Hinkley Point C: worst deal ever, huge profits for ruthless China!

artist’s impression Hinkley Point C                                 source: Guardian

Yesterday we showed that the Hinkley Point C power station will guarantee the builders, a consortium of French and Chinese state owned companies a return of 11% on their £18bn investment. The UK will buy electricity at around £2bn for the next 35 years from the power station, resulting in that that profit.

So a £18bn investment will yield a total return of £70bn for the French and Chinese!

The government could have financed £18bn over 35 years for as little as 0.5%, resulting in a 60% saving to the electricity consumer, by increasing its debt. But instead, the UK government is guaranteeing a 11% return, which is about 3 times the average return which hedge-funds have managed over the last 5 years.

So economically it is nonsense. And these amateurs in the government are in charge of the UK economy.

But the political and economic dependency for one of our most strategic energy sources, electricity, to China is even worse.

This week the American magazine Harper has a lengthy article, The new China Syndrome, on how American corporates are in being bumped around by the totalitarian regime in China. It makes interesting reading in its entirety, but here are some highlights:

Here is how China dealt with Rio Tinto executives:

When American corporations succeed in China, the result is not a mutual sense of comfort and familiarity, such as Toyota now enjoys in the United States. Instead we see a tightening of control, and increasing efforts to bend these powerful commercial institutions to the will of the men who run the Chinese state.

Rio Tinto, the world’s number-two supplier of iron, was among the first targets of this approach. In 2010, global prices for metals were spiking, and China’s state-owned steel mills pressed the corporation for a discount rate on iron ore. Rio Tinto refused — and meanwhile began selling ore to a few privately owned mills in the country. In response, Beijing simply charged four executives in the company’s Shanghai office, including an Australian citizen, with capital crimes. The tactic seems to have worked. While the four sat petrified in a Shanghai courthouse that March, Rio Tinto CEO Tom Albanese was in Beijing to, as one journalist put it, pay “homage to China’s leaders.” A couple of weeks later, a deal was struck on the pricing of iron ore.

Or here, when a dispute with Walmart erupted:

Another early target was Walmart. In October 2011, authorities in Chongqing charged the corporation, which at that time controlled some 10 percent of China’s hypermarket sales, with mislabeling pork products. Let’s recall that Walmart was (and is) the world’s largest company in terms of revenue. This didn’t discourage the Chinese from jailing two of Walmart’s employees, putting seven more under house arrest, and closing all of its outlets in Chongqing for two weeks.

Here some actions against Glencore, InterDigital and Qualcomm:

Some observers believe that Chinese authorities target foreign corporations merely for mercenary ends. Their goal, this thinking holds, is to grab patents for Chinese companies, or to shake a little cash into national or personal coffers. These quiet aggressions often do result in measurable commercial advances. Beijing held up Glencore’s takeover of Xstrata, an Anglo-Swiss mining operation, until executives agreed to transfer control of a lucrative Peruvian copper mine to a Chinese company. A lawsuit against InterDigital, which manages a vast portfolio of wireless patents, led that corporation to grant special treatment to Chinese enterprises. Litigation against the chipmaker Qualcomm had a similar effect, and in that instance Beijing tacked on a $975 million fine.

How about some “Maoist practices” against GSK, GE, IBM, Intel, Microsoft, Siemens, and Samsung?

Last year, Beijing used anticorruption statutes to fine the pharmaceutical company GlaxoSmithKline nearly $500 million. The year before, the tool of choice was a new antimonopoly law, which Beijing wielded during a sort of mass shaming of foreign executives. Functionaries from the National Development and Reform Commission reportedly summoned in-house lawyers from some thirty companies, including GE, IBM, Intel, Microsoft, Siemens, and Samsung.

Once everyone was in the room, officials announced that half the companies present were already under investigation for monopoly crimes — but didn’t say which. According to the Reuters journalist who broke the story, the officials instructed the managers to write down public “self-criticisms,” a Maoist practice designed to coerce individuals into confessing wrongdoing in advance of any trial. A Chinese regulator made the consequences clear: if any company resisted, he might double or triple its fine.

So why the large corporations do it? The reasons are self-evident:

First is the fact that so many U.S. companies now depend on China for the products they sell.

and then

A second reason corporations are so willing to accede to Chinese diktats is the allure of Chinese markets.

So what happens if you do not comply? Here Google and the New York Times:

A handful of U.S. companies have avoided exposing themselves to Chinese control, sometimes at great cost. In March 2010, in response to growing censorship and a surprisingly sophisticated hack, Google redirected Chinese- and English-language searches from the mainland to servers in Hong Kong. Beijing responded by temporarily cutting off access to Google’s search engine and, more recently, to Gmail. The cost to Google? Access to the world’s largest market of Web users, 649 million strong and growing.

The story is much the same with the New York Times. In October 2012, the paper published an article detailing how the family of former premier Wen Jiabao had accumulated more than $2 billion in assets by taking advantage of the “intersection of government and business.” Chinese authorities responded by blocking domestic access to the paper’s Chinese-language website and refused to provide visas to its reporters. Despite being cut off from millions of potential readers and seeing a key bureau hobbled, the Times has not budged.

