China Hits Out at British Steel Nationalisation

China has hit out at the nationalisation of British Steel, saying it "firmly opposes and is strongly dissatisfied with the British government's decision". On Thursday, the UK government said that taking the loss-making firm into public hands would protect jobs and safeguard a "vital national capability".

The UK took control of British Steel's operations in Scunthorpe last year, though it was still owned by China's Jingye Group, limiting the government's ability to steer its future. The nationalisation came after Parliament on Wednesday passed legislation allowing the government to bring the steel industry into public ownership under circumstances where it met a public interest test.

China's commerce ministry said on Friday that the moves "seriously infringed upon Jingye's legitimate rights and interests and severely undermined the confidence of Chinese companies investing in the UK" . It also called on Britain to "faithfully fulfil" its obligations under the China–UK Bilateral Investment Treaty, a legally binding agreement signed in 1986 that was designed to promote and protect investments between the two countries.

"Disregarding Jingye's significant contribution to the UK economy and society, the British side forcibly took control of the company in the name of national security," the ministry said. The statement added that Beijing would monitor developments closely and support Chinese firms to protect their rights, but did not specify what protecting Chinese companies' rights might involve.

The Nationalisation Decision

The decision to nationalise British Steel represents a significant intervention by the UK government in the country's industrial base. By taking British Steel into public ownership, the government now has the power and freedom to decide on the future of the plant, while keeping the blast furnaces going. However, it is unlikely the government will want to continue running the business in the long term as it is costing it more than a million pounds a day.

In March, the National Audit Office said the Scunthorpe steelworks was costing the government about £1.3 million a day. Business Secretary Peter Kyle told the BBC the government would need to cover the running costs "for the immediate future" .

The UK imports most of its steel, with major suppliers including the European Union, the US, China and India. If the plant stopped producing virgin steel, the UK would become the only member of the G7 group of leading economies without the ability to make it. Steel output elsewhere in Britain relies on electric arc furnaces (EAFs), which recycle scrap metal to turn it into new products.

Although the government's long-term strategy is for all domestically produced steel to come from EAFs, which are cheaper and much less carbon-intensive to run, it does not want to lose production at Scunthorpe yet. The plant produces types of steel that are not yet made anywhere else in the country, much of it needed by Network Rail and the building industry. The fear had been that losing this output would be disruptive and make the country too reliant on imports. So the decision was made that Scunthorpe should be kept open until alternatives are available.

Jingye's Position and Compensation

Jingye is seeking compensation, having previously said the business was losing £700,000 a day . The BBC has been unable to get a response from Jingye itself to Thursday's announcement. The Chinese company acquired British Steel from the Official Receiver in 2020, saving thousands of jobs at the time. However, the business has continued to struggle financially, with high energy costs and weak demand weighing on its performance.

The nationalisation decision means Jingye will no longer have any ownership stake in the company, although it will be entitled to compensation for the loss of its investment. The amount of compensation is likely to be a point of contention between the UK government and Jingye, with the Chinese company seeking fair value for its investment.

Diplomatic and Economic Implications

The decision to nationalise British Steel threatens to strain the relationship between London and Beijing just as Andy Burnham is set to become the prime minister on Monday. The incoming PM will have to weigh his approach to the issue with the economic benefits of ties with the world's second largest economy.

The China-UK Bilateral Investment Treaty is a legally binding agreement that was signed in 1986. It was designed to promote and protect investments between the two countries . By nationalising British Steel without Jingye's consent, the UK government may be in breach of its obligations under the treaty, potentially exposing it to legal challenges and compensation claims.

China's commerce ministry has called on Britain to "faithfully fulfil" its obligations under the treaty, suggesting that Beijing may be considering taking the matter to international arbitration. Such a move would escalate the dispute and further strain bilateral relations.

The Historical Context

British Steel was last under state ownership in 1988 when it was privatised by Prime Minister Margaret Thatcher's government. The nationalisation represents a significant reversal of that policy, reflecting the government's concerns about the strategic importance of the steel industry and the need to maintain domestic production capacity.

The decision also comes at a time when governments around the world are increasingly concerned about supply chain security and the need to reduce reliance on imports for critical goods. The COVID-19 pandemic and subsequent geopolitical tensions have highlighted the risks of over-reliance on foreign suppliers, leading many countries to reconsider their industrial policies.

The nationalisation of British Steel represents a significant moment for the UK's industrial policy and its relationship with China. While the government argues that the move is necessary to protect jobs and safeguard a vital national capability, China has strongly objected, warning that it undermines confidence in the UK as a destination for Chinese investment.

The dispute is likely to cast a shadow over the incoming Labour government's efforts to build a productive relationship with China. The government will need to manage the fallout carefully, balancing its desire to protect domestic industry with the need to maintain good relations with the world's second largest economy.

For Jingye, the nationalisation represents a significant loss, both financially and strategically. The company invested heavily in British Steel and will now have to seek compensation for its loss. The outcome of that process will be closely watched by other Chinese companies considering investments in the UK, as it will set a precedent for how the UK government treats foreign investors in sensitive sectors. The government's ability to navigate these challenges will have significant implications for the UK's attractiveness as a destination for foreign investment.