The Nuclear Silk Road What’s Behind the U.S.-China Trade War? What’s Ahead? James Joosten (c) Connect-USA LLC 2019.
Are China’s Nuclear Construction Plans Doable? 150GWe Installed by 2030 GWe 250 CGN 2016 LOW CGN 2016 HI WNA 2017 REF 200 150 150 141 100 58 50 26.1 10.8 2.2 0 2000 2005 2010 2015 2020 2025 2030 2035 Year
China’s Remarkable Period of Economic Growth 1980 today Downtown Shenzhen 1980
SHENZHEN AREA 1980
SHENZHEN 2019
GUANGZHOU 1980
GUANGZHOU 2019
SHANGHAI 1987
SHANGHAI 2013
Record Scale Construction Projects World’s Largest Hydro Plant World’s Largest Sea Crossing HONG KONG-ZUHAI-MACAO BRIDGE - 34 MILES THREE GORGES DAM — 22,500 MWE
Record Construction Times CHANGSHA Mini Sky City Building: 57 STORIES —> 19 DAYS
World’s Largest Nuclear Construction Program As of October, 2019: • 48 Operable Reactors (48.3 Gwe) • 9 Reactors Under Construction • 3 New Reactor Starts in 2019 • 31 Planned Reactors (32GWe) • Uranium Requirements: 9209 tU/yr • Uranium Stocks: 100,000+ tU • Of the nine reactors connected to the grid worldwide in 2018, seven were in China.
TAISHAN EPR Reactors Started Later, Completed Before European EPRs Taishan 1 - Construction Start Nov 2009 — Grid Connection: Dec 2018 Taishan 2 - Construction Start Apr 2010 — Grid Connection: Sept 2019 Olkiluoto 3 - Construction Start Nov 2007 — Grid Connection: 2020? Flamanville 3 - Construction Start Nov 2007 — Grid Connection: 2023?
AP-1000 Reactors China: Two already on line USA: 79% complete Vogtle 3 & 4 Sanmen Units 1 & 2 Sanman 1 - Construction Start Apr 2009 — Grid Connection: Sept 2018 Sanman 2 - Construction Start Dec 2009 — Grid Connection: Nov 2018 Vogtle 3 - Construction Start Mar 2013 — Grid Connection: 2021? Vogtle 4 - Construction Start Nov 2013 — Grid Connection: 2022?
So Are China’s Nuclear Construction Plans Doable? ABSOLUTELY ! GWe 250 CGN 2016 LOW CGN 2016 HI WNA 2017 REF 200 150 150 141 100 58 50 26.1 10.8 2.2 0 2000 2005 2010 2015 2020 2025 2030 2035 Year
What’s the Silk Road Got to Do With It?
Ancient Silk Road (200 BC – 1450 AD) PHOTO: Commons.Wikimedia.org
21 st Century Silk Road (aka Belt & Road Initiative): US$4 Trillion to US$8 Trillion in New External Construction Projects Xi Jianping
BRI: Chinese Reactor Exports CNNC: “China could build as many as 30 overseas nuclear reactors. BRI nuclear projects could earn Chinese firms as much as US$145.52 billion by 2030” • CNNC: Already “Sold” 8 reactors to seven countries and is in talks with more than 40 • Pakistan: Karachi 2& 3 (Hualong One) in progress (China lent $6.5bn to Pakistan to help fund the $9.6bn project) • UK: Hinkley Pt. & Bradwell B (Hualong One expected) • Romania: Agreement to complete Cernavoda 3&4 • Argentina • More Prospects in: Algeria, Australia, Bangladesh, Egypt, Ghana, Italy, Jordan, Kazakhstan, Kenya, Mongolia, Morocco, Namibia, Nigeria, Oman, Philippines, Saudi Arabia, Senegal, Sudan, Uzbekistan
BRI: Some Uranium Activities • CNNC/CNNC-URC/SinoU/Sinosteel: • Niger (Azelik, Imouraren) • Kazakhstan (Zalpak) • Namibia (Langer-Heinrich,Rossing) Mongolia • • Uzbekistan • Algeria • Zimbabwe • Canada South Africa • • Greenland • Australia (PepinNini Minerals) • Krygystan • CGN/ Sino-Kazakhstan/CGN-URC/CGN Global: Kazakhstan (Irkol, Semizbal) • • Uzebekistan (Navoi Mining, Goskomgeo) • Namibia (Husab) • South Africa (UraMin/ Areva) • Canada (Fission Uranium Corp/Patterson Lake)
So What’s Driving the Trade War
1. An Unsustainable Trade Deficit with China
2. Threat from China’s Growing Economic Power China’s Economy Could Soon Overtake and Displace United States
3. IP Theft, Espionage, Forced Tech Transfers Annual IP Theft Losses: over US$300 billion CGN added to Dept of Commerce “Entity List” Some major nuclear espionage cases (Alan Ho Lee) DOE Labs banned hiring foreign scientific talent in August 2019
4. BRI Construction being used for Chinese Naval Expansion & Modernization Concern SMR technology to be adapted to Chinese submarines, aircraft carriers, ice breakers and land bases
#1 National Security Concern Today: South China Sea 1/3 rd of World’s shipping ($3 trillion) passes through South China Sea each year 40% of China’s total trade in 2018 80% of Global Trade by volume Major UN territorial disputes with China
China’s Rapid Island Building in the Spratlys
Subi Reef: July 2012
Subi Reef: November 2017
5. Silk Road Debt Trap Diplomacy Hambantota Port, Sri Lanka Djibouti Port Strategic Choke Point Image: Columbo Gazette
Potential for China’s Silk Road Loans to Buy UN Votes and Influence World Policies
The Question No One is Asking: Where is all that construction money coming from?
