Predicting China’s future is a fool’s errand. Some contemporary authors claim that China will soon collapse, others that China will instead dominate the world.326 No such narratives have captured the imaginations of analysts looking at China’s nuclear power system but, based on information available for this report, one could derive two very different speculative boundary scenarios to describe the future of China’s nuclear energy program.
If China’s nuclear program moves along the trajectory Chinese strategists and scientists set forth three decades ago, perhaps by 2050 China will be operating several hundred power reactors, implementing a transition from PWRs to more advanced nuclear systems, and it may have demonstrated a closed fuel cycle at industrial scale. The government might reach an opaque compromise with stakeholders allowing higher costs for advanced technologies to be shouldered by Chinese taxpayers and ratepayers. China may be the world’s leading nuclear exporter thanks to global rulemaking leadership and it may have invested enough in oversight infrastructure to manage its nuclear activities without suffering a severe nuclear safety, security, or proliferation accident. Forced development of nuclear and renewables may have cleaned the air in China’s megacities by 2030, and the country may continue to invest in nuclear technology confidently assuming that it will rely on nuclear power for hundreds of years.
Alternately, by 2050, China may instead be preparing to wind down an ageing fleet of about 100 PWRs, having failed to effectively manage costs and overcome the economic, technical, and political challenges of commercially exploiting more promising and complex nuclear technologies. China’s nuclear power plants may be threatened with obsolescence as a result of breakthroughs in alternative power generation and storage technologies. Over time, the companies that pioneered China’s first big wave of nuclear plant investment in the 2000s and 2010s might not continue to assume the debt that sustained nuclear investment requires, especially if Chinese demand for power approaches the near-zero growth levels that obtain in many Western countries. Human resources may increasingly migrate to other fields, contributing to low nuclear plant availability, nuclear safety problems, lack of public trust, increased regulation, and corporate and government risk aversion.
No one can say whether either of these two possible but perhaps unlikely outcomes will happen because there are formidable unknowns. For China to succeed according to the first scenario, it would have to overcome severe technical barriers and achieve significant scientific and engineering breakthroughs that cannot be predicted. It must, for three decades, effectively control the flow of funds to and from nuclear organizations and assure that costs are manageable, predictable, and comparatively favorable. It must develop sufficient public trust and confidence to permit leaders to make decisions consistent with desired strategic outcomes. If China fails, its nuclear energy program may not sustain itself through the second half of the century. The second scenario will likely not materialize if the state makes economic policy adjustments to protect its nuclear assets, if technological innovation does not slash China’s need for base load electricity, and, perhaps ultimately, if electricity policy is informed by the stark conclusion that lifecycle carbon emissions per kilowatt-hour from the coal-fired plants that generate over half of China’s power are 70 times greater than emissions from nuclear plants.
After the Cultural Revolution, China’s new leaders had short-term and long-term objectives. In the short term, they wanted to modernize the country and drag it out of poverty; in the long term, they sought to make China a great power. Nuclear energy served China’s short-term agenda by shifting investments from the military to the civilian economy, and by supplementing the dirty coal that was burned to make electricity in China’s east coast population centers. For its long-term agenda, China’s R&D establishment declared nuclear power development a national strategic priority—even if very few people at the time fully grasped what that implied.
Two decades later, in the mid-2000s, Beijing dramatically magnified China’s rationales for nuclear power as both the economy and the demand for electricity continued to expand indefinitely. Technocrats accepted the logic of their foreign collaborators that a global nuclear power renaissance was on the horizon. They expected that China’s development model, fueled by capital goods investment, would continue growing the economy at about 10 percent per year. Based on results from the 1980s and 1990s, projections for future Chinese electricity demand seemed to justify endowing nuclear power with a trajectory extending half a century. Converts to nuclear power added ambitious strategic missions to rid China of atmospheric pollution, develop intellectual property to further exports, and provide an ever-greater supply of electricity.
Guided by these expectations, China has massively invested in human and material resources needed to replicate the PWR-based systems that foreign countries had developed. Thanks to these investments, China will likely become the world’s leading producer of nuclear electricity sometime before 2030. Straight-lining from China’s considerable accomplishments during the last three decades would suggest that the nuclear share of China’s electricity supply will increase from 4.5 percent today toward 10 percent in the 2030s; that nuclear power will help reduce atmospheric particulate emissions to Western-country levels and demonstrate China’s leadership in mitigating climate change; and that China may become an important global supplier—perhaps the most important supplier—of civilian nuclear goods, including modern power reactors built at comparatively low costs. The mammoth task of decarbonizing China’s overwhelmingly coal-fired power sector and cleaning the air breathed by 1.4 billion people may alone ensure that China will generate nuclear power in ever-larger quantities for decades to come. There are reasonable prospects that China’s nuclear power program may continue expanding toward the second half of the century and perhaps beyond, as the country amasses infrastructure, experience, and human capital.
Domestic Constraints and Risk
Whether China succeeds will depend greatly on how it perceives and manages risk and how it responds to constraints that, until recently, were not significant factors in nuclear decisionmaking.
