Nov. 29 -- China, its safety reputation tattered by lead paint in toys, cancer-causing chemicals in seafood and antifreeze ingredients in toothpaste, is gearing up to become the world's biggest producer and operator of nuclear plants.
The country plans to build about 30 new reactors by 2020, at a cost totaling 450 billion yuan ($61 billion). It could add as many as 300 in time, according to an official from Atomic Energy of Canada Ltd.
Deals signed this year with Westinghouse Electric Co. and Areva SA will put the Chinese in position to copy the latest technology. Its biggest threat may be as a competitor in selling the $3 billion to $5 billion nuclear plants at home and abroad. China's atomic industry may follow the copy-and-compete blueprint laid out by local makers of cars, drugs and coal-fired power plants.
``The driving force is self-reliance,'' said Howard Bruschi, 67, Westinghouse's former chief technology officer, who two decades ago helped spearhead the company's efforts to get a foothold in China. ``I don't kid myself that they want to make their own designs and develop them and export them.''
The country of 1.3 billion people needs clean sources of electricity to fuel the fastest-growing major economy. At the same time, as China is poised to pass the U.S. as the world's biggest producer of gases that contribute to global warming, it's under pressure to curb emissions. A new round of United Nations-sponsored talks on climate change opens next week on the Indonesian island of Bali.
Reactor, Uranium Sales
The Chinese nuclear program took another step forward Nov. 26 when Anne Lauvergeon, chief executive officer of Paris-based Areva, signed an 8 billion-euro ($12 billion) contract to sell two new European pressurized water reactors, or EPRs, and a long-term supply of uranium to China Guangdong Nuclear Power Group Co. French President Nicolas Sarkozy and Chinese President Hu Jintao stood at the table.
In July, Monroeville, Pennsylvania-based Westinghouse clinched a $5.3 billion deal with China's State Nuclear Power Technology Co. and partners to build four of its new AP1000 reactors. The contract was the company's first for a nuclear reactor since 1987 and its first in China.
Officials of both Western companies said they agreed to transfer technology to local suppliers, meaning China will be able to become a discount competitor. Chinese officials themselves cite Western criteria -- safety and cost -- for deciding whether Westinghouse's model will become a blueprint for future plants.
`Wait and See'
``In principle, the absorbed, redeveloped AP1000 technology from Westinghouse will be the dominant technology for China's future nuclear industry development,'' said Yu Zhuoping, a State Nuclear Power Technology adviser. ``But we need to wait and see the real costs, safety, reliability and operational performances of these four reactors before making further conclusions.''
That position contrasts with China's safety record in other industries. In nuclear power, international manufacturers are using China as a proving ground to demonstrate to potential U.S. customers that new reactors are safer than older designs. What's more, Chinese suppliers may help make nuclear power competitive with cheaper energy sources such as coal and natural gas by bringing down the price of components.
``In the Western world, we talk about nuclear renaissance, but in China it's not a renaissance,'' said Gavin Liu, Westinghouse China's chief representative. ``They're working on the nuclear project on a day-to-day basis, accelerating the whole development process. It's important to build the first AP1000, no matter where we build it, and China's market demand puts it into the best position.''
Power Hungry
Driving China's nuclear push is the skyrocketing energy demand of its power-hungry heavy industries. This year China became a net importer of coal for the first time. It's the third-biggest buyer of foreign oil behind the U.S. and Japan.
China's economy will expand by 11.3 percent this year, the fastest pace in 13 years, the World Bank forecasts. Air pollution causes more than 400,000 premature deaths annually in China, according to the Washington-based bank. Those deaths and related diseases cost 157 billion yuan in 2003, or 1.2 percent of gross domestic product.
The recent reactor orders are part of China's plan to regain some energy independence. The country's nuclear power program was just getting started in 1986 when the Chernobyl disaster happened in Ukraine, forcing the industry to grind to a halt in much of the Western world. That made the Asian nation a prime market for reactor makers.
Coal Dust
In 1988, Westinghouse's Bruschi held his first meeting in Beijing, where he sketched out a new atomic plant design, a forerunner to the AP1000. A December wind flapped through a hole where a window should have been, kicking up dust from a coal pile outside. About 40 Chinese engineers huddled in quilted coats, taking notes and encouraging Bruschi to gulp tea for warmth.
Over the next 12 years, the Pittsburgh resident took 60 business trips to China, eating fried scorpions and honing his chopstick skills picking up peanuts.
``Time runs at a different speed in the Far East,'' said Bruschi, now a consultant to Westinghouse.
The efforts paid off with the July contract, which put Westinghouse back on the industry map. Last year, as the company moved closer to a preliminary deal, Japan's Toshiba Corp. bought Westinghouse from British Nuclear Fuels Plc for $5.4 billion, 68 times the cash price in 1999 when CBS Corp. sold the unit. Shaw Group Inc. of Baton Rouge, Louisiana, and other partners have since taken stakes.
Company officials and industry experts who have worked in China say they are impressed by the locals' know-how and desire to meet strict safety standards.
