Intelligence and Security Committee China report/Case Study: Nuclear

by The Intelligence and Security Committee of Parliament

CASE STUDY: CIVIL NUCLEAR ENERGY

1. CHINESE INTEREST AND INVESTMENTS ................................................................................................................................................................................................................................................................................................................................................................................................

   151

2. China's interest in the UK Civil Nuclear sector ................................................................................................................................................................................................................................................................................................................................................................................................

   152

3. Chinese investments ................................................................................................................................................................................................................................................................................................................................................................................................

   153

4. Linked investments ................................................................................................................................................................................................................................................................................................................................................................................................

   155

5. ESPIONAGE AND INFLUENCE ................................................................................................................................................................................................................................................................................................................................................................................................

   159

6. Espionage: Incentive and opportunity ................................................................................................................................................................................................................................................................................................................................................................................................

   159

7. Influence: Leverage and disruption ................................................................................................................................................................................................................................................................................................................................................................................................

   163

8. The position of the United States ................................................................................................................................................................................................................................................................................................................................................................................................

   165

9. THE GOVERNMENT RESPONSE ................................................................................................................................................................................................................................................................................................................................................................................................

   171

10. Cross-government scrutiny of foreign investment ................................................................................................................................................................................................................................................................................................................................................................................................

    172

11. Regulation ................................................................................................................................................................................................................................................................................................................................................................................................

    174

12. Intervention: The 'special share' ................................................................................................................................................................................................................................................................................................................................................................................................

    175

13. Advice to Industry ................................................................................................................................................................................................................................................................................................................................................................................................

    177

14. Wider UK Intelligence Community efforts ................................................................................................................................................................................................................................................................................................................................................................................................

    180

 

CHINESE INTEREST AND INVESTMENTS

422. In addition to the overarching threat to UK Industry from China's attempts to gain economically from the UK, and to ensure that the UK becomes increasingly reliant on China, as part of this Inquiry we also considered the specific case of the Civil Nuclear and Energy sectors in terms of the UK's Critical National Infrastructure (CNI).

Critical National Infrastructure

The Government defines Critical National Infrastructure (CNI) as:

Those critical elements of infrastructure (namely assets, facilities, systems, networks or processes and the essential workers that operate and facilitate them), the loss or compromise of which could result in:

• major detrimental impact on the availability, integrity or delivery, of essential services whose integrity, if compromised, could result in significant loss of life or casualties—taking into account significant economic and social impacts; and/or
• significant impact on national security, national defence, or the functioning of the state.^[1]

There are 13 areas of CNI in the UK, including the separately designated 'Civil Nuclear' and 'Energy' sectors.^[2]

423. The importance of these parts of the UK's CNI is clear: energy is essential—described by one witness as the "über CNI", on the basis that "all other CNI requires an energy source".^[3]
424. In terms of energy sources, the Government announced in the 2021 Integrated Review that its "aim is to become the world's leading centre for green technology, finance and wind energy".^[4] The Government has also set a target of 'net zero' for carbon emissions by 2050, and will scale up renewable energy while scaling down coal and gas power stations. Nevertheless, successive Governments have backed nuclear power as a long-term source of electricity production:^[5] it is set to continue to be "a key part of the energy mix", accounting for approximately 17% of the UK's energy supply.^[6]
425. However, the UK’s stock of 15 Civil Nuclear reactors is ageing, with 14 of them expected to be shut down by 2030. The Government therefore needs to replace reactors as they are decommissioned—and this is where Chinese investment is focused. That investment has come under increased scrutiny amid rising concern, given the clear security risks in this sector, which the National Security Secretariat (NSS) summarised as:

[the] unique hazards which the dispersal (either malevolent or accidental) of nuclear and radiological material present; the specific international obligations [the Government has] to protect nuclear material and uranium enrichment technology to reduce the risks of nuclear proliferation; and [the fact that] the Civil Nuclear sector includes a range of services beyond electricity generation—notably decommissioning, enrichment/fuel fabrication, and specialist rail/maritime transport, none of which have direct parallels in the Energy sector.^[7]

Given these factors, we focused our scrutiny on a case study of the Civil Nuclear sector.

 

China's interest in the UK Civil Nuclear sector

426. Foreign Direct Investment (FDI) in the UK's Civil Nuclear sector is not unusual: the UK's current 15 reactors were all acquired by French company EDF in 2009. However, China has shown a particular interest in five Civil Nuclear power sites, which are at various stages of development: Hinkley Point, Sizewell, Bradwell, Moorside and Wylfa. Chinese investment plans are spearheaded by the China General Nuclear Power Group (CGN), a major state-owned energy company. CGN is one of around 100 strategic state-owned enterprises managed by the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), and as such is closely and—unlike other Chinese-based companies such as Huawei, AliBaba or TenCent—explicitly linked to the Chinese state.^[8]
427. China intends to source approximately 20% of its primary energy consumption from non-fossil fuels by 2030. While China's indigenous expertise is clearly growing, they still require foreign expertise to supplement innovation and translate technology into capability, and therefore use their investment in the Civil Nuclear sector both to gain Intellectual Property (IP) and improve their own nuclear capabilities ***.^[9] ***.^[10]
428. However, this accounts for only part of its interest in the UK Civil Nuclear sector. As we have explored in Part One of the Report, China is seeking economic advantage in its quest to become a global superpower. It appears that China regards Civil Nuclear power as a key industry that will support economic growth. Its interest in the UK's new reactors is therefore underpinned by a strategic gambit, as the Joint Intelligence Committee (JIC) assessed ***:

     ***. China also wants to become a global Civil Nuclear supplier.

     For China, the proposed investment in the UK nuclear industry is intended to provide expertise, experience and credibility to support the export of nuclear technology and services.^[11]

429. In its bid to become a global supplier, China is looking to capitalise on the UK's international leadership position: China sees UK regulatory approval as a valuable 'test bed' for proving Chinese technology for export to other Western markets. The Chief Operating Officer of China General Nuclear UK—the main Chinese investor in the Civil Nuclear sector—has said: "For us, the UK is an important stepping stone into Europe. The [UK's regulatory] process is recognised in the nuclear world as having a lot of clout."^[12] Since this Inquiry concluded, the Office for Nuclear Regulation (ONR) has approved CGN's design for its Hualong One reactor^[13] (although local permissions would still need to be sought before it could be built in the UK).

 

Chinese investments

 

Hinkley Point C (financing)

430. Two new reactors at Hinkley Point—the first to be constructed in the UK for over 20 years—are due to enter service in 2027 and will, together, produce 7% of the UK's total electricity. The site is being developed by EDF, the eventual operators; however, the Government announced in September 2015 that CGN would be investing in the project and providing construction engineers. This decision was reviewed in September 2016 and approved. As a result, CGN owns a 33.5% stake in the site.