China is investing in several advanced nuclear power–generating and fuel cycle technologies, and it may see one or more of these technologies through to the brink of commercial-scale deployment. But many of China’s future options will probably remain niche technologies, and there will be no strategic breakthrough unless the state and its enterprises make very large, continuous, and potentially risk-laden investments. As of late 2017, China had not yet invested money in advanced reactors or reprocessing plants to match previous commitments by Western Europe, Japan, and Russia. Decisions made by Beijing in 2016 and 2017 suggest that China may well subsidize these projects, which, if continued and expanded, could provoke conflicts with other bureaucratic interests and government policy goals, including in China’s electricity sector.
In coming decades, decisionmaking in favor of nuclear power may be subject to different and greater constraints than in the past. If so, factors that may contribute to limiting China’s continued development include:
- Growth trends: After years of growth at or near 10 percent per year, the annual increase in China’s GDP may stabilize at a lower level in the future. Power-demand growth, which in the boom years averaged about 9 percent annually, may gradually sink to modest or low OECD-country levels.327 The drivers of China’s welfare may, in coming years, shift from electricity-intensive capital goods production to services and consumer spending. The capital goods–based model allowed China’s economy to catch up, but some economists warn that it is creating more debt than wealth. If the shift happens and is accompanied by changes in the load profile of China’s power system, the effect upon nuclear capacity expansion may be profound. Since the Twelfth Five-Year Plan, Xi has embraced the argument that China needs to switch growth models, especially following a 2013 joint World Bank and State Council report that advocated “green development” for China and deeper integration with the international economic system.328
- Demographics: Future growth will depend on whether China’s aging population without a safety net will invest and consume, and whether rising wages and factor costs reduce China’s competitiveness. Still-greater urbanization may increase electricity demand. For four decades, a relatively small coterie of engineers and technocrats with little public accountability built up China’s nuclear infrastructure. During this time, China’s wealth increased thirtyfold, and a richer population may demand greater performance legitimacy from China’s leaders.
- State-owned enterprises: There are over one hundred SOEs in China, concentrated in strategic industries including nuclear power. They have contributed to increasing China’s debt level since the 1990s toward 300 percent of GDP. The debt-equity ratios of all nuclear SOEs are at or exceed ceilings set by their shareholder, the State-Owned Assets Supervision and Administration Commission (SASAC). Beijing, meanwhile, aims to encourage profitability by tighter consolidation.329 In other areas of the Chinese economy, that approach has led to weak oversight, internal conflicts, poor communications, and inefficient operations.330 China’s decision to include nuclear power equipment on a list of ten strategic industries as part of a “Made in China 2025” initiative might limit innovation, encourage protectionism, and lead to trade conflicts with foreign governments aiming to protect their own strategic nuclear industries.331 Some economists argue that China needs to allocate capital away from SOEs and, beyond that, cut back on the cheap credit that has allowed SOEs to invest in excess capacity, including for power generation.332
- Bureaucratic policy conflicts: The overall direction of Chinese nuclear power decisionmaking is top-down, but there is plenty of internal friction among government agencies and corporations, which may increase as competition among more stakeholders for marginally scarcer revenue and resources intensifies.333 Corporatization in nuclear firms may lead to conflict with the government over future technology development and selection, spent fuel management, investment policy, and risk-taking. Contradictions abound inside China’s government over the fundamental direction of electricity policy. Since Zhu Rongji’s premiership from 1998 to 2003, China’s leaders have simultaneously favored both market forces and authoritarian rulemaking in the electricity sector. While the nuclear industry will urge the government to maintain current levels of subsidy and support—and, in the case of advanced technology, provide still-greater assistance—planners taking their cues from Xi appear dedicated to creating a power market for China in which the price of electricity will become the basis for consumer decisions and, ultimately, for investment decisions.
- Risk aversion: China’s nuclear industry association has told the government that it can build six nuclear reactors a year and achieve a nuclear capacity of 150 GWe by 2030 only if Beijing approves inland sites for nuclear construction. Since Fukushima, a long-awaited government decision to build reactors in China’s hinterland has for now become a political redline. The larger Chinese public became engaged in a debate about nuclear power for the first time, and this unfolded in ways familiar to observers in Western states after severe accidents in the United States and the Soviet Union. Some Chinese officials and experts have urged the government to slow down nuclear development and draw lessons from severe industrial accidents where lack of oversight was at fault.334 Safety concerns about inland sites extend beyond the issue of PWR water management to include discussion of whether inland sites have the sufficient infrastructure, logistics, and safety culture to support nuclear power.335 While the nuclear industry presses Beijing to permit inland plant construction, others in the central government bureaucracy argue that Xi’s efforts to further centralize and expand political control will ultimately render China more risk averse.
Risk management is at the heart of decisions about the nuclear program’s future. Beginning a decade ago, inland sites were designated for up to three-quarters of the reactors China aimed to build. For China’s nuclear program to continue to expand as its architects have projected, the government must resolve questions about what are the risks in expanding China’s nuclear program at these sites. Questions about Xi’s centralizing influence aside, without the government and state-owned industry assuming additional project risk, a transition to advanced nuclear technology and a closed fuel cycle will not happen in China.
Since taking power, Xi has been extending the reach of the state and the Communist Party into Chinese society and the economy, and he appears to be prepared to burden the government with greater responsibility and hence greater risk. Some government officials express concern about the state assuming more liability in part because, if things go very seriously wrong, China’s political stability may ultimately be at stake. Close observers report that aversion to risk in China’s nuclear bureaucracy is currently the rule rather than the exception. They offer several possible partial explanations for this, including the emergence of an increasingly complex consensus-finding culture; the legacy of Mao’s dreadful social experiments; bureaucrats’ fear that, under Xi, their superiors will punish their initiatives by charging them with corruption; and worry that controversial projects might halt the steady rise of Chinese real estate prices.
