British Steel should be the “canary in the coalmine” that forces ministers to remove Chinese companies from critical infrastructure, they have been told.
The government was forced to take direct control of the company amid concern that its Beijing-based owners would not keep the plant running at Scunthorpe. Ministers feared the company planned to “sabotage” the site to increase British reliance on cheap Chinese imports, The Times understands.
There is alarm over Chinese involvement in other areas of critical infrastructure, such as nuclear power plants.
“It is an explicit strategy of the Chinese Communist Party to undermine the industrial base of foreign countries,” said Luke de Pulford, executive director of the Inter-Parliamentary Alliance on China, an international group of politicians that scrutinises Beijing’s approach to human rights and international rules.
“Yet we keep handing Beijing the tools of our own demise. British Steel must be the canary in the coalmine for all Chinese investment in UK critical infrastructure. We should not be handing an adversary state which means us harm access to the services the country needs to run.”
Jonathan Reynolds, the business secretary, acknowledged that even privately owned firms had “direct links to the Chinese Communist Party”, and there were areas where Britain and China could not work together. He said: “We have got to be clear about what is the sort of sector where … we can promote and co-operate, and ones frankly where we can’t. I wouldn’t personally bring a Chinese company into our steel sector.”
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He added: “I think steel is a very sensitive area. I don’t know, when the Boris Johnson government did this, what the situation was, but it’s a sensitive area.”
Asked whether there was a “high trust bar” for dealing with companies from the country, he said: “Yes, we have got to recognise that.” But he insisted most dealings with Beijing were “in non-contentious” industries such as agricultural products, life sciences or the motoring sector.
Beijing warned against “politicising” the spat over British Steel. China’s Foreign Ministry spokesman said on Monday: “It is hoped that the British government will … avoid politicising trade co-operation or linking it to security issues, so as not to impact the confidence of Chinese enterprises in going to the UK for normal investment.”
Government insiders believe that steps taken by Jingye, the Chinese owner of British Steel, were intended to stop Britain producing its own virgin steel and force it to rely on imports from China. The steps included refusing to order new raw materials, selling the materials it had and rejecting offers from ministers to help stem losses at the Scunthorpe plant.
James Murray, the Treasury minister, refused to guarantee the furnaces would continue running as he revealed the plant’s Chinese owners had “accelerated” the shut down of one of the furnaces.
He told Times Radio on Monday: “The raw materials, the shipments have arrived, they’re in the UK, they’re nearby. There were questions about getting them into the blast furnaces, that is what the officials are focused on right now.
“We’re not just going to step aside and let the industry fail with the blast furnaces closing. We’ve been negotiating in good faith with Jingye but when it became clear they were accelerating the plans to close the blast furnaces, we had to step in.”
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Sir Christopher Chope, a Tory MP, told Times Radio that shutting down British Steel was “exactly what [Jingye] wanted to do”. He said: “They’re building a new steel production facility in China, and what they wanted to do was to use that production facility to supply the UK market. And indeed, this was an attempt at what I think is best described as industrial sabotage.”
Chinese companies have gained a foothold in telecoms, security equipment, and nuclear and green energy projects. Analysis published in January found Chinese businesses had funded or provided parts for at least 14 of 50 British offshore wind projects. Companies owned by the Chinese government had large stakes in three projects that produce enough energy between them to power up to two million homes. Chinese Generation Nuclear Power remains a lead developer in plans for the Bradwell B nuclear plant in Essex.
British Steel, now under the direct control of Reynolds, is exploring whether it is possible to reverse a decision made by the bosses of Jingye to carry out a process that could turn off one of the two blast furnaces at the Scunthorpe site.
Reynolds revealed on Sunday that he had recently been told Jingye wanted to retain four steel mills, while closing the furnace. The mills would have been supplied directly with steel from China.
He told Sky News: “I had never, until fairly recently, had it put to me by them the option that they would wish to retain four very important mills — Network Rail gets 95 per cent of its needs from one of those mills, for instance — but lose the blast furnace and supply direct from China.”
Reynolds declined to say Jingye had intentionally sabotaged the site by making plans to temporarily shut off the furnace known as Bess, saying he did not want to “make what is already a fairly dramatic situation” worse.
But he said: “There were quite reasonable concerns about the gap between the government indicating it was going to step in and take control and being in the control that I am now on the site today. And the risk is having made the decision, something happens. It might not be sabotage, it might be neglect.”
Government sources said decisions had been made by the shareholders that would have led to the shutting of the only two steelmaking blast furnaces in the UK, despite ministers signalling their intent to step in. These included the refusal of new raw materials, the selling of materials already held, and the temporary shutting down of one blast furnace through a process known as a salamander tap.
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Gary Smith, the general secretary of the GMB union, which represents many of the workers, said people on the site had been “legitimately” worried about sabotage.
He told the BBC’s Sunday with Laura Kuenssberg: “We were worried about industrial vandalism, and there was a worry about sabotage of the site, quite frankly … people on the site are furious at the Chinese owners, and they were legitimately concerned about industrial sabotage at the plant.”
Reynolds said on Sunday that he could not guarantee British Steel would be able to secure enough raw materials in time to keep the Scunthorpe blast furnaces going, and did not want to “make my situation or the nation’s situation more difficult” by commenting on specific commercial details.
The Times understands emergency measures are being explored, and more than a dozen other businesses have contacted British Steel to offer support in securing raw materials.
The company is attempting to find a way to reverse the planned salamander tap. Turning off a blast furnace without making it permanently unusable is notoriously difficult and doing so via the salamander tap involves drilling a hole to remove remaining hot metal. However, the cost of restarting the furnace would be high and there would be no guarantees the process would work.
Government figures also insist that running two furnaces is more efficient than one, bringing down overall costs.
Jingye had rejected an offer of support of about £500 million, instead demanding more than twice that figure with few guarantees the blast furnaces would stay open.
A spokesman for the Chinese Embassy in London said: “We are following closely the developments of British Steel involving the Chinese private company. We have urged the British side to act in accordance with the principles of fairness, impartiality and non-discrimination and to make sure the legitimate rights and interests of the Chinese company be protected.
“It is an objective fact that British steel companies have generally encountered difficulties in recent years. It is hoped that the British government will actively seek negotiation with the relevant Chinese company to find a solution acceptable to all parties.”
Jingye has been approached for comment.