 

Bradwell B (financing, building and operating)

430. Bradwell B in Essex would be the first nuclear reactor in the UK to employ Chinese nuclear technology. As noted previously, CGN has been explicit about its desire to use the UK as a springboard for exporting Chinese nuclear technology to other countries, with approval by the UK's robust nuclear regulatory regime seen as being key to this.^[14] Under a deal agreed in October 2015, CGN will own a 66.5% share in the project to build the new reactors—with EDF owning the remainder.
431. While it is assumed that CGN will operate the Bradwell reactors once completed, it has been reported that CGN may be willing to consider "not being the majority operator", due to "political and local sensitivities".^[15] In September 2020, the BBC reported Industry and Government sources saying that the CGN plan to build its own reactor at Bradwell "looks dead", given revived security concerns and deteriorating diplomatic relations following the Government's decision to ban Huawei from the UK’s mobile telecommunications networks.^[16] The question of operation is considered in the next section, on linked investments.

 

Sizewell C (financing)

433. As part of the Bradwell agreement, CGN also agreed to provide 20% of the capital for EDF's planned reactor at Sizewell in Suffolk, which is intended to be a 'clone' of Hinkley Point C.^[17] It was reported in the media in September 2020 that the Government is looking at options to replace CGN as an investor in Sizewell C. One of these options would involve the Government taking a stake in the plant itself, in an attempt to accelerate the approvals process for the plant.^[18] The (then) Energy Minister, the Rt Hon. Kwasi Kwarteng MP, later confirmed that the Government is considering taking equity stakes in future nuclear plants, including Sizewell C.^[19]

 

Possible investment at Moorside (unconfirmed)

434. Japanese company Toshiba had planned to build three reactors at the Moorside site near Sellafield in Cumbria through its NuGen subsidiary, but—due to its own concerns about the project's financial viability—began winding up its UK nuclear business in January 2019 after failing to find a buyer to take on the project.^[20]
435. In 2017, CGN had attempted to buy NuGen and its Moorside project from Toshiba, but lost out to a South Korean energy firm (the South Korean deal subsequently fell through).^[21] Following the November 2018 announcement that Toshiba was going to wind up NuGen, it was reported that CGN was still interested in the project, but that there were reservations within the Government about allowing CGN to gain a further foothold in the UK Civil Nuclear sector.^[22] The potential CGN investment at Moorside was scrutinised by the Government in 2017 for national security risks.
436. In July 2020, it was announced that EDF is part of a 15 company-strong consortium which has entered a bid to build a nuclear reactor at Moorside "similar to Hinkley Point C". There has been no indication as to whether CGN will have any investment in this new Reactor.^[23]

 

Possible investment at Wylfa (unconfirmed)

1. It has been reported by the media that CGN is interested in buying the Horizon nuclear project at Wylfa on Anglesey. The project's owners, Hitachi, withdrew from the scheme in September 2020, having failed to reach agreement with the Government about funding arrangements.^[24] In June 2020, Hitachi said: "We are not aware of any plans to sell the project to China."^[25]

 

Linked investments

438. The Government announced CGN's investment in Hinkley Point C in September 2015, although that decision was reviewed in September 2016. In January 2017, we were told by the Chief Executive Officer (CEO) of the National Cyber Security Centre (NCSC) that the 2016 review was not prompted by the Intelligence Community, although they did contribute to the review.^[26]
439. As part of the 2016 review, NSS co-ordinated an assessment of the potential national security risks from Chinese investment in the UK's Civil Nuclear sector and identified espionage, leverage and disruption as the potential risks.^[27] However, the Cabinet Office explained that in 're-approving' the deal in 2016 "an important consideration was that China's involvement in [Hinkley Point C] consists of financial investment in the project only: the French company EDF will own the majority share and will have sole operational control of the site".^[28]
440. This point was reiterated by Director GCHQ in January 2017, when he told the Committee: "ownership and sovereignty are much less of an issue than operational control … in the modern world frankly ownership of companies is pretty fluid and pretty complex. Much more important to us is the hardware but also the operational control and the control of the information and that’s where we are engaged."^[29] In December 2016, (then) Director General MI5 seemed similarly content with the approval, telling the Committee

     One of the really well-functioning bits of structure we have in Government these days is the fact that there is an NSC [National Security Council] that takes all of these big questions and the Agencies' Heads are there as well as the key Ministers, so questions like this get dealt with collectively … We went through [the risks of espionage, leverage and disruption] as you would expect … and an informed decision was made^[30]

441. Nevertheless, Chinese entry into the UK Civil Nuclear sector appears to be being managed under a policy known as 'progressive entry', whereby CGN has to demonstrate it can be a trustworthy and regulation-compliant partner. The Chairman of the UK’s Nuclear Industry Association was quoted in the Financial Times, explaining:

     Progressive entry can be viewed as a sort of trade; if you do X we will give you Y … CGN had to back Hinkley, which they have done, and put up some of the capital for the follow-up EDF plant at Sizewell, which they have indicated they are willing to do [in order to secure agreement for a Chinese reactor at Bradwell] … That's a pretty major ommitment.^[31]

442. This notion of a link between the different investments is significant: Chinese investment in Hinkley Point would appear to be predicated on an understanding that they would subsequently receive permission to use their own technology at Bradwell—i.e. Bradwell is the key, and if Bradwell was not able to proceed for some reason then they may not be interested in Hinkley Point. ***.^[32]
443. While the Intelligence Community's argument that ownership is not the primary concern may be persuasive with regard to the Hinkley Point C decision, it seriously undermines the case for allowing Chinese involvement in Bradwell B, where—as things stand—a Chinese company will exercise operational control over a Chinese-designed reactor. Using the fact that Hinkley Point C will be operated by a French company as a justification for allowing Chinese involvement was obfuscatory, as it is clear from the Government's own evidence that China considers the Hinkley Point C and Bradwell B investments to be directly linked. The Government was therefore entering into an agreement on Hinkley Point C in the clear knowledge that it was—diplomatically and politically—entering into an agreement on allowing the use of Chinese technology, and the exercise of Chinese operational control, at Bradwell B (subject to further regulatory requirements being met by the Chinese).
444. It has also been suggested that this apparent quid pro quo could bind the Government legally into approving CGN's plans for Bradwell B, due to the legal principle of 'legitimate expectation'—under which the investment of large sums on the basis of a Government understanding can be taken to be an enforceable contract.^[33] We questioned the Deputy National Security Adviser (DNSA) on the extent to which these factors were considered by Government when approving Chinese investment in Hinkley Point C:

     STEWART HOSIE: … why was there no mention of Bradwell or the security risks involved in Chinese operation in the October 2016 Cabinet Office note on Hinkley Point, even though the Government consistently assessed at the time that China viewed its assessment in Hinkley as being linked to Bradwell?