Decisionmakers know that if a severe nuclear accident were to happen in China, the population would hold the Communist Party accountable. This may give the leadership pause when mulling whether to deploy technologies that are perceived to bear greater technological, economic, and political risk.
What do these factors imply for China’s nuclear development in coming years?
China set up its nuclear plant–building sector on higher expectations for capacity additions than prevail today, so China’s industrial infrastructure is well prepared to arrive at the mid-century mark with a nuclear capacity of over 150 GWe and perhaps considerably more. But the developments described above and the knock-on effects of Fukushima have cut mainstream expectations for China’s nuclear power capacity in 2050 to half of what optimists predicted a decade ago. Unless China’s leadership rigorously challenges the primacy of the country’s coal industry and finds an effective balance between renewables and nuclear power, future growth in nuclear capacity may decline.
Lower GDP and power demand growth, direct electricity sales by power generators to bulk customers at discounted prices, and overinvestment in generating capacity are currently besetting the outlook for China’s electric power sector.336 Curtailments, which during the 2010s set back renewables, are now threatening nuclear power generators, forcing a few nuclear power plants to operate at about 60 percent of the capacity level required for these investments to break even.337 Industry and government will struggle over rules for feed-in tariffs, dispatching, and load distribution. So far, government policies favoring nuclear power have facilitated investors reaping average profits of 7 percent per year. Xi has strengthened the hand of nuclear companies, but that may blunt needed reforms.338
Nuclear plant owners will lobby for protection against newer, highly efficient coal plants reaping profits as high as 15 percent annually. Local governments will threaten to dispatch cheap coal-fired power, thereby squeezing reactor owners to sell power below the nuclear feed-in tariff.339 While central planners have ordered dispatchers to prioritize putting nuclear power onto the grid, the State Council’s political leadership appears to favor renewables instead.340 Nuclear investors, fearing a decline in feed-in tariffs, will warn Beijing that without continued or greater relief from the state, their plants may become stranded assets. To observers in the West, this looks like a familiar script, pitting the nuclear industry and its advocates who warn about high costs, dirty air, and climate change against market ideologists, a protected and influential renewables sector, and a powerful and entrenched fossil-fuel industry. Inside China, some nuclear executives and officials calculate that if the government goes further with electricity reform, saving China’s nuclear power sector will require that the government guarantee that base load power will be nuclear-generated, provide direct financial subsidies for nuclear plant construction and operation, and enact a carbon tax.
If new normal conditions in China’s economy and power sector prevail, investment in more advanced nuclear technologies may be discouraged and China’s nuclear power investors and generators inclined to remain conservatively focused on maintaining their PWR-based infrastructure. If so, China’s nuclear power system by mid-century might look like a larger version of current nuclear power programs in North America and Western Europe—including their problems. Continued corporatization of China’s nuclear firms may incline executives to resist assuming greater project risk associated with nuclear technologies that have no proven commercial track record.
The biggest unknowns are how much electricity China will need in coming decades, and whether policymakers and industry will permit nuclear sources to meet an ever-larger share of that demand. Regardless of policymakers’ and analysts’ near-term focus on China’s new normal, a senior Chinese nuclear power industry executive in November 2017 confidently projected that if China’s power demand grows indefinitely at a rate of 5% per year, China’s demand for electricity “will double in a couple of decades.”
Should conservatism and aversion to risk increase and prevail among Chinese executives and nuclear technocrats, that would set up a conflict with nuclear planners in the Chinese state who, for three decades, have viewed nuclear energy as a strategic technology.
The contrast between current conventional Chinese and U.S. perspectives on the future of nuclear energy is stark. Many Americans believe that nuclear power is a transition technology toward something else—perhaps something that has not even been invented yet—within the century. Chinese experts have come to expect instead that nuclear power—from conventional reactors, breeders, and fusion plants—will be required for hundreds of years. They are conservatively inclined not to dismiss an available and reliable energy resource that in principle could replace a significant share of the coal currently generating about three-quarters of China’s power, and that might also help spread China’s influence worldwide.
The end of the 2010s marks a crossroads for China, as it works toward the likely achievement of producing more nuclear electricity than any other country and ascending to a leadership role in global nuclear technology. China will have to decide how much nuclear power it wants to produce in the future and with what technologies, how it will assess and manage the risks associated with continued nuclear development, and how it will manage its economy to accommodate its nuclear investments.
Since the 1980s and until now, China has followed, albeit very prudently, in the steps of advanced nuclear states that have long counted on moving beyond LWR technology and deploying fast neutron breeder reactors, under the assumption that open-ended population growth, economic development, and urbanization would require ever-greater amounts of electricity. Faced with the certainty that the supply of readily available conventional nuclear fuels will diminish, fast reactors could provide increasing amounts of nuclear fuel through the conversion of uranium to plutonium.
