The Euro Economy

 

Having been in power for less than a month, Britain’s new Prime Minister is already making an impact. To the surprise of many, Theresa May has decided to delay work on the £18bn Hinkley Point nuclear power station, much to the chagrin of Chinese and French partners on the project.

The impetus for halting work on the project seems to be on national security grounds. With the Chinese poised to fund both this major project and build another nuclear reactor in Essex further down the line, it seems that the PM has gotten jitters about giving the country access to some of Britain’s most crucial energy infrastructure. She and some of her key advisors fear that this has the potential to leave the UK vulnerable should UK-Sino relations ever chill – a point that has been made by Nick Timothy, May’s joint chief of staff, who has previously warned the Chinese could potentially use their role in the programme to “build weaknesses into computer systems which will allow them to shut down Britain’s energy production at will.”
Whether this is likely, or simply scaremongering, the UK is not the only country to view deals with China as either complete no-goes or something akin to a Faustian pact. The US and others have already barred Chinese company Huawei’s involvement in key telecommunications networks on national security grounds. When the German Chancellor Angela Merkel asked her then counterpart Tony Abbott what drove his country’s policy on China, he unequivocally answered “fear and greed”.

Clearly, May’s pendulum has swung towards the former and away from the latter. Whether she is exercising due and proper caution, or rather ill-advisedly sabotaging a deal that was years in the making and could be of major benefit to the UK, this move represents a clear break from the foreign policy objectives of David Cameron and former Chancellor George Osborne, who were seemingly indefatigable in their enthusiasm for courting foreign trade and investment. Another thing that is clear is that May is on shaky ground with this move.
That tireless pursuit of foreign trade, as so clearly embodied by the UK’s recently departed leadership, is exactly what post-Brexit Britain needs. Deeper trade ties with the world’s major economies are essential if the UK is to remain an economic powerhouse, especially without its place in the European Union. There are already signs that Ms. May’s actions have damaged Britain’s credibility abroad. A writer for Xinhua, China’s leading news agency and one which is largely thought to reflect government thinking, argued that this ‘suspicious approach’ towards Chinese investment triggers concerns that ‘Britain might be thinking of erecting a wall of protectionism, which will surely stain its credibility as an open economy and might deter possible investors from China and other parts of the world in the future.’
Attracting this sort of opprobrium from China is risky. As the world’s second-largest economy, China is an indispensable trade partner for the British economy. There is also the risk of other economic powers beginning to question whether Britain is quite as ‘open for business’ as it claims to be. This may hamper its efforts to both attract inward investment and take advantage of lucrative opportunities overseas.
For example, Saudi Arabia is currently very much seeking foreign partners and has had its sights firmly set on the UK since David Cameron was in power. In 2014, it invited British companies to invest and win a slice of its $400bn (£237bn) programme of infrastructure improvements as part of a programme to shift away from an overwhelming dependence on oil, efforts that have kicked into high gear as oil prices plummet and new leaders in Riyadh roll out a major economic reform package. Earlier this year, the Saudi Capital Market Authority revealed plans to allow foreign investors to own larger stakes in listed companies as part of new regulations it expects to implement by mid-2017.
The new British government also needs to be careful in how much it alienates France, which will inevitably be a key interlocutor and decision-maker in the upcoming Brexit negotiations between London and Europe – especially after Michel Barnier, an Angloskeptic, was appointed chief Brexit negotiator. France is already articulating its desire that the UK leaves the union sooner rather than later. There is already the suspicion that the British Prime Minister might have made the decision to halt progress on Hinkley partially as a way to hold the French project ransom over Brexit negotiations. If that is indeed the case, it is a game that the UK can hardly afford to play.
Aside from the diplomatic ramifications, Britain’s energy needs are growing ever-more pressing. Balancing the requirement for increased energy production with the imperative to lower carbon emissions is no easy task, and putting largescale nuclear infrastructure plans by the wayside for any significant length of time would put the UK’s emissions reduction targets in jeopardy.
The British economy is already in a state of flux in many areas, and major decisions like the one Theresa May is now making on Hinkley Point will have repercussions years down the road. Whatever her motivations for stalling work, the Prime Minister will need to proceed with extreme caution in deciding its ultimate fate.

 

Image credit: Geograph.co.uk

 

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