     DEPUTY NATIONAL SECURITY ADVISER: So to be clear, there has been no investment security process in relation to Bradwell. The investment security process was purely related to the Hinkley C question. So we have not taken a judgement on that.

     STEWART HOSIE: I understand there has been no investigation potentially into Bradwell; the question was why was there no reference to Bradwell in the Hinkley C report, given that the Government assessed in the Chinese mind these two things were inexorably linked?

     DEPUTY NATIONAL SECURITY ADVISER: Because the process that we used through the Investment Security Group is intended on a case-by-case basis to look at individual Foreign Direct Investments into the UK. That is not to say that the broader questions were not discussed or were not part of the equation. As I say, I have not seen the minutes of the [NSC] discussion from that time but certainly the advice that we gave as intelligence professionals and security professionals was on the basis of the Hinkley project.^[34]

     This is astonishing. If correct, then it raises very serious questions as to the basis on which the Government is allowing foreign companies into our CNI—and shows that lessons have not been learned.

445. Numerous sources indicate that China's investment in Bradwell B is contingent on its investment in Hinkley Point C. Furthermore, this assessment was available to Government in 2016 when investment in Hinkley Point C was being considered. We would have expected this information to have been a principal factor in the Government’s decision-making process. However, the omission of any reference to it in the 2016 Cabinet Office note suggests otherwise.
446. We asked why the linked investment had not been highlighted to Ministers and were told that there had been no investment security process undertaken in relation to Bradwell B and that each case was looked at on its own merits.^[35]We then requested sight of the NSC minutes on the Hinkley Point C decision to ascertain whether the linked investment in Bradwell was discussed. The (then) Prime Minister refused to provide these, on the grounds of Cabinet collective responsibility.^[36]
447. Our concerns on this matter are grounded in experience: in 2013 this Committee held an Inquiry into the decision to allow BT to purchase Huawei telecommunications equipment. The Committee concluded:

     The Committee’s investigation into the handling of the BT/Huawei case highlights a number of weaknesses in the UK's approach to investment in the Critical National Infrastructure (CNI). The Government's duty to protect the safety and security of its citizens should not be compromised by fears of financial consequences, or lack of appropriate protocols. However, a lack of clarity around procedures, responsibility and powers means that national security issues risked, and continue to risk, being overlooked.

     The BT/Huawei relationship began nearly ten years ago; the process for considering national security issues at that time was insufficiently robust. The Committee was shocked that officials chose not to inform, let alone consult, Ministers on such an issue.^[37]

     It appears that, by 2016, the Government had still failed to take action, and that security decisions were still being compromised in a way that leaves the UK at risk.

GGG. The scale of investments by the China General Nuclear Power Group in the UK Civil Nuclear sector—and its willingness to undergo expensive and lengthy regulatory approval processes—demonstrates China's determination to become a permanent and significant player in the UK Civil Nuclear sector, as a stepping stone in its bid to become a global supplier. Involvement will provide China with an opportunity to develop its expertise and gain both experience and credibility as a partner.

HHH. The question is to what extent the Government is prepared to let China invest in such a sensitive sector, for the sake of investment, and whether the security risks have been clearly communicated to Ministers—and understood. The Government would be naïve to assume that allowing Chinese companies to exert influence over the UK’s Civil Nuclear and Energy sectors is not ceding control to the Chinese Communist Party.

III. Using the fact that Hinkley Point C will be operated by a French company as justification for allowing Chinese involvement was obfuscatory: the Government clearly knew that that decision would lead to it allowing the use of Chinese technology and Chinese operational control at Bradwell B. It is astonishing that the investment security process for Hinkley Point C did not therefore take Bradwell B into account. It is unacceptable for the Government still to be considering Chinese involvement in the UK's Critical National Infrastructure (CNI) at a granular level, taking each case individually and without regard for the wider security risk. It is imperative that linked investments are considered in the round and that Ministers are consulted on the cumulative security risk brought by linked Chinese investments. Effective Ministerial oversight in this area is still lacking, more than eight years on from the Committee’s Report on the national security implications of foreign involvement in the UK's CNI.

 

ESPIONAGE AND INFLUENCE

Espionage: Incentive and opportunity

448. China is interested in the UK Civil Nuclear sector because it offers it the chance to develop its expertise, experience and credibility in the industry, both for domestic and international gain. As previously noted, it will use overt channels in service of these goals, such as exploitation of UK Academia, technology transfer (including via manufacturing license agreements with UK companies), joint ventures, and FDI (including purchasing specialist manufacturers). According to HMG assessment, methods such as these may also be "providing China with *** access to manufacturing and tooling expertise and knowledge".^[38]
449. However, China's involvement also provides it with both incentive and opportunity for espionage. There have been public allegations of systemic espionage and theft of commercially valuable information from the UK and other countries,^[39] and charges that this has enabled China to simply re-engineer technology developed by others. These are concerns that should be taken seriously ***. In terms of incentive, *** the JIC assessed:

     The implementation of China's strategy of becoming a global Civil Nuclear supplier, including investment in the UK ***.^[40]

     ***^[41] ***.^[42]

450. In terms of opportunity, the UK Intelligence Community made clear that "Chinese espionage does not depend on inward investment". They noted that:

     the access generated by or through China General Nuclear (CGN) personnel involved in Hinkley Point C (HPC) and Sizewell C (SZC) *** overt and espionage activities.^[43]

     Nevertheless, China appears to be willing and able to conduct espionage through its investments in CNI, including in the Civil Nuclear sector—we note for instance the Federal Bureau of Investigation (FBI) indictment of CGN in 2016, addressed in the case study of Allen Ho later in this section ***.^[44]

451. There is little doubt that the Chinese state is willing to use intelligence collection to give state-owned enterprises such as CGN a commercial edge, and it is unlikely that CGN is merely a beneficiary of such intelligence; it is believed that ***. Chinese businesses are required to maintain a symbiotic relationship with the Chinese state, as MI5 noted:

     There is no ability … to be a big enterprise in China without complete interdependency with the state, and you will have seen that a lot in the kind of conversation around Huawei.

     So in terms of state control, state influence, state ability to use any bit of industry, to deliver a wider state ambition, that is as true of Chinese [General] Nuclear as it is of any other large organisation in China.^[45]

452. While Chinese investment in Hinkley Point C might open the door for the UK to allow CGN to build and operate, Bradwell B would be opening a direct channel from the UK nuclear enterprise to the Chinese state. MI5 explained:

     There is a Chinese state law around sharing data with the state, and that applies to all industries and all organisations. ***. There are expectations around sharing of expertise; so if you have got a particular individual in your industry who is developing a capability that the state is interested in, particularly for dual use, *** there would be an expectation of sharing.^[46]

JJJ. We have serious concerns about the incentive and opportunity for espionage that Chinese involvement in the UK's Civil Nuclear sector provides. Investment in Hinkley Point C opened the door, but for the UK to allow the China General Nuclear Power Group to build and operate Bradwell B would be opening a direct channel from the UK nuclear enterprise to the Chinese state.