In theory, these reactors could produce a surfeit of plutonium fuel, permitting China to comfortably cover a large share of its electricity requirements by the end of this century. Today’s PWRs are, in the view of some Chinese R&D experts, a spent force. Costs for PWR systems may increase as more safety-related redundancies are added, discouraging innovation and leading to their obsolescence. By 2200, China might instead meet its entire demand for nuclear energy using breeders, fine-tuning their plutonium production to meet China’s anticipated energy demand for a very long time.341
In reality, the obstacles that China must overcome to make this happen are exceedingly formidable. Unlike the PWRs that China has been replicating for a quarter century, the technology for advanced nuclear systems “cannot be introduced until it is demonstrated,” Bernard Bigot, a leading French nuclear energy official, told an IAEA fast reactor conference in Paris in 2013.342 A number of countries tried without success for over half a century to operate industrial-scale fast reactors at a sustained high capacity and low cost. If they keep trying, France’s energy minister warned the same Paris audience, they will fail, unless they minimize the risk of accidents, achieve greater public acceptance, and make technology and design improvements.
China is now poised to begin construction on an industrial-scale fast breeder in tandem with a reprocessing plant to provide enough plutonium fuel to perhaps operate the reactor at equilibrium sometime in the 2030s. China’s nuclear technology planners have urged that both installations be completed by the mid-2020s.
On the basis of China’s limited experience and the past records of other countries, this timetable is ambitious. France built two breeders in succession and then operated them for over two decades before commissioning a bigger unit to demonstrate power generation. Japan commissioned an industrial-scale fast reactor seventeen years after it started up a pilot reactor that eventually operated at twice the power level of China’s experimental fast reactor. Both France and Japan established industrial reprocessing capabilities along these same timelines. Russia, with arguably the world’s most successful fast reactor program, took thirty years to operate a 600-MWe industrial-scale reactor; before that, Soviet engineers successively built and operated a half-dozen critical facilities and reactors, including a 300-MWe prototype.
While serial deployments of off-the-shelf PWR technology have proceeded smoothly, China has experienced recent delays in setting up more advanced PWRs. Decisionmakers may conclude that more time is needed to complete complex and unique fuel cycle projects. Some of the predictions and scenarios for fast reactor development set forth by Chinese R&D officials in recent years are, by all accounts, unattainable.
It should not, however, be assumed that China will fail because other fast reactor programs have not established themselves at the industrial scale. Ultimately, China might master the technical challenges required to begin operating an industrial-scale fast neutron reactor sometime before 2030, build and operate a reprocessing plant needed to produce tons of plutonium needed for start-up of the reactor, and also learn how to make the fuel. If China succeeds, it will match and may well exceed the limited progress made by other countries during the second half of the twentieth century toward closing the nuclear fuel cycle. If, in addition, China is able to develop metallic plutonium fuel and achieve breakthroughs needed for industrial-scale pyroprocessing of spent fast reactor fuel—and, beyond that, demonstrates that fast reactors can be operated economically to generate large amounts of electricity and, in the process, produces and effectively and securely uses large amounts of plutonium as fast reactor fuel—it will make strides that have eluded all others so far. But the technical and economic hurdles, including for the development of industrial-scale systems, are severe, and the timelines may be considerably longer than some Chinese planners claim.
A Closed Fuel Cycle for China?
Xi had been in power for two years when Zhang Donghui, a director at CIAE, told IAEA experts in 2013 that China’s deployment of fast reactors would depend on specific conditions. One was that the cost should be lower than for a coal-burning plant—a tall order even assuming current government assistance to nuclear investors and plant owners. Echoing counterparts in Japan and South Korea, Chinese nuclear executives refrained that if China builds reprocessing plants and breeders, the government must pay for extra construction and power-generation expenses. This might imply that instead of reducing nuclear power generators’ off-take price, Beijing should increase price supports—maybe over the heads of Xi’s central planners and researchers who want to eliminate market-distorting exceptions.343
Long before the new normal appeared on the horizon, China’s decisionmakers behaved with great prudence in moving forward on nuclear fuel cycle plans. Until the late 2010s, China was not prepared to undertake considerably more nuclear-power-program risk for the fuel cycle than it has incrementally and modestly assumed by deploying conventional nuclear technology for the last three decades.
Decisionmakers are aware that China’s nuclear power system would likely fail to transition to fast reactors using plutonium fuel if one or more of the following happen:
- Fast reactors experience recurring technical problems, leading to a loss of availability, higher costs, or political or public acceptance issues.
- The industrial-scale reprocessing and/or pyroprocessing of spent fast reactor fuel and fast reactor fuel fabrication proves technically and logistically difficult, time-consuming, and prohibitively expensive.
- Technology breakthroughs in other areas appear to comparatively disadvantage advanced nuclear systems and are favored by decisionmakers.
Particularly if fast reactor technology advocates force the pace of future indigenous development and deployments, China’s fast reactor program might encounter problems similar to those that set back foreign programs during the 1980s and 1990s. So far, the CEFR has reportedly not experienced any serious sodium leaks or fires, possibly because China incorporated improvements, including those made by Russia at the BN-600 unit. In larger reactors designed for power generation, challenges will be greater. Indeed, Russian officials queried for this report warned Chinese counterparts not to underestimate the challenges of plutonium management in a fast reactor program. Russia, for decades, used uranium instead of plutonium in its breeder program because project management absorbed early painful lessons from plutonium fuel shortages and fuel fabrication issues. If China needs several tons of plutonium for equilibrium operation of a single big fast reactor, one expert said, “it will be a long time before China has enough separated plutonium and fuel fabrication capacity.”
