Feeding the Nuclear Dragon

Introduction

The sale of CANDU reactors to China will be a disastrous deal for the people of both Canada and China. The cost to Canadian taxpayers will be enormous, since the cost of AECL and the CANDU reactor continue to require a massive subsidy of about $200 million per year. China can ill afford to put its scarce resources into an expensive technology that has been discredited at home in Canada, where the first large reactor is being phased out, ahead of schedule, in October 1995. It is unacceptable that the Canadian government proposes to provide nuclear technology to a country with the reputation of a nuclear renegade, and which, together with France, has defied a world-wide effort to ban nuclear weapons tests. Furthermore, Canada should not be trading with a nation such as China which engages in systematic and brutal abuse of human rights.

In November 1994, Atomic Energy of Canada Ltd. (AECL) announced that it had signed a Memorandum of Understanding (MOU) with the China National Nuclear Corporation (CNNC) to begin negotiations on the sale of two CANDU-6 (i.e. 700 MW) reactors. At that time, AECL stated that the deal might take one year to 18 months to complete. The most recent round of negotiations apparently began between AECL and CNNC in the spring of 1993. [1]

In the past, nuclear deals between AECL and China have been on-again, off-again. In the spring of 1980, an eight-person delegation from AECL visited China, after interest had been expressed in possibly purchasing two CANDU-6 reactors. Serious Chinese consideration of nuclear power was a shift in policy since the Chinese had apparently had cold feet about nuclear power in the wake of the 1979 Three Mile Island accident. [2] In 1980, an AECL official stated, "The odds now are high we will get a chance to participate in the [Chinese nuclear] program." [3] However, by February 1981 the CANDU deal was off, as China shifted again, this time to a policy of developing their own reactor system. [4]

Current CANDU negotiations with China involve not just a simple price tag, but the terms for a Canadian government loan, and probably the extent of technology transfer that AECL and nuclear manufacturers are prepared to offer the Chinese. The Chinese are already notorious for their disregard of copyright and licensing agreements. In addition, there are moral questions of human rights in China and the potential contribution to the Chinese nuclear weapons program.

The MOU was signed shortly after Chinese Premier Li Peng and Canadian Prime Minister Jean Chrétien had signed a Nuclear Cooperation Agreement (on nuclear weapons proliferation) in November 1994. The site being considered for the reactors is at the Qinshan facility (site of an existing 300 MW reactor), on the coast at Hangzhou Bay in Zhejiang Province, 126 km south-west of Shanghai. It has been suggested that the overall cost of the two reactors might be $3.2 billion to $3.5 billion. It is unclear whether the Chinese will purchase heavy water or fabricated fuel bundles for the reactors (the Chinese have their own heavy water production capability). Of the total cost, it is speculated that about one third would remain in China for construction and the possible manufacture of some plant components. AECL has suggested that Canadian companies might receive up to $2.7 billion worth of business. [5] However, other speculation that Canada would offer financing of about $2 billion, indicates that $2.7 billion is at the high end of the range. The amount of money coming to AECL would of course be much lower, including primarily design and some engineering. AECL President Reid Morden has suggested that gross revenue coming to AECL would be "close to the lower end" of $200 to $800 million over several years. [6]

It has been admitted that the AECL/CNNC agreement "...almost did not take place because of last-minute concessions demanded by the Chinese government". [7] AECL refused to disclose the concessions that have already been promised, however various sources have confirmed that Canada will finance roughly two-thirds of the project -- over $2 billion -- through the Export Development Corporation. Natural Resources Minister Anne McLellan has stated that,

With respect to China, any financing provided by the Canadian government for a CANDU project in that country would be in the form of a loan through the Export Development Corporation (EDC). Furthermore, any loan would be at a non-concessional interest rate as set under the International Consensus Agreement by the Organization for Economic Cooperation and Development. [8]

While the EDC would administer the loan to China, the loan would actually be made by the Government of Canada. The loan would go through the "Canada Account" of the EDC, which is carried on the books of the Departments of Foreign Affairs and International Trade. The government would have to make the loan for two reasons: it would be far too large a loan for the EDC to handle, and longer-term sovereign loans to Third World countries are too risky for the private sector financial community. In other words, the taxpayers of Canada will be forced to accept the risk of a multi-billion dollar loan that the private sector would not even consider.