`Very Disciplined'
``China will be very disciplined about safety,'' said Andrew Brandler, CEO of CLP Holdings Ltd., Hong Kong's largest utility and a partner in operating China's first atomic reactors, at Daya Bay. ``Their focus is very clearly on safety. They recognize that one incident anywhere will set the industry back decades.''
The country already has 11 commercial nuclear reactors in operation. Most were built in partnerships with Areva's predecessor, Framatome SA; Canada's AECL; and ZAO Atomstroyexport of Russia. There are also three domestically designed reactors.
``Last year, in just one year, China added almost 100 gigawatts of new coal plants, so you can believe that in 45 years, China needs and can build 300 gigawatts of nuclear power,'' said Yang Q. Ruan, chief representative and director of technical programs in China for Canada's AECL.
Miner Deaths
Accidents killed 4,746 coal miners last year in China, according to the official Xinhua News Agency. That was more than 100 times the U.S. total.
``Given the numerous stories of deaths and injuries in China's coal mining industry, there is the perception that all industries in China are operated in the same manner,'' said Andrew Kadak, a nuclear engineering professor at the Massachusetts Institute of Technology in Cambridge. ``That's not the case. The safety performance of the Chinese reactors has been quite good.''
Kadak is part of a U.S. team that advises Daya Bay plant managers on operations, spending two weeks a year on site.
Thomas Trains
Safety concerns about Chinese goods have gripped consumers worldwide this year with a wave of ``Made in China'' recalls, including RC2 Corp.'s Thomas & Friends trains and 21 million Mattel Inc. toys. Last week, Baltimore-based Raymond Geddes & Co. recalled 84,200 children's pencil pouches for excessive levels of lead on their zipper pulls.
For the nuclear energy industry, the bigger challenge for now is managing the technology transfer in a way that benefits the international suppliers, too.
``What we don't want to do in general is say, `Here's the technology and I'll go home and you deal with it,''' said Paul Felten, senior vice president of sales, development and marketing for the Areva NP reactor unit. ``We want to stay involved in the process, but we transferred technology in the past and we won't refuse to do so in the future.''
The question is whether that know-how in the hands of Chinese companies will help or harm international companies. Westinghouse expects to be able to buy parts in China that will make its bids in other countries more competitive.
What's Left?
The transfer of technology may instead facilitate the country's rise as a supplier of cheaper nuclear reactors and a challenger to Westinghouse, Areva, General Electric Co. and Atomstroyexport in the global market.
``What is Westinghouse left with in terms of intellectual property once it's transferred capabilities?'' said Simon Powell, head of power research at CLSA Ltd., Credit Agricole SA's Asian investment-banking arm. ``We fully expect large chunks of the future revenue to go through local Chinese-listed companies.''
China will be building nuclear reactors elsewhere in the world in 15 or 20 years, Powell said, compared with Kadak's estimate of 20 to 25 years. Powell cited the auto industry as an example of China's potential competitive threat.
China last year surpassed Germany as the world's third- largest vehicle maker, after the U.S. and Japan, with companies such as Chery Automobile Co. producing cheap models for the domestic market and other developing economies.
At the same time, Chinese vehicles have yet to become competitive in developed markets such as the U.S., Europe and Japan, partly because of a failure to pass local safety tests. Chrysler LLC scrapped its timetable to sell vehicles built by Chery in the U.S. in 2008 or 2009 because of emissions and quality hurdles, spokesman Dave Elshoff said.
Cutting Prices
In the nuclear industry, Chinese companies may be able to cut prices more than foreign competitors. In the past decade, Chinese makers of power equipment have slashed construction costs for supercritical coal plants -- which use less coal and emit less carbon dioxide to produce the same amount of power as traditional units -- by 35 percent to $650,000 a megawatt, according to CLSA's Powell.
At Daya Bay, on the South China Sea coast across from Hong Kong, the potential to bring down nuclear power plant prices is as striking as the plant's green campus lined with mango, lychee and palm trees.
From a hilltop overlooking the tsunami wall that protects the facility, Steven Lau, the plant's first deputy general manager, points to the two Daya Bay reactors built in a little more than six years with 100 percent foreign parts at a total cost of $4 billion.
Local Content
To his left, the two Lingao units, built from 1997 to 2002, contain 11 percent Chinese equipment by dollar value, at a total cost of $3.7 billion. The next two, under construction since 2005 and expected to be on line by 2011, will rely on Chinese technology for as much as 70 percent of their content, with the price tag dropping to $3 billion.
Westinghouse officials still see more promise than peril in China. They say they expect to win contracts to provide engineering, services and fuel on the back of the AP1000 deal, no matter who builds future reactors in China. Officials also say they expect the Chinese to buy Westinghouse's more-advanced designs in the future.
After China signed up to buy the Westinghouse reactors, the Tennessee Valley Authority, the largest U.S. public power company, and partners started seeking government permission on Oct. 30 to build two AP1000 reactors.
``I saw the Promised Land in China,'' said Dan Lipman, Westinghouse's senior vice president for nuclear power plants. ``The renaissance has begun for us.''
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