 

Cover, contacts and access

453. China is unlikely to glean commercially valuable information directly from its investments, but Chinese involvement in the sector inevitably increases the risk of espionage by providing legitimate cover for Chinese nationals whose primary role may be to conduct espionage activity (either against the Civil Nuclear sector in particular, or UK targets more broadly)^[47] and access to facilities and Intellectual Property (IP) that may not otherwise have been available.^[48]
454. As noted above, CGN, as a state-owned enterprise, is ***.^[49] ***. ^[50]
455. MI5 noted that there had been instances *** where employees in the Civil Nuclear sector had conducted espionage (the Allen Ho case study below is one such example), and we questioned witnesses as to whether such cases had been seen in the UK. They stated that ***.^[51] MI5 explained that experts are cultivated in all fields:

     That can start from university … how to look at the right university students and what subjects they are studying.

     It goes absolutely into deep expertise … [with] active LinkedIn campaigns of reaching out to people ***.

     Then [there are] *** industries of particular interest and concern.

     So it is the full range. ***. The very focused stuff tends to be going after an individual with particular expertise that is then going to accelerate your build ***.^[52]

Case study: Allen Ho

In 2016, the Federal Bureau of Investigation indicted a naturalised United States (US) citizen, Allen Szuhsiung Ho, and the Chinese state-owned enterprise China General Nuclear (CGN), for conspiracy to engage in the production of special nuclear material in China without authorisation from the US Department of Energy. Ho is now serving a two-year sentence.

Ho, a former employee of US nuclear company Westinghouse, worked at CGN for over 20 years. By 2004 at the latest, he had moved into a role recruiting consultants with experience in the US nuclear industry for CGN ***.

Later, Ho assisted CGN with its Small Modular Reactor Program, in order to help them produce nuclear small module reactors ***. ***.

Throughout his time working for CGN ***. ***.^[53]

456. In 2016, it was anticipated that, by 2020, there would be around 90 CGN personnel split between the Hinkley Point C and Bradwell B projects, with the number for Sizewell C to be determined.^[54] While many (if not most) of these members of staff are not expected to be based on site, as we have previously outlined, there is always a degree of risk in granting Chinese nationals legitimate access to these sites. (While not all CGN staff will be Chinese nationals, it is likely that many will be.) The risk in the case of Hinkley Point and Sizewell was explained as arising because the presence of CGN in the sector facilitates access to UK nuclear experts and thereby increases opportunities for espionage.^[55]The level of risk at Hinkley Point and Sizewell is therefore described as ***.^[56] However, were CGN to construct Bradwell, the risks would presumably be more significant, due to the greater access this would provide into the UK's nuclear industry. ***

     ***^[57]

457. Even though Chinese nationals are unlikely to be granted the level of security clearance necessary for unescorted access to sensitive parts of a nuclear power station, the very fact of their presence and of their legitimate ***.^[58] MI5 noted the Chinese state's ability to use its people, industries and companies to gather information, and said that:

     ***.^[59]

458. It is also worth noting that the Civil Nuclear sector will be a user of the Government's Secret-level IT system (known as ROSA), which is explicitly designed to protect against hostile states.^[60]Providing an agent of a foreign state with even irregular access to the system could undermine its viability as a tool of secure communications.
459. Nevertheless, witnesses were keen to emphasise that, while the question of physical access to sensitive sites by Chinese nationals is taken seriously, it is more of an issue that might "provide good media headlines and be an alarming picture" than is really the case in practice, since "you really don’t need to be present to get the scale of data and have the opportunity".^[61] In October 2020 the DNSA explained that:

there will be some forms of threat that physical access will offer greater opportunity for. That said, the nuclear sector is extremely highly regulated and inspected and, as part of the Energy Act, there are a whole set of provisions in there that mean that the site operators have security plans, that they are assured, and they will work with the CPNI [Centre for the Protection of National Infrastructure] on the particular kind of insider risks and the specific technical insider risks and get the best professional advice on staff access, everything from pass routines, and we do that for the Energy sector in the same way as we do for other sectors with CNI.^[62]

KKK. While we accept that the risk posed by physical access to Civil Nuclear sites is overshadowed by the vulnerabilities exposed by Chinese investment and operational control, it would be wrong to dismiss the former outright. The Government recognises the risk that a digital back door into the UK’s Critical National Infrastructure might create, but the risk posed by the literal back door of human actors with access to sensitive sites should not be dismissed.

 

Cyber

460. Chinese cyber actors appear to have an interest in, and ability to target, a broad range of international companies and agencies in the Civil Nuclear sector. An assessment *** stated that, "in the last twelve months [the Chinese] have compromised ***".^[63]
461. There also appears to be indications of Chinese cyber attacks targeting UK firms with links to the Civil Nuclear sector. For example, ***.^[64] ***.^[65]
462. Such attacks are designed to provide China with—primarily—IP, in order to give it a shortcut on research and development time and costs, thereby giving it an advantage over competitors.^[66] It also allows China to identify technologies and IP that could be acquired through legitimate investment.
463. Of potentially greater concern than the power stations themselves are the supply chains. The supply chains for Hinkley Point C and Bradwell B will each involve large numbers of UK companies ***. We questioned witnesses who told us that *** in the supply chains in the Civil Nuclear sector ***. NCSC described ***.^[67]The Joint State Threats Assessment Centre (JSTAT) and NCSC assess that ***.^[68]
464. NCSC explained that, in conjunction with MI5 ***:

     *** previously we looked very much at our National Infrastructure in counter-terrorism terms—things you can put bollards around—and that didn't help very well with the logical assets and digital infrastructure that webbed across our infrastructure—you know, how telco [telecommunications] is linked to Energy…

     *** allows us to understand how these things touch—and what that is bringing out, of course ***

     NCSC said that, as a result:

     we have stood up new capability in this area, *** and will allow Government to target our resource in the areas that reach across sectors in a way that we have not been able to do before.^[69]

LLL. We are reassured that the Intelligence Community have recognised the *** vulnerability that potentially lies in the supply chains: effort to protect against cyber attacks must include the supply chains.