AECL is hoping that it will be able to negotiate "turnkey" deals for the two reactors. In a "turnkey" project, the builder provides a completed plant, and the buyer only has to "turn the key" to start it. The presumption is that there is no transfer of technology, and accordingly a greater benefit to the vendor. AECL has already proven itself willing to part with CANDU design information for modest fees. CANDU technology transfer (unlike the transfer of other reactor designs, which are controlled by large, integrated private sector corporations such as GE, Westinghouse or Siemens) is in the hands of a number of private sector component manufacturers as well as AECL. As a general rule, these suppliers have sought the sale of at least two CANDU units before licences for manufacturing technology are granted. [9] However, South Korea is the only country that has put in a hard order for more than one CANDU reactor [10], and with a buyers' market in effect for so long, Korea was able to negotiate increasingly greater technology transfer for the second, third and fourth reactors. Only Wolsong-1 was a turnkey project. For example, the last two reactor sales to South Korea created only $250 million each worth of business for Canadian-based companies. AECL hopes that amount will be quadrupled for the sale of two reactors to China.

However, AECL is under tremendous financial pressure at home to come up with sales, and there is intense competition for the Chinese reactor market. China is therefore in a very good position to demand generous terms for a loan, and to obtain technology transfer even for the first two reactors. With AECL's seven-year funding agreement due to expire in 1997, both it and nuclear power supporters in the federal government will be prepared to make large sacrifices in order to obtain the public relations victory of another reactor sale.

The Chinese Nuclear Industry

Two nuclear power facilities have been constructed in China: a 300 MWe PWR at Qinshan (Zhijiang Province); and two 900 MWe PWRs at Daya Bay in Guangdong Province (known as Daya Bay plant or Guangdong-1). The Qinshan plant, owned by China National Nuclear Corporation (CNNC), began operation in 1991. Its components were 70% Chinese in origin, and 30% imported. It has since been shut down for extensive modifications. Daya Bay, on the coast 52 km northeast of Hong Kong, was a joint Anglo-French venture between GEC and Framatome, made possible because of a deal to sell electricity to nearby Hong Kong. An earlier commercial partnership between GEC and CNNC had collapsed when the US refused to allow CNNC to use the Westinghouse PWR licence because of Chinese aid for the Pakistani nuclear weapons program. The first unit was connected to the grid in 1993, and the second in 1994. Daya Bay is 75% owned by CNNC, and 25% by China Light & Power (a Hong Kong utility).

It is recognized that due to capital shortage, these are the only nuclear plants that will be in operation by 2000. However a number of other nuclear projects totalling 8,000 MW (including possibly two 700 MW CANDU reactors) are in various stages of negotiation.

As part of a move to increase domestic nuclear capability, the CNNC was established in 1986. The CNNC (with whom AECL has signed its Memorandum of Understanding for the sale of two reactors) has responsibility for both civilian and military nuclear activities at all levels of the nuclear fuel chain. It has over 200 subsidiaries and about 300,000 employees, including a significant research and development capability.

China and Nuclear Weapons

The Chinese nuclear weapons program was established in 1955, initially with the help of the Soviet Union. Despite the Soviet withdrawal of aid in 1959, China exploded its first atomic bomb in 1964, and its first hydrogen bomb two and a half years later. At that time, China had several plutonium production reactors, a plutonium reprocessing facility and a uranium enrichment facility. China is one of the five declared nuclear weapons states under the Nuclear Non-Proliferation Treaty, and has exploded 43 nuclear bombs since 1964. Despite international pressure, China continued atmospheric bomb tests until 1980 (long after the last atmospheric tests by France in 1974). [11]

China has recently done the basic minimum in order to facilitate its entry into the world of international "civilian" nuclear power. It joined the International Atomic Energy Agency (IAEA) in 1984, signing some voluntary safeguard measures in 1988, and it signed on to the Nuclear Non-Proliferation Treaty in 1992. However, in 1991 the China Nuclear Energy Industry Corporation (CNEIC -- a subsidiary of the CNNC) sold a 300 MW PWR based on Qinshan-1 to Pakistan, and construction began at the Chasma site in 1993. A contract has also been signed with Iran for a 2 x 300 MW plant. Coincidentally, China has also sold missile technology to both Pakistan and Iran. [12] Pakistan has been actively pursuing nuclear weapons for some time, and is widely considered an "undeclared" nuclear weapons state, as are India and Israel. In addition, China has also exported a number of "research" reactors. These foreign sales have given China the reputation of a renegade in the dark world of nuclear weapons proliferation.