Because reprocessing and the fast reactor were developed for industrial application beginning half a century ago, the engineering challenges associated with these technologies are generally well understood. Experience deficiencies are most apparent concerning reprocessing of spent fast reactor fuel (more generally, for spent fuel with high burnups and high plutonium content) and concerning the future development of pyroprocessing technologies that China and some other countries aim to use in future fast reactor fuel cycles. In the meantime, Beijing may have to decide whether and for how long to use MOX fuel in its fast reactors, especially given China’s relative inexperience and its long-term interest in metallic fuel and pyroprocessing.
Decisionmakers in Beijing are doubtless aware of the drawbacks should China prematurely commit itself to obsolescent technical solutions to engineering problems, including for generating electricity. Apart from fast reactors, China is presently investing in other nuclear and energy technologies. Potentially game-changing nuclear and non-nuclear innovations, including for battery storage of electricity, have very long lead times into the 2030s and beyond. Should any of these achieve a significant breakthrough, investors may favor it instead, especially if the development of fast reactors and reprocessing-related technologies is delayed. Should China’s power system focus increasingly on distributed generation, electricity planners may shift their nuclear technology interest away from big reactors and toward SMRs.
China has put forth two important rationales for deploying fast reactors and reprocessing plants in this century. The first is energy security, based on the assumption that the supply of uranium will, in the coming decades, become depleted. The second rationale is that these technologies will provide clear net benefits for waste management. As China approaches 2020, it has not yet been established beyond a doubt that either of these rationales is valid.
Zhang told the Paris IAEA group that, for fast reactors to be deployed, uranium would have to be “expensive enough.”344 Other Chinese experts, including at Carnegie workshops, share this view.345 Independent of Chinese perspectives that nuclear power will be needed for centuries, most analysts believe that, for several decades at least, market fundamentals should not cause uranium prices to dramatically rise, and that rising prices thereafter would likely coax out increased supply; if so, fuel security concerns alone should not prompt China to rush into fast reactor and reprocessing plant deployment.
In favoring reprocessing and fast neutron reactors, the government has followed the argument that the reduction of radiotoxicity in spent fuel would be a significant benefit, since unreprocessed spent fuel would require over 100,000 years to achieve the same radiotoxicity level as natural uranium. A more benign long-term perspective is that after 500 years, most of the radioactive elements in unreprocessed spent fuel will have decayed. The remaining radiotoxicity is mostly determined by isotopes of plutonium and americium that, if buried underground, should exhibit very low solubility and mobility. After 1,000 years, radiotoxicity will be only 1.5 percent of the initial discharge level of the spent fuel, and the heat emitted by the spent fuel will be equivalent to that emitted by an adult human.346
During two IAEA peer reviews of China’s nuclear regulatory safety oversight system in 2010 and 2016, reviewers urged China to focus more attention on nuclear waste, spent fuel, and fuel cycle management. The IAEA’s judgment was consistent with a 2015 verdict from CAS that China was far behind other countries in the fuel cycle and that knowledge was scattered piecemeal throughout Chinese institutions.
Government policy has favored the closed nuclear fuel cycle since the 1980s, and Beijing has spelled that out to all nuclear R&D institutes and industry firms working on possible future nuclear energy systems. “They tell us that if our reactor concept doesn’t include spent fuel reprocessing, it has no chance of being accepted,” one R&D official said in 2017. So it is no surprise that the draft of a national atomic energy law, which Xi wants to push through as soon as possible, makes it clear that China’s spent fuel should be reprocessed as a matter of policy. During discussions on the text of the law, it was proposed that reprocessing should be conditioned upon practical needs as well as the maturity and economics of available technology. If that principle is accepted, then China’s law might not ordain expeditious reprocessing of reactor owner’s spent fuel but permit them to “wait and see” until there is agreement among stakeholders that the terms of the law governing reprocessing are fulfilled.
Market Forces and Other Uncertainties
Two multilateral collaborations on development of advanced nuclear power systems, GIF and INPRO, were set up after a number of leading nuclear energy countries singlehandedly tried unsuccessfully to commercially establish the plutonium fast reactor. Veterans of Japanese and European breeder programs during Carnegie workshops discouraged China from trying to accomplish a closed fuel cycle alone. According to one of these experts, when France halted its industrial scale breeder project in 1997, “Japan was thereafter by itself, and that contributed to our lack of success.”347
Chinese decisionmakers will therefore observe carefully how France and Russia, which presently lead in advanced fuel cycle industrial development, proceed in coming years. A forthcoming decision by French industry whether to commit to an expensive refurbishment of Areva’s La Hague reprocessing complex might be a signpost. Likewise, if Russia moves forward successfully with planned milestones for its fast reactor program—100 percent MOX loading in BN-800 in 2019, reprocessing at a new plant at Krasnoyarsk, and industrial-scale closed fuel cycle demonstration in 2029—China may be encouraged to continue on its charted course.
In every country that has established a nuclear power program, the role of the state was critical and essential. For three decades, China was no exception. Shortly after Wen Jiabao decided in 2005 to accelerate nuclear power investment, Beijing reacted to an international financial crisis by granting China’s nuclear power sector an assistance package worth half a billion U.S. dollars. The current leadership professes to be more market-oriented. In 2013, at the third plenum of China’s Eighteenth Party Congress, Xi brought forth a so-called Sixty Points reform agenda. It called for “letting the market play the decisive role in allocating resources.” Firms would compete for access to capital “while the government would retreat to the responsibilities of macroeconomic manager and market regulator.”348 That might mean that China will proceed with reforms that could destabilize its nuclear power program.