What about the usual suspects, the big investment banks, what do they do?

What we must now get our heads around is that Morgan Stanley and Goldman Sachs, though based in New York, are not all that different a case. These bankers have for years profited by serving as procurers for Chinese investors who long to get their hands on American technologies and other assets. Their real interest nowadays? To subject their companies even more directly to Chinese influence by, as Morgan Stanley bluntly put it, hiring the “sons and daughters” of China’s sitting rulers.

Now, you might argue with the next paragraph. Should corporations have the ability to regulate trade rules, (as they seem to do with TPP rules which is entirely written by corporate lobbyists, in my view) or should the government have more power to represent consumers, rather than corporations?

In the run-up to last summer’s vote on fast-track negotiating authority for the TPP, President Obama warned that what is now at stake is who gets to “write the rules for trade in the twenty-first century.” What America’s political class and security establishment have yet to realize is that in a world in which nations are intertwined by global corporations, there is something else at stake: who gets to write the rules for liberty here in America. The difference between traditional American hegemony and Chinese hegemony cannot be overstated. When the United States wielded power over corporations in the postwar era, our overarching goal was — with some notable exceptions — stability, peace, and prosperity. When China wields its power over foreign corporations, the ultimate goal is — always — command and control.

What does that mean in the long term?

It is impossible to tell how China will pull these strings. Perhaps one day soon Beijing will threaten to cut off basic supplies of drugs and electronics, in an attempt to sweep our ships and troops from the Pacific. (To understand this ploy, Chinese leaders would need only study the actions of President Eisenhower in 1956, when he drove the armies of Britain and France from the Suez by threatening to cut off supplies of money and oil.) The more likely scenario, however, is less dramatic. Given America’s almost moribund federal authority over trade, China is largely free to manipulate the greed and cowardice of our corporate leaders, in ways that every day concentrate more control in their own hands. The national interest? Only a cacophony of interests manipulated from afar, like France in the days just before Vichy.

Where the brilliant Harper’s analysis is completely wrong, though, is here. At least as far as the UK is concerned:

Is there any hope of reversing this sorry trend? Of course — if we move immediately to put country above company, and to restore the systems of checks and balances we used for two centuries to distribute power safely at home and abroad. But to do so, we must first understand that Beijing, however terrifying, is not our immediate enemy. To regain our liberty, we must first target the oligarchs in our midst. In tearing down the fences to gain more absolute liberty for themselves, it was they who let in the wolf.

Now, what we have just seen in the UK, with the signing of the Hinkley Point C nuclear power station contract, is that the UK has not put our country above the (in this case foreign state-owned) companies with whom we made the deal. Our checks and balances, which would normally ensure that we have vaguely competent politicians have failed. There is a case to be made for nuclear power, and for new investment. But not with the current contract.

However, in this case there were no oligarchs responsible that the deal was signed, and signed in such a way which would make it extortionately expensive for the taxpayer. If it costs only £670 million to repay a capital loan and run a power station a year, (as we have calculated before) and perhaps another £100 million to maintain the power station each year, why are we paying £2,000 million per year? We are paying three times the current rate?

George Osborne laughing

Not funny: Clueless George Osborne                                    Photo: politicalscrapbook.net

Can nobody add up in the government, or use a mortgage calculator?

So clearly no oligarchs to target here, in this particular instance, only incompetent politicians in the Tory party, which sign us up to a deal with China. Chinese authorities who have a national interest at heart, and will, as the quotes above show, use their power to get their way. The risk is that they will do so with the UK, too.

In the UK the Chinese have found an easy target, a completely clueless chancellor. A country which had one of the highest current account deficits (trade deficit) in the world last year, the UK, will give income away to the Chinese (and French) which will make the current account balance much worse in future. Guaranteed. All because the Tory government are deficit fetishists, which must come above all else in the UK’s policy considerations.

Labour should continue to fight this Hinkley Point C policy, which could, if rigorously attacked, become the poll tax moment for the Conservatives. More so than the Tax Credit disaster. And a test case on how public finance is more prudent than these huge PFI contracts as Hinkley Point C, tying the UK to ruthless autocratic regimes to which the UK is obligated to pay extortionate sums in the future.

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2 thoughts on “Hinkley Point C: worst deal ever, huge profits for ruthless China!

  1. Hi Matt,

    The numbers are so boggling for just one deal that it makes my head spin. In fact, I don’t even think that the average joe in the street stops to consider how many zeros come after the first figure!

    This make me wonder. If you are still struggling to make a buck out of blogging, would it not have been a better idea to buy some shares, or even, how about this…start your own nuclear power company.

    A nuclear fusion start-up. Kind of catchy don’t you think? “We just pull the rods out and rest is just physics”

    PS. All these ideas are covered by some EU protection agreement, I am sure, so please do not forget about me when the big bucks start rolling in!

    Like

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