In September 1992, the United States, Britain, Russia and France joined together for a moratorium on nuclear weapons testing. Immediately before the testing halt, eight tests were conducted in 1992 -- six by the US and two by China. Originally set to expire in July, 1993, President Clinton announced at that time that he would extend the moratorium until October 1994 on the condition that no other nation conducted a test. [13] On October 5, 1993 (just 12 days after losing its bid to host the year 2000 Olympic games) China conducted an underground nuclear explosion at the Lop Nur test site in the north-western province of Xinjiang. The test was China's thirty-ninth since 1964.

In June 1994, Canadian Foreign Affairs Minister André Ouellet appealed to the Chinese to halt their imminent nuclear bomb test. A week later, the Chinese exploded their 40th bomb at Lop Nur. A Canadian seismic station at Yellowknife placed the explosion at 40 kilotonnes -- about twice the explosive force of the Hiroshima bomb. [14] The Chinese exploded their 41st bomb in October 1994, shortly before the visit of Prime Jean Chrétien to China to promote the sale of CANDU reactors. Instead of criticizing the October nuclear test, Canada's Minister for International Trade, Roy MacLaren (a long-time supporter of nuclear power) lavished praise on China. MacLaren called Canada an "old friend" to the Peoples' Republic, noting that Canada "has accorded China unconditional most-favoured-nation status for over two decades. Today [Canada is] among the most enthusiastic supporters of China's re-entry to the GATT and to membership in the new World Trade Organization." [15]

The 42nd Chinese nuclear test came on May 15, 1995, a few days after the conclusion of the extension of the Nuclear Non-Proliferation Treaty. [16] Although Foreign Affairs Minister André Ouellet had been strangely silent about the Chinese test just before the Canadian trade visit, he criticized the May test, saying, "This latest Chinese test clearly violates the positive spirit that led to the indefinite extension, supported by China, of the NPT just three days ago. Canada calls on China to cease all further testing and to adhere to the nuclear testing moratoria observed by the other nuclear weapons states." [17] China's 43rd nuclear weapons test came in August 1995. Canada's opposition to Chinese testing is clearly only rhetoric, and the government is not willing to back it up with meaningful commitment, such as trade sanctions.

The Chinese decision to proceed with weapons testing in defiance of what was then an effective world ban, was provocative and destabilizing at a very sensitive time. The 25-year-old Nuclear Non-Proliferation Treaty (NPT) was under review in a controversial "Extension Conference", in New York in April 1995. The five declared nuclear weapons powers sought, and despite strong opposition, obtained an indefinite extension. China's flouting of the voluntary test-ban further eroded the credibility of the NPT. [18] There have also been attempts through the Conference on Disarmament and the Test Ban Amendment Conference to transform the 1963 Partial Test Ban Treaty into a comprehensive treaty by 1996. [19] Again, Chinese weapons tests have been a significant stumbling block to progress. There can also be little doubt that Chinese testing helped to create the 'political space' for France to resume its nuclear testing in the South Pacific.

The Chinese argue that their nuclear bomb tests are needed to confirm the safety and reliability of its weapons, and that they need to make these tests prior to the likely implementation of a Comprehensive Test Ban in 1996. [20] It is also safe to say that the NPT Extension Conference heightened international pressure to end weapons tests. Once again, China was an international nuclear "bad boy" with its subsequent nuclear test.

By proceeding with a deal to sell CANDU reactors to China, in the midst of these delicate negotiations, Canada has exhibited callous disregard for the international disarmament process. The message to China is that it can continue to ignore the political posturing of Canada and the other western powers, relying on the possibility of reactor sales and other trade relations to overcome any real threat in the form of sanctions or trade boycott. The Liberal government in Ottawa has injured Canada's credibility as a peacemaker, in a desperate drive to keep AECL and the Canadian nuclear industry afloat.