But it might not—the Sixty Points plan also says that policy implementers must “persist in the dominant position of public ownership, give full play to the leading role of the state-owned sector, and continuously increase its vitality, controlling force, and influence.” It should therefore not be expected that China will transform economic decisionmaking strictly according to market-model blueprints. China may elect to resolve conflicts somewhere in between the desire for market mechanisms in its electricity supply system and the desire to protect nuclear assets by making exceptions to future rules. In urging Beijing to continue to provide nuclear firms state assistance, some Chinese nuclear industry officials argue that China’s subsidized nuclear feed-in tariff should be considered as a form of carbon taxation. Until now, China’s strategic calculus about the nuclear fuel cycle has not been fundamentally driven by economics, and Beijing may be willing to pay for initial demonstration projects—as other governments in the past have done—and perhaps also for large-scale future nuclear fuel cycle industry centers.
Especially if Chinese nuclear R&D advocates get their way, market pressures could paradoxically result in a decision to accelerate deployment of reprocessing plants and fast reactors—even if uranium is cheap and fast reactors are expensive—because the future political decisionmaking environment in China will be expected to become increasingly adverse toward these investments. One senior Chinese R&D scientist in 2016 said, “We need to close the fuel cycle now because as time goes by, it will become more and more difficult to do it, and in a few years the window will close.”349 The prospect that the forces of globalization and corporatization might eventually prevent China from realizing its closed fuel cycle vision was echoed in 2014 by a high-level U.S. government official who had been discussing bilateral cooperation with Chinese counterparts: “The more meetings we have, the more it seems that their nuclear program in a few years could look like ours”—firmly focused on PWRs and with little appetite inside corporate boardrooms and government agencies for assuming additional technological or project risk.
Industry experts from Russia, Western Europe, Japan, and the United States attending Carnegie workshops concurred that the cost of setting up facilities for a closed industrial nuclear fuel cycle will be daunting and, said one, “that cannot be left to the market.” In Western countries and Japan today, these experts said, it would be unthinkable that a nuclear power plant owner-operator would on its own make an investment in a fast reactor and associated fuel cycle installations for the purpose of generating electricity. In China’s far more strategic calculus, economics may not be a show-stopper, but stranded investments must be a concern and decisionmakers may seek a solution that permits China in the short term to continue to advance and protect its nuclear fuel cycle know-how while avoiding making hasty commitments to technologies that may become obsolescent. “Without a clear roadmap [for] future fast reactor technology, a reprocessing plant based on PUREX could prove to be a wasted investment depending on what else comes along.”350
For China, the ultimate consequence of hedging on its future nuclear fuel cycle investments would be to accept the possibility that its fundamental assumption—that China will need nuclear power for hundreds of years—may be wrong. As one French government nuclear official familiar with China’s nuclear fuel cycle program put it in September 2017: “If in a decade or two there is a revolution in electricity storage technology, then by 2050 all our power will come from renewables and batteries.” Should such logic prevail in light of great uncertainty about future technology development, China’s forthcoming decisions now through the 2020s about a closed nuclear fuel cycle might not be yes or a no. Instead, and despite the risks that some know-how and industrial capacity might be lost, China might elect to pursue a deeper and more extended R&D program, including on fast reactor development and reprocessing technology, that extends beyond 2030. “If China spends its money doing 15–20 years of nuclear fuel cycle R&D, it will learn more things.”351 In two decades, the prospects for fusion energy, advanced fission energy fuel technologies, key non-nuclear technologies, and, more generally, the global risk profile and economic environment for nuclear power, may be more confidently assessed than today.
Strategic Implications Beyond China
Decisions that China makes about the future of its nuclear power program will have repercussions beyond its borders, affecting other countries’ energy, foreign, industrial, and technology policies; and perhaps even their strategic alliances.
The Future of Nuclear Power and the Nuclear Fuel Cycle
For at least a decade to come, China will be the focus of a large portion of the world’s nuclear power investment. If new normal conditions prevail, and if deployment of new nuclear power plants does not follow from a policy aiming to aggressively reduce coal-firing, China might join states in North America, Europe, and the rest of the Asia-Pacific in reaching a saturation point in nuclear power investment in a decade or two—but at a record level.
Beginning mid-century, China will face decisions about technology selection to replace aging PWR-based nuclear power plants. China’s choice will depend upon whether it succeeds during the next thirty years in introducing alternative power generating technologies, and also upon the architecture of China’s electricity system, including whether China will indefinitely require a significant amount of base load power. If China succeeds in demonstrating advanced nuclear technology, including in the fuel cycle, that achievement might dramatically revise global expectations upward for the future of nuclear power. Other states may then accelerate nuclear investments including in modest or idled R&D programs.
If China does not succeed, lack of progress may translate into lost commitment by government, and especially industry, as has been the case in other countries. Chinese failure would reinforce the widely held assessment that fast reactors fueled with plutonium will prove too expensive. Independent of the results from ongoing activities in other countries actively pursuing the closed nuclear fuel cycle—France, India, and Russia—lack of success by China will reduce the prospect that industrial fast reactor programs in other countries would be politically sustainable.
