2017 a CGN engineer was jailed in Tennessee after he was convicted of enlisting US experts to transfer to CGN sensitive American nuclear technology with military uses.

This case was just one among the vast program of state-sponsored and state-organised technology theft that China has been carrying out for years. The FBI director, Christopher Wray, recently said that the bureau has around 1,000 active investigations into technology theft carried out for the benefit of China. It is credibly estimated that the theft of trade secrets by China costs the United States $300-$600 billion each year.

If the pattern is repeated, by partnering with CGN to build a nuclear plant at Hinkley Point, France’s EDF can expect to have its commercial secrets stolen and its technology used in nuclear pants built by CGN around the world.

That’s why last year a senior US official warned the UK government not to engage with CGN because the company is important to Beijing’s efforts to use civilian nuclear technology for military purposes. It’s part of Xi Jinping’s program of “civil-military fusion”.

Batteries and dams

The role of Chinese companies in generating Britain’s electricity goes well beyond GCN’s role in nuclear energy. Chinese companies are investing in solar and wind power, the future of Britain’s energy supply. CGN itself owns three wind farms in Britain.

Perhaps more importantly, Chinese state-owned company China Huaneng Group is expected to switch on Europe’s largest battery storage facility at the end of this year in Wiltshire. As Britain shifts to renewable energy, battery storage will be essential to the stability of the whole system.

The chairman of China Huaneng Group, Shu Yinbiao, is also the company’s Communist Party secretary. The company has a chequered history. In 2003 it was heavily criticised for planning to build a dam in Tibet that would flood a holy lake and damage the downstream environment. But the company was untouchable because it was run by Li Xiaopeng, the “princeling” son of the former prime minister Li Peng, known as the Butcher of Beijing after he sent in the tanks to crush students protesting in Tiananmen Square in 1989.

The dam went ahead. Li Xiaopeng is now a top Communist Party official in Beijing, a member of the Central Committee of the CCP and Xi Jinping’s Minister of Transport. He remains on the board of China Huaneng Group and undoubtedly takes a close interest in the company’s investments in Britain.

The United States has become much more circumspect about Chinese investment in infrastructure after it noticed that Chinese companies had been attempting to buy land, ports and industrial facilities in close proximity to military installations. One wanted to build a wind farm in Oregon next to a US naval weapons system training base.

Party animals

However, China’s investment in the generation of Britain’s electricity is not the biggest security risk. That place belongs to Britain’s electricity distribution system, the transmission networks that get the electrons from the power plants to the power points in your home.

Here Britain already has a problem. When the London Electricity Board was privatised in 1990, it was bought by an American company. It was later bought by EDF, the French company, which in 2010 sold it to Cheung Kong Group (aka CK Group). This Hong Kong conglomerate is owned by the legendary billionaire Li Ka-shing.

The wily tycoon has at times tried to keep Beijing at arm’s length, but he has also been willing to get into bed with the China International Trust Investment Corporation or CITIC, the huge state-owned conglomerate known for its links with China’s military and intelligence services. One Western intelligence expert wrote that CITIC was “swarming with secret agents” and when US President Bill Clinton became mired in the “Chinagate” scandal—dodgy donors obtained access to the White House—CITIC’s boss Wang Jun engineered a meeting with the President.

By operating as CITIC’s “long-term ally”, Li Ka-shing facilitated the CCP’s venture into global capitalism because CITIC now owns a vast property portfolio across Western capitals, including a high-end residential development in Mayfair.

Li Ka-shing has passed control of the CK Group to his son Victor Li. The CCP has given Victor Li its blessing by appointing him as an executive member of the the Chinese People’s Political Consultative Conference, sometimes referred to as China’s upper house. A vital element of the CCP’s overseas influence operations, the Conference describes itself as “an organization of the patriotic United Front of the Chinese people”.

In addition to its monopoly on the supply of gas to the north of England and across Wales and southwest England, Victor Li’s CK Group enjoys a monopoly on the supply of electricity to London through a company called UK Power Networks, the old London Electricity Board. It also controls electricity distribution in the south and south-east England.

So, CK Group, with its close ties to the Chinese Communist Party, is responsible for supplying electricity to everything that makes London function—its road transport system, its rail network, its office buildings and more. It also keeps the UK’s financial system working. Without electricity, the ATMs would jam and the Bank of England, which keeps the whole system moving, would grind to a halt.

London blackout?

Westminster’s vacillation over Huawei told us that Britain’s intelligence services were slower than their US and Australian counterparts to recognise the risks posed by investment from China in the country’s critical infrastructure.

Even so, Australian governments, bedazzled by Beijing’s blandishments, allowed Chinese corporations, including state-owned ones, to buy up a large share of the nation’s electricity network and gas supply.

But once bitten, twice shy, and in 2016 the government acted on security concerns by blocking Cheung Kong Infrastructure from buying another large slice of the electricity network.

What are those security concerns? In a conflict situation—arising, for example, from an invasion of Taiwan—does Britain want a company that can be controlled by an adversary to be in a position to turn off the power? The probability of this happening may be very small but the impact would be calamitous.

The first few hours of modern warfare between major powers will all be cyber warfare aimed at crippling the other side. That’s why the United States is so nervous that China’s military may have hacked the US electricity system and planted kill switches in it.

If Chinese companies, ultimately controlled by Beijing, have a substantial presence in Britain’s electricity system, what happens if tensions escalate to the point of conflict? The mere possibility that Beijing could turn the lights off at 10 Downing Street—not to mention freeze the financial system, paralyse the hospitals and black out the traffic lights—gives the adversary a decisive advantage.

The European Commission has recognized the danger to national security of CCP-controlled companies buying up critical infrastructure and is tightening the filters to keep them out.

When China is no longer ruled by an authoritarian Leninist party committed to exerting its influence abroad through Chinese companies then investment from China should be treated like investment from any other country. Who knows when that day will arrive.

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© Copyright Clive Hamilton