China: A Risky Business Proposition

With a largely untapped market of 1.2 billion people, China has had a magical allure for international capital. However, the bloom on the rose has faded in the last year, and it has become increasingly clear that investment in China is a high-risk proposition.

In 1994, the Chinese national government decided that foreigners could not have a majority ownership of power projects. [21] China has also apparently decided to limit the rate of return for foreign companies investing in power projects -- limits ranging from 12 to 15% have been discussed. [22] Even well-known power project developers such as Gordon Wu have abandoned China for deals in Pakistan and India that are presumably safer and more lucrative. [23] This is extremely revealing, since through Hopewell Holdings, Wu pioneered power investments in China, and his projects have been identified as exemplary by Ontario Hydro and others. [24]

There are a number of other danger signs:

• Chinese state enterprises have defaulted on $600 million in loans from Japanese, German and Italian banks;

• the China International Trust & Investment Corp. (CITIC) is refusing to pay a $40 million debt to the London Metal Exchange; and

• two other state companies are refusing to pay $100 million in trading losses to Lehman Brothers Inc. [25]

In the most high profile trade disagreement, a trade war between the USA and China over the copyright protection of intellectual property rights was narrowly averted in February 1995. [26] However, the reconciliation was short-lived, as a new trade disagreement was triggered when China failed to live up to a 1992 Memorandum of Understanding to lift import controls, licence requirements and quotas on a variety of products. [27] The expropriation of the largest Mcdonald's restaurant in the world in Beijing, despite a 20 year contract, has sent shivers through the foreign investment community.

Adding to the uncertainty of the future is the impending death of national leader Deng Xiaoping. The 90 year-old Communist Party leader has been in control since 1978, and has been the architect of China's recent mix of brutal repression and market liberalization. A recent Pentagon report has given only even odds for the maintenance of stability following Deng's demise. [28]

CANDU Sales and Human Rights in China

On November 7, 1994, in a momentary aside during commercial discussions, Prime Minister Chrétien mentioned to Chinese Premier Li Peng that Canada wants to maintain a dialogue with China on the question of human rights and then quickly reassured the Premier that Canada would not link trade and human rights. [29] Li Peng is a former electrical engineer known to be a nuclear power booster. He is also widely assumed to be the main planner and instigator of the Tiananmen Square Massacre in June 1989. The Chinese simply ignored Chrétien's feeble overture, and a spokesperson for Li Peng denied that human rights had even been raised. Nova Scotia Premier John Savage also could not remember Chrétien raising the issue.

Just one month after Prime Minister Chrétien and the provincial premiers had left China, a group of non-violent pro-democracy activists in Beijing received prison sentences of up to 20 years. The group, known as the "Beijing 15" were arrested in 1992, after they had planned to distribute leaflets on the anniversary of the Tiananmen massacre. [30] The sentences were undoubtedly timed to come after the Canadian trade delegation.

China continues to officially defend the Tiananmen Square massacre, in which several hundred people are assumed to have perished. In the opinion of Amnesty International, repression has continued since that time...

Despite rapid economic changes in recent years, which have led to increased freedom and some relaxation of social controls, there has been no fundamental change in the government's human rights policy. Dissent in any form continues to be repressed and serious human rights violations continue. [31]

Chinese authorities acknowledge holding over 3,000 prisoners for "counterrevolutionary offenses" (i.e. for political dissent). It is estimated that many more political prisoners have been charged with criminal offenses -- for example, people participating in peaceful demonstrations have been charged with "disturbing public order" or "hooliganism". In addition there has been documentation of widespread use of torture in China. [32] In March 1994, John Shattuck, US Assistant Secretary of State for Democracy, Human Rights and Labour, met in Beijing with prominent Chinese dissident Wei Jingsheng, just freed after 14 years in prison. Wei was re-arrested shortly after meeting with Mr. Shattuck, and has not been heard from since.

The continued abuse of human rights in China indicates the bankruptcy of Canada's policy of reform through engagement. Canada should have the moral courage to clearly raise human rights issues, and should be prepared to forego trade relations with countries such as China which have been consistent and long-term violators of basic human rights.