 

Influence: Leverage and disruption

465. China appears routinely to use its proposed foreign investments for political leverage ***. China's very significant investment in the UK's Civil Nuclear sector would therefore seem to provide it with very significant leverage. However, the Intelligence Community *** assess that China is unlikely explicitly to use those investments to exert leverage over the UK, as doing so may compromise China's wider economic and commercial objectives: ^[70] the DNSA confirmed that the Intelligence Community have ***. ^[71]
466. Nevertheless, they acknowledge that "[the application of leverage] is still possible and over the lifetime of the projects Chinese tactics may change".^[72] We should not therefore be blind to the possibility that the Chinese investments in Hinkley Point, Bradwell and Sizewell could be used as political leverage over the UK Government, both on the narrow issue of the Civil Nuclear sector itself, and on broader Chinese issues: first, in the initial stages, as the threat of withholding or withdrawing funding could place the future of a project (and its intended outcome) in jeopardy; and second, once construction has finished and generation begins, by having control of the sites that generate a substantial proportion of the UK's electricity and therefore potentially holding it to ransom.
467. The potential for involvement in one industry to be used as leverage to gain a foothold in another industry can be clearly seen from the Chinese messaging in 2020, when the Chinese Ambassador to the UK told business leaders that a UK decision to ban Huawei could undermine plans for Chinese companies to build nuclear power plants and the HS2 high-speed rail network.^[73]
468. There is also a geostrategic concern around the UK becoming reliant on China for the ongoing maintenance of Chinese-built nuclear reactors (particularly given the very long operating life of nuclear reactors). This reliance could give China another 'lever' to apply pressure if diplomatic relations decline in future.^[74]
469. It could also be argued that the very fact that China will be able to exert some control over the UK's CNI will complicate the Government's calculations when trying to challenge Chinese behaviour in other areas—for example, in relation to human rights. In other words, it may not be possible to separate the Civil Nuclear sector from wider geopolitical and diplomatic considerations.
470. The Committee asked the Intelligence Community if there had been any indications that China would use its foothold in the Civil Nuclear sector to exert pressure in other areas. We were told that that was a question for the (then) Department for Business, Energy and Industrial Strategy (BEIS) to answer.^[75] Unfortunately, the Government has refused to allow this Committee access to BEIS—this is yet another example of the failure of the Fusion Doctrine when it comes to oversight.
471. Part of the concern about the influence and control that Chinese investment in the UK Civil Nuclear sector might secure is around the threat of disruption. Disruption could mean temporarily shutting down a power network (at a localised or even national level) or causing irreparable damage to an energy-production facility, which could result in an energy shortage and/or a greater burden on alternative energy production. Depending on the means used to disrupt an energy-production facility, there could well be an impact on the local environment.
472. During the course of this Inquiry, we were concerned that increased physical access to nuclear power stations could aid the exercise of these capabilities, whether to disrupt energy supply or to cause physical or environmental damage. Physical access to nuclear sites would presumably mean that an individual with the right access might be able to shut the system down. While the degree of disruption would depend on the incident ***.^[76] Furthermore, it is recognised that physical access would help facilitate cyber attacks, which could cause disruption. In 2016, a review by a Government 'Red Team'—made up of representatives from ***—assessed that ***. The UK Intelligence Community told the Committee that ***.^[77]
473. Witnesses emphasised that a cyber attack is not contingent on having direct access to infrastructure. NCSC noted that, in the cyber world, "it is no longer something about physical presence, actually there are many different ways you can access this data".^[78] The point was reiterated by MI5, who noted that "it is much, much, cheaper to sit outside [it] with a laptop than it is to buy a nuclear power station".^[79] ***.^[80]
474. ***.^[81] The long-term nature of Civil Nuclear CNI means that HMG must be alert to the potential for threats to emerge in future if circumstances change ***.^[82] Such a threat therefore should not be discounted.
475. In November 2019, an article in The Telegraph alleged that there had been an attack against an unspecified UK nuclear facility.^[83] We questioned the NCSC, who noted that there was not enough information in the original article to definitively link it to an incident they had dealt with, but stated that "none [of the cyber attacks against the UK Civil Nuclear sector] were deemed to have triggered what the press reports described as a 'security crisis'".^[84]

MMM. While we recognise that the threat of disruption is less likely, the threat of leverage is very real: the fact that China will be able to exert some control over the UK's Critical National Infrastructure will complicate the Government's calculations in its broader approach to China. In other words, it may not be possible to separate the Civil Nuclear sector from wider geopolitical and diplomatic considerations.

 

The position of the United States

476. As with telecommunications (until the reversal of policy on Huawei), the UK Government appears to be out of step with the United States (US) with regard to the threat of Chinese espionage in relation to the Civil Nuclear sector. According to the Sunday Times, the Allen Ho case prompted "a full-scale review by the US National Security Council, which led to new rules blocking CGN from acquiring American technology", and the US added CGN to the Entity List^[85] in August 2019, thereby barring US companies from selling products to them.^[86] In August 2021, the Biden Administration restricted US citizens from investing in 59 "Chinese companies that undermine the security or democratic values of the United States and our allies", one of which was CGN.^[87]
477. While CGN has not—at the time of writing—been the subject of a concerted US diplomatic offensive in quite the same way as Huawei, US officials have publicly warned the UK against dealing with CGN. For instance, The Times reported: "Christopher Ashley Ford, US assistant secretary [of State] for international security and non-proliferation, said the UK had been given intelligence showing China General Nuclear transferred technologies from civilian enterprise for military uses."^[88] The Financial Times reported in August 2020 that, at a private meeting with MPs in July 2020, the (then) US Secretary of State, Mike Pompeo, raised the subject of CGN's activities in the UK.^[89] CGN's interest in Hitachi's Wylfa project has led to objections from the US as well. The Sunday Times reported that "officials from the US State Department … have heaped pressure on" the Japanese industrial giant not to sell the project to the Chinese.^[90]
478. Somewhat surprisingly, witnesses told this Inquiry in October 2020 that they had not "had a direct conversation with [their] counterpart in the US about CGN".^[91] They noted that their counterparts at the (then) Department for Business, Energy and Industrial Strategy (BEIS) might have engaged in such conversations with US interlocutors but did not appear to know. In October 2020, the DNSA simply said that she "could well imagine it becoming more of a topic of conversation".^[92] This lack of knowledge, or even interest, is surprising given the JSTAT and NCSC assessment that "it is likely that increased cooperation with ***.^[93]
479. Witnesses were keen to note that the current discussion on CGN should not be equated with the longstanding concerns over Huawei. ***:

     it is that there are not the same *** equities in what the UK is doing in its Civil Nuclear, that there are in Huawei and telecoms, which … is that sort of global web. ***.^[94]