Should China suffer a severe nuclear accident, the political fallout and adverse effects on the world’s confidence in nuclear power would be considerable. If the Chinese leadership adopts a very long-term perspective, it is possible that a severe accident would prompt the conclusion that a nuclear power program with over a hundred reactors is too big to fail. Over time it is likely that the state will continually assess its risk as it continues to deploy nuclear technology. “The more reactors we have,” one Chinese planning expert told the author, “the greater our liability. At a certain level it’s a simple addition of probabilities.”
Nuclear Exports and Strategic Leverage
With a determination not anticipated until recently, China is now stepping forth as an ambitious nuclear power plant vendor state. Beijing is consolidating SOEs to create a national champion nuclear export product. Established nuclear industries in France, Japan, South Korea, and the United States will be challenged by Chinese firms that can provide its clients favorable financing, low prices, and an experienced supply chain. Especially if China makes progress in advanced fuel cycle technology, its industry will be positioned to offer nuclear fuel, as well as services for uranium conversion and enrichment, logistics, engineering, commissioning, operations, construction, and spent fuel and waste management. For at least two decades, Chinese companies may enjoy lower factor costs than Western firms, which are losing their know-how and face greater restrictions on financing and requirements for transparency.
Chinese vendors, however, must surmount certain risks in the 2020s and perhaps beyond. If their debt levels remain acute, their risk-taking will be limited and government support could be constrained. Some Chinese planners and managers are anticipating a slowdown in the rate of nuclear capacity additions in China. Their plan is to compensate for this by exporting. Should a substantial increase in the global demand for new nuclear power plants fail to materialize, China’s nuclear power plant builders, like their foreign competitors, will be threatened with idle capacity and loss of knowledge. China will not benefit if it drives foreign firms out of business; as competition dwindles, Chinese firms may become less transparent, less innovative, and less well managed. Potential clients will decide against nuclear power if they conclude that there is no alternative to Chinese vendors, and threatened foreign firms and their governments may raise grievances at the World Trade Organization or other venues.
Should China, perhaps alongside Russia, lead the world in supplying nuclear materials, technology, and equipment, it may duplicate the success of the U.S. Atoms for Peace program to extend its influence into the foreign, energy, and technology policymaking processes of its clients. As its nuclear power program acquires more depth and experience, China may offer training, research reactors, and regulatory and non-power technical assistance, in addition to power plants. Robust nuclear power diplomacy and commercial activity would serve Beijing’s aim of extending Chinese influence in the world. With this in mind China has included nuclear technology in its Belt and Road Initiative and aims to enlarge the sphere of its nuclear cooperation in South America, Africa, and the Middle East—all regions that Beijing has identified as strategically important. In advance, China’s leading nuclear SOEs have for now divided up the world market into future spheres of influence: CGN in Europe, Africa, and the Middle East; CNNC in Latin America and most of Asia.
International Nuclear Governance
The bigger and more technologically advanced China’s nuclear program becomes, and the more wares China exports, the greater China’s voice will be in multilateral nuclear rulemaking organizations and arrangements. These include the IAEA, the NPT, the international conventions on nuclear safety, nuclear security, and nuclear assistance, the GIF, and the NSG. Should China succeed in establishing a closed nuclear fuel cycle, it may seek to make changes in global governance concerning the management of nuclear materials and nuclear waste that would have impacts on security, nonproliferation, transparency, and safety. China may also use its nuclear diplomatic power to establish Chinese standards and codes for nuclear equipment, construction, and management, and it may challenge norms that have been established by industries and governments in the United States and other countries. China may be less inclined than Western countries to condition nuclear commerce with client states upon bilateral obligations that exceed least common denominators in multilateral arrangements and it might adopt a more opportunistic approach to nuclear governance in the nuclear trade regime.
Beyond a narrow group of states with advanced nuclear programs that already have experience with fast neutron reactors and plutonium fuels, it is not apparent that other states would embark on reprocessing programs should China commence with reprocessing of its power reactor spent fuel. It is possible that if China demonstrates that advanced nuclear fuel cycle technologies are sustainable at the industrial scale, raising their profile, more states would pursue sensitive nuclear activities. Other nuclear weapons states would likely lead the way, but some countries might be inclined to launch nuclear fuel cycle–related activities as a hedging maneuver. An international rule-making effort including China would be needed to ensure that nuclear materials generated in closed fuel cycles would be managed without magnifying proliferation and nuclear security risks. Given that industrial-scale fast reactors and reprocessing plants have been operated in some countries without leading to horizontal proliferation, achieving this goal in China and other countries may be possible but that would depend on how policymakers assess proliferation and security risks against the benefits of energy production and technology development.
The world’s nuclear supplier states are currently committed to transferring sensitive fuel cycle know-how with great restraint. Should China succeed in closing the nuclear fuel cycle, advanced nuclear states will need to strengthen that commitment and develop global collective understandings to limit and govern the deployment of fast neutron reactors and reprocessing plants worldwide. This should be supported by multilateral programs that currently facilitate development of advanced nuclear power and nuclear fuel cycle systems. Should nuclear power generation worldwide also expand, a China that inspires confidence that it respects the rule of law might serve as the future hub of a multilateral nuclear fuel cycle arrangement, which may include reprocessing of spent fuel and recycling of the recovered nuclear materials in Chinese power reactors and Chinese leasing fresh fuel to client states operating PWRs. China and other advanced nuclear states might agree to restrain transfer of fast reactor and reprocessing technology to others, but the longstanding U.S. view that the civil “plutonium economy” represents a net global hazard would come under pressure, including in bilateral and multilateral nuclear diplomacy.