China’s Dramatic Growth Relies on Dramatic Loans (Debt Financing) China’s current debt is now a staggering: US$ 42-48 trillion! China’s debt has grown about 1000% over last decade As of Q1, 2019, China’s debt level exceeded 300% of GDP
Most new debt is coming from Shadow Banking
What is Shadow Banking? It’s complicated. Typically refers to financial lending transactions that are done outside of normal, regulated, banking channels (i.e., off-the-books.) Effectively ’Borrowing from Peter to pay off a short-term loan with Paul’. Then borrowing from John at a higher interest rate to pay Peter, and from Fred to pay John, etc. No one - not even the Chinese government - currently knows the full extent of Shadow Banking loans within China and overseas by China’s State Source: https://www.bis.org/publ/work701.pdf Owned Enterprises (SOEs).
What’s Ahead?
Debt Trap Diplomacy Now Seeing Pushbacks
Shadow Loans Manageable debt? Gigantic Economic Bubble?
GDP Growth Rate for 2019 Now Projected at 5.9% China’s Cash Crisis China’s Debt Service Now Growing Faster than GDP Bank Loan Defaults Occurring at Record Levels Central Bank Foreign Exchange Reserves Declining GDP Growth Rate
Declining Expenditures for Foreign Uranium Exploration & Development (US$ Millions) 1000 800 600 400 200 0 2014 2015 2016 2017 Domestic Non-Domestic
Reactor Construction Starts: Slowing or Growing? Averaging only 2.2 construction starts per year since 2015 Debt Crisis onset Reactor Construction Starts Installed Nuclear Capacity 7 GWe 6 70 58 5 60 48.3 4 50 40 3 30 2 20 1 10 0 2015 2016 2017 2018 2019 2020 0 Actual 13th Five Plan Target Current 2020 Target
Closing Thoughts • China is “too big to fail” at present. USA will take a necessary but phased approach to economic war with China and the trade deficit. Chinese tariffs likely will be lifted during the election year. But watch out in 2021 when major economic war breaks out. Yuan could devalue 20%-40%. • Kazakhstan will likely escape most tariffs/sanctions due to its strategic importance to USA in the region. • Enhanced surveillance and tightening of export controls on nuclear technology and services to Russia and China – particularly SMRs due to their linkage to Chinese nuclear navy, ice breakers, and military base applications. A high risk for IP theft of U.S. SMR technology to low cost vendors. • Chinese domestic and BRI reactor construction starts will remain highly uncertain until the debt crisis is stabilized. Expect continuation of recent trend (about 3-5 new construction starts in 2020 during new credit easing period but settling in at a modest 2-3 per year after that). Note: Despite expected economic recession, some new construction is necessary for Chinese labor stability. • China could liquidate some of its excess (10x needs) U inventory to support its foreign reserves or due to capital flight if the debt crisis worsens; alternately, party oligarchs could increase off-shore uranium inventories effectively creating an off-shore bank for parking USD in the form of U. • Spot prices seem likely to remain very soft throughout the 2020s. • Utilities may increasingly move away from Central Asian suppliers towards Western intermediaries, Western producers, and more term contracts so as to reduce geopolitical risk.
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