480. The location of the sites in which the Chinese have invested has also proved contentious with the US. It has been reported that US officials have raised concerns with the UK Government about the prospect of CGN taking on the Moorside site, due to the site's proximity to BAE Systems' facility at Barrow-in-Furness (where the UK's nuclear submarines are built; the two sites are 20 miles apart).^[95]These are legitimate concerns ***. The JIC concluded that ***.^[96]
481. However, even if the UK makes a decision in regards to Chinese investment in nuclear based on its own national security concerns, the Chinese will see it as stemming from US concerns and pressure. In 2020, the JIC assessed:

     No matter how any [hypothetical] action [opposing a Chinese role at Bradwell] is presented to China ***^[97]

The non-nuclear Energy Sector

Public attention has focused primarily on the Civil Nuclear sector, as does this Case Study. However, during our inquiry we did consider whether there was a similar threat to UK's non-nuclear Energy sector. In simple terms, the 'Energy' Critical National Infrastructure (CNI) sector comprises all UK infrastructure associated with Energy which is not Civil Nuclear. There are three sub-sectors—electricity, gas and oil.^[98]

China's interest in the non-nuclear Energy sector is primarily driven by its huge domestic demand for energy: China alone accounts for 25% of global daily energy consumption; its electricity requirements have quadrupled since 2000; it is the world's biggest consumer and producer of coal, which accounts for three-fifths of its energy use; and it is the world's largest oil importer.^[99] However, with severe pollution and environmental damage posing a possible threat to popular support for the Chinese Communist Party (CCP), it has also invested heavily in renewables (with the result that it now has a quarter of the world's solar panels, and a third of the world's wind turbines).^[100]

By contrast with the nuclear sector, there does not appear to be a threat from investment: the wider UK Energy sector is diverse and competitive, and therefore, while there is little information available on the scale of China's investments in the UK Energy sector, the size of the sector means that these will be proportionally less significant. Overall, there is no evidence that China's investments in UK Energy amount to a 'critical mass' of control over the sector that would cause concern.

The primary threat appears to be in relation to Intellectual Property (IP). The Chinese government has a strategic imperative to acquire technology that will enable it to improve and increase its domestic energy production. However, as it is likely that China will remain reliant on imports for much of its energy requirements in the medium term, it also needs to secure its energy supply overseas, including through the direct acquisition of energy assets (such as oil fields). The Deputy National Security Adviser noted that China's principal concern was to "[ensure] it has got technology to sustain its own energy consumption".^[101]

As a result, the National Cyber Security Centre (NCSC) assesses that China presents a *** cyber espionage threat to the UK Energy sector.^[102] *** The UK Intelligence Community assesses ***.^[103] Chinese cyber actors have previously targeted the UK Energy sector; in ***, a FTSE 100 energy company, was compromised, with commercially sensitive information stolen.^[104]

Despite this threat, in evidence, the NCSC was keen to emphasise the importance of investment to the sector:

Chinese interest is live and it is also really good investment. You know, utilities, and our network operators and oil and gas and electricity and smart meters are really good investments in terms of economic terms, and it fulfils the requirements as I said before that Chinese, in building their own energy knowledge, legitimately acquiring IP by buying companies and driving that commercial agenda that we have repeatedly referred to, so it meets the domestic and the economic criteria.^[105]

There have been suspected incidents of hostile reconnaissance by *** at Energy CNI sites ***: we were told ***.^[106] ***

***.^[107]

In terms of the threat to the Energy sector from disruption, the potential impact of offensive cyber operations can be seen from the 2016 and 2017 attacks on the Ukrainian energy grid, which caused the temporary loss of power to hundreds of thousands of people. Even relatively small-scale disruptions to electricity generation can have significant knock-on effects. For example, when just two British power generators went offline in August 2019 due to a lightning strike, over 1,000 train services were cancelled or delayed, and 1.1m people were left without power for up to 50 minutes.^[108] ***.^[109] ***.^[110] ***.^[111]

A lack of diversity in the infrastructure is also an issue. ***. ***.^[112] ***.^[113] ***.^[114]

***.^[115]

Chinese cyber actors have also conducted Computer Network Exploitation against UK and international companies *** within the Energy sector *** ^[116]

***.^[117]

NNN. Unlike the Civil Nuclear sector, the Energy sector appears to provide China with less potential for leverage, as it does not have the same long-term reliance issues that we see in the Civil Nuclear sector. Nevertheless, there are concerns in relation to the threat to the Energy sector from economic espionage (particularly in the area of new 'green' energy) and disruption.

 

THE GOVERNMENT RESPONSE

482. As previously noted, boosting economic ties with China has been a clear priority for recent Governments, with the Coalition Government, Cameron Government and—to a lesser extent—the May Government all seeking Chinese investment in the UK. This desire is what has driven Government strategy in relation to the Civil Nuclear sector. In 2013 the National Security Council (NSC) decided that there was no bar to Chinese investment in the UK Civil Nuclear sector in principle (including, in time, majority ownership and the use of Chinese technology), provided all regulatory requirements were met.^[118]
483. Chinese investments in the sector have been underpinned by several strategic dialogues and agreements. During President Xi Jinping's state visit in 2015, a 'Statement of Cooperation in the field of Civil Nuclear Energy' was signed by the UK and China. This statement confirmed that the UK and China "welcome investment and participation in each other's nuclear new build programmes". It specifically welcomed the Hinkley Point C, Sizewell C and Bradwell B proposals, and noted that the successful approval of a Chinese reactor design for use in the UK would "mark the beginning of a genuine long-term strategic partnership".^[119]
484. The 2015 National Security Strategy stated the Government's wish to "[modernise] the UK's Energy infrastructure, including by attracting inward investors, with appropriate assessment of any national security risks, and mitigation" and adds that, "this approach has resulted in the recent investment by China into the new Hinkley Point C power station, supporting our longer-term Energy security".^[120]
485. The annual UK–China Economic and Financial Dialogue includes specific discussions on energy co-operation: the policy outcomes statement issued following the 2019 dialogue noted that "both sides attach importance to cooperation in the field of Civil Nuclear energy… [and] recognise the potential for further mutual beneficial commercial partnerships … [including in the] nuclear energy supply chain".^[121]
486. However, while the Government has previously emphasised that the UK is open for investment, the high-profile 2020 review of the 2016 Hinkley Point C decision, followed by the decision to ban Huawei from the 5G telecommunications network, mean that national security considerations have risen up the agenda. There have been reports that the Government considers China’s involvement in the UK Civil Nuclear sector (particularly in relation to Bradwell B) to be "politically unpalatable".^[122] It is also noteworthy that no specific reference to Chinese investment in UK nuclear energy was made in the Integrated Review.