326 Gordon C. Chang, The Coming Crash of China (New York, Random House, 2001); Martin Jacques, When China Rules the World: The End of the Western World and the Birth of a New Global Order (New York: Penguin, 2009).
327 David Shambaugh, China’s Future (Cambridge, UK: Polity Press, 2016), 31, 40.
328 Ibid., 23; Ming Zhang and Wenwen Wang, “Decoupling Analysis of Electricity Consumption From Economic Growth in China,” Journal of Energy in Southern Africa 24, no. 2 (May 2013): http://www.scielo.org.za/pdf/jesa/v24n2/07.pdf.
329 C. F. Yu, “CNNC-CNEC Merger Marks New Era for Chinese Industry,” NIW, March 24, 2017, 3; C. F. Yu, “CNNC and CGN Launch Hualong JV,” NIW, January 8, 2016, 5.
330 Wendy Leutert, “Challenges Ahead in China’s Reform of State-Owned Enterprises,” Brookings Institution, January 2016, https://www.brookings.edu/wp-content/uploads/2016/07/Wendy-Leutert-Challenges-ahead-in-Chinas-reform-of-stateowned-enterprises.pdf, 83–99.
331 Michael Martina, “EU Business Group Slams Beijing’s ‘Made in China’ Plan,” Reuters, March 7, 2017, https://www.reuters.com/article/us-china-eu-business/eu-business-group-slams-beijings-made-in-china-plan-idUSKBN16E0A2.
332 Michael Pettis, “The Impact of Reform on Growth,” China Financial Markets (blog), Carnegie Endowment for International Peace, January 29, 2014, http://carnegieendowment.org/2014/01/29/impact-of-reform-on-growth-pub-54358.
333 Governments and industry in Japan and South Korea would likely challenge China in the World Trade Organization based on Chinese preparations to enter global markets for nuclear power generation equipment (author communications with government officials in Japan and South Korea, New York, 2011 and Seoul, 2014).
334 Kevin Jianjun Tu and David Livingston, “Wenzhou Crash Shows the Danger of China’s Nuclear Power Ambitions,” Jamestown Foundation, July 29, 2011, https://jamestown.org/program/wenzhou-crash-shows-the-dangers-of-chinas-nuclear-power-ambitions/.
335 Chinese nuclear experts, Carnegie workshop, Beijing, April 2014.
336 According to NEA, China’s power consumption in 2015 grew by 0.5 percent while new capacity additions increased by 24.2 percent (Phil Chaffee, “A Reality Check for Nuclear Power—Lower Demand,” NIW, June 10, 2016, 3).
337 “Future Technology Options for Generating China’s Nuclear Power,” Carnegie workshop, Xiamen, May 22–23, 2015.
338 In 2016, all major nuclear SOEs had debt-to-asset ratios at or exceeding SASAC’s limit of 75 percent: SPI 84 percent; CGN 75 percent; and CNNC 79 percent (C.F. Yu, “SPI Eyes Hong Kong Stock Exchange,” NIW, February 26, 2016, 6). The China Nuclear Engineering Corp. (CNEC), which merged with CNNC in 2017, had a debt ratio of over 87 percent for the last five years of its existence. (C.F. Yu, “CNEC Faces Challenges En Route to the Stock Market,” NIW, May 27, 2016, 4.)
339 Chaffee, “A Reality Check for Nuclear Power—Lower Demand.”
340 C. F. Yu, “Power Market Liberalization—More Challenges to Nuclear?,” NIW, June 24, 2016, 6; C. F. Yu, “Disappointment in 2016, but Progress Expected,” NIW, January 6, 2017, 6.
341 Romanello et al., “Sustainable Nuclear Fuel Cycles,” 1,224–5.
342 Bernard Bigot at the International Conference on Fast Reactors and Related Fuel Cycles, Paris, March 4, 2013.
343 Author communications with Chinese nuclear executive 2015 and 2016, Beijing.
344 Zhang, “Fast Reactor Development Strategy in China.”
345 Chinese nuclear expert at “The Future of Nuclear Power in China and the World: Reprocessing and Fast Reactors,” Carnegie workshop, Berlin, May 31–June 1, 2016.
346 Nuclear Fuel Cycle Royal Commission, Nuclear Fuel Cycle Royal Commission Final Report (Adelaide: Government of South Australia, May 2016), https://yoursay.sa.gov.au/system/NFCRC_Final_Report_Web.pdf, 82.
347 “The Future of Nuclear Power in China and the World: Reprocessing and Fast Reactors,” Carnegie workshop, Berlin, May 31–June 1, 2016.
348 Andrew J. Nathan, “China: The Struggle at the Top,” New York Review of Books, February 9, 2017, http://www.nybooks.com/articles/2017/02/09/china-struggle-at-the-top/, 36.
349 Author communication with Chinese nuclear R&D official, 2015.
350 C.F. Yu, “CGN’s Search for Back-End Alternatives,” NIW, November 28, 2016, 4–5.
351 “The Future of Nuclear Power in China and the World: Reprocessing and Fast Reactors,” Carnegie workshop, Berlin, May 31–June 1, 2016.