 

Cross-government scrutiny of foreign investment

487. Under the Enterprise Act 2002, the (then) Department for Business, Energy and Industry Strategy (BEIS) was responsible for intervening in mergers and takeovers on national security grounds. However, in 2013, this Committee found that there was a lack of effective scrutiny when Huawei's entry into the UK’s telecommunications CNI was under consideration in the early 2000s, and we recommended that security concerns must be factored into any decision on foreign investment in the UK's CNI.^[123]
488. In 2016, the Investment Security Group (ISG) was established in the Cabinet Office to formalise consideration of foreign investment in CNI. The DNSA told us that "really, what that [establishment of the ISG] did was provide more resourcing" and a request "that BEIS review the legislative powers that underpin the work in this area which has of course since resulted in the National Security and Investment Bill". In 2019, the process was once again reviewed—the DNSA told us in October 2020 that this was because the caseload was increasing. The result of the review was that:

     the numbers of people across Whitehall … doubled … to deal with the case workload that we were looking at, focused very much on upskilling departments to understand their sectors and have better insights and a larger unit for processing the casework.^[124]

489. The ISG was tasked with assessing the national security implications of foreign investment, and ensuring that Ministers and officials were provided with timely, comprehensive and balanced advice when taking decisions on such investment. Chaired by the DNSA (Intelligence, Security and Resilience), and supported by the Cabinet Office, the ISG comprised Director General- and Director-level representatives from across Whitehall.
490. China represented the single largest country of origin for ISG investigations. However, it became apparent during this Inquiry that the ISG looked at cases individually, rather than examining linked investments and overall impact across the sector. When we questioned why, we were told that the overall security of the sector and China’s involvement in it "is very much a BEIS policy lead" and that BEIS is accountable for it.^[125] It therefore appears that, as a matter of policy, BEIS considered that foreign investment in the Civil Nuclear sector did not need to be looked at in the round, and the ISG simply followed that direction. This is clearly absurd: we question how any department can consider that a foreign country single-handedly running our nuclear power stations should not give pause for thought.
491. This concern was reinforced when, less than six weeks later, we were told that BEIS's lack of security expertise, capabilities and infrastructure was such that the Investment Security Unit (ISU) (the new unit set to take over the work of the ISG following the passage of the National Security Investment Act 2021) had to be "incubated" in the Cabinet Office because the Cabinet Office could "do that kind of intelligence component"—implying that BEIS couldn't.^[126]
492. In October 2020, the DNSA explained that "the reason we haven't sort of chucked it straight over the fence is that we are trying to give BEIS some time to build that capability".^[127] The DNSA went on to say:

     That doesn't mean it's easy to build that capability, but in key areas, and I think particularly DCMS [the Department for Digital, Culture, Media and Sport] and BEIS, we've really got to help them and support them develop the same level of maturity we see in other areas of government, particularly DfT [the Department for Transport].^[128]

     In other words, BEIS is responsible for countering the threat emanating from China's involvement in the Energy sector, but, in October 2020, it was readily acknowledged by the DNSA—at the heart of the UK Intelligence Community—that BEIS did not and does not have the expertise, capabilities or infrastructure to do so.^[129]

493. Returning to the issue of cumulative threat, in December 2020, we wrote to the BEIS Minister to ask whether the ISU would be able to consider the cumulative effect of investments and were assured that it would be able to do so.^[130] We understand this to mean that a situation where there are concerns about linked investments would also be considered. If so, this is a positive change and an improvement on what appears to have happened in the case of Hinkley Point C/Bradwell B.

OOO. We reiterate that foreign investment cases cannot be looked at in isolation and on their own merits. It is absurd that the (then) Department for Business, Energy and Industrial Strategy (BEIS) considered that foreign investment in the Civil Nuclear sector did not need to be looked at in the round: we question how any department can consider that a foreign country single-handedly running our nuclear power stations shouldn't give pause for thought. This clearly demonstrates that BEIS does not have the expertise to be responsible for such sensitive security matters.^[131]

PPP. Previous investments in the sector, or the potential for there to be 'legitimate expectation' that an investment in one area ought to facilitate a linked investment, must be taken into account. If the Investment Security Unit fails to do so, then it will be unable to counteract the 'whole-of-state' approach so effectively utilised by China (amongst others).

 

Regulation

494. The ONR is an independent regulator established under the Energy Act 2013. It regulates nuclear safety, nuclear security, conventional health and safety on nuclear sites, and the transport of radioactive materials. In addition, the ONR regulates the holders of sensitive nuclear information, which are normally corporate headquarters and supply chain organisations.^[132]
495. The Nuclear Installations Act 1965 empowers the ONR to attach to each nuclear site such licence conditions as it considers necessary either in the interests of safety or with respect to the handling, treatment and disposal of nuclear matter. Licence conditions can include requirements for cyber security and resilience.
496. The ONR is responsible for inspections of nuclear sites and for enforcement of the laws and regulations concerning the Civil Nuclear sector, and has the power to prosecute for breaches of relevant legislation in England and Wales, and to recommend prosecution in Scotland. Witnesses noted that these responsibilities can be altered by the Secretary of State:

     in the Civil Nuclear sector, the regulation covers two areas. That is unplanned radiological release and sensitive nuclear information, and the definition … of that is anything interesting to an adversary. So that is extremely broad. Therefore it has to be narrowed down by the Secretary of State for BEIS. … ONR … have a letter from the Secretary of State for BEIS, who dictate the parameters of what they are to regulate for.

     So it is within Government's purview, the Secretary of State, to define how broad or how narrow that is. So we work with ONR and with BEIS to articulate the threat and how that is changing, and then they interpret that to regulate.^[133]

497. In the context of Chinese investment in the Civil Nuclear sector, the ONR is responsible for the approvals process for new reactor designs, and is therefore key to China's ambitions to showcase its Hualong One reactor technology at Bradwell. Although the design has been approved from a regulatory point of view, the ONR would also have to approve a nuclear site licence for the Bradwell project.
498. The ONR has a working relationship with the Centre for the Protection of National Infrastructure (CPNI), NCSC and Joint Terrorism Analysis Centre (JTAC) (and the ONR had staff embedded within JTAC until 2021). As the CEO of NCSC explained to us in January 2017:

     [There] isn't any legislation specifically passed to enforce cybersecurity standards in any [CNI] sector … [but] the Office of the Nuclear Regulator has the power to direct that certain standards in the engineering must be adhered to and the [ONR] consults us on what [those standards] should be in the age of cyber defence and that is, I think, a helpful process.^[134]

499. While there is no doubt that the Civil Nuclear sector has a much more robust regulatory framework than other CNI sectors (notably telecommunications), the effectiveness of the ONR in countering threats from Hostile State Activity (HSA) (which might be considered to be part of its overall remit of ensuring safety standards are met) is unclear. For example, the ONR seeks to verify that electronic components used in key systems in nuclear power stations meet the necessary safety standards ***.^[135] It appears that their powers are not designed to address espionage, sabotage or leverage by investors. In 2016 the Government Red Team noted that:

     ***.^[136]

500. We questioned whether, should the decision be made to allow CGN to build and operate the proposed Hualong One Chinese-designed reactor, a 'cell' (similar to the Huawei Cyber Security Evaluation Centre (HCSEC)^[137]) could be introduced to provide security evaluation from within CGN. We were told that such a decision would be taken by the ONR, in conjunction with the (then) Department for Business, Energy and Industrial Strategy (BEIS).^[138]

QQQ. The regulation of the Civil Nuclear sector (through the Office of Nuclear Regulation (ONR)) is robust. However, we have not been able to evaluate the effectiveness of the ONR in countering Hostile State Activity—indeed, when we tried to ascertain whether the powers held by the ONR were sufficient to protect national security, witnesses from the Agencies and the Cabinet Office were unable to answer. Given the significant Chinese investment in this sector, we recommend that a review of the ONR's ability to counter Hostile State Activity is undertaken.

RRR. Should the Government allow China General Nuclear Power Group (CGN) to build and operate the proposed Hualong One reactor at Bradwell (or any other UK nuclear power station), we recommend that the Government set up a 'cell'—a 'nuclear' version of the Huawei Cyber Security Evaluation Centre—in order to monitor the technology and its operation and address any perceived risks arising from the involvement of CGN in the UK's Civil Nuclear sector.

 

Intervention: The 'special share'

501. Following the 2016 review of the Hinkley Point C decision, the Business Secretary announced an agreement in principle, confirmed by an exchange of letters, with EDF. This 'special share' means that the Government would have the legal right to be able to prevent the sale of EDF's controlling stake in Hinkley Point C before the completion of construction. It was further announced that the Government would take a 'special share' in all future nuclear new-build projects, giving the Government the ability to intervene in any proposed sale of more than 15% of shares in a project to another party on grounds of national security.
502. At the time of writing, the Government does not yet hold a special share in the Bradwell B or Sizewell C projects, on the basis that they are pending ONR approval, and so there has not been a formal stakeholder decision to proceed with the projects. NSS informed the Committee that it "would not expect to seek or secure a special share in advance of … those decisions".^[139]
503. While a special share may provide some greater powers for the Government, it would not apply retrospectively; in other words, if the sale of shares in a nuclear project from, say, a French company to a Chinese company was allowed by the Government in 2022 (following assessment that the transaction did not pose a national security threat), the 'special share' would not give the Government any means to intervene in 2032 if the assessment of the national security implications had changed by that point.^[140]
504. It is of note that the Treasury, under the (then) Chancellor, George Osborne, twice rejected the need for the Government to take a special share in Hinkley Point C. In 2016, the Rt Hon. Sir Ed Davey MP (who, as Secretary of State for Energy and Climate Change, had granted original planning permission for Hinkley Point C in 2013, prior to Chinese involvement) suggested that Mr Osborne had vetoed the idea of a special share because he was "so keen to send positive signals to the Chinese that he was prepared not to go the extra mile for national security".^[141]
505. For his part, Mr Osborne stated that he had been advised by security experts and civil servants that a special share "would not add more protection" because the nuclear industry was already so highly regulated.^[142] This accords with advice in a paper circulated by the Department for Energy and Climate Change (the predecessor to BEIS) in 2015, which stated that "a special share provides only limited protection in that it could only stop a proposed transfer of shares to an entity that was considered to be a security risk at the point of sale … [and] the UK operational regulatory framework is set up to protect against dangerous operations".^[143]
506. In evidence to this Inquiry, the DNSA noted that:

     there are limitations to special shares. I think it is fair to say that they provide limited assurance in particular circumstances. Regardless of how they are drafted, they are a kind of one-point-in-time instrument and do not reflect the evolving threat of the future. So I think what they can do is buy you a bit of assurance over a period of time, for example with Hinkley it could have been that ministers chose to take a special share to see them through the construction phase until the Enterprise Act could have been activated, if necessary, on national security grounds.

     As it was, I think EDF offered a letter of assurance around ownership up until the point of construction, which meant Ministers were not minded to pursue the special share but could have done, but I think you are right to say they are limited in what they can find.^[144]}}

 

Advice to Industry

507. Advice to support the protection of the UK's CNI falls to the NCSC, which provides advice and assessments on cyber security, and CPNI, which is the UK's national technical authority for personnel and physical security advice. Around a third of CPNI's work is directed towards countering HSA, with a focus on work which is sector-specific and actor-agnostic.^[145]
508. HMG considers that it is impractical and disproportionate to try to detect and disrupt all HSA threats to the UK's CNI. There is therefore a focus on countering threats before they materialise through "hardening" HMG and UK Industry (i.e. making UK CNI a hard target) by providing thorough protective security advice for them to follow.^[146] CPNI and NCSC expend considerable effort on a proactive approach to briefing and engagement with Industry, as described in the earlier Industry Case Study.
509. Representatives from the UK's Civil Nuclear and Energy sectors have access to dedicated CPNI and NCSC advisers who provide them with guidance and information on how to reduce the threat: CPNI have *** dedicated advisers for Civil Nuclear and Energy ***; NCSC have *** dedicated advisers for Civil Nuclear and *** for Energy.^[147] CPNI and NCSC also host regular information exchanges, ***, at which industry representatives can receive HSA threat briefings and mitigation advice.^[148]
510. We were told that this element of the UK Intelligence Community's advisory work was in support of BEIS, as the lead Government department—and therefore the key decision-maker—for policy on the Civil Nuclear and Energy sectors.

 

The Civil Nuclear Sector

511. CPNI and NCSC have provided specific advice to the Civil Nuclear sector on insider threats—including the need for robust screening and vetting controls, promoting workforce security awareness and an effective security culture, and ensuring appropriate controls of access to sensitive assets. Given the long lifespan of nuclear reactors, NCSC is conscious that the range of threats may change during that time, and explained:

     we take an actor agnostic approach to making sure that industry is capable of dealing with any of the threats that it could face in the next decades and thinks about how to build that in now, but also how to ensure resilience over time.^[149]

     NCSC explained that its approach is as much about considering the future intentions and capabilities of states like China, as it is about understanding its current capabilities—particularly given that these have already "changed very dramatically over time".^[150]

512. CPNI and NCSC contributed to an initiative *** intended to increase understanding of the risks posed *** in the nuclear industry and to identify ways to counter the threat. These include providing ongoing oversight and analysis *** in the sector, and supporting enhanced verification and oversight of companies in the nuclear supply chain.^[151] We asked about this programme and were told that the focus was not so much about strengthening personnel security controls, but "about giving us more opportunities to act *** if there is a breach of those processes".^[152]
513. While these 'upstream' efforts to limit the risks from Chinese investment are welcome, they are just the beginning of the process. The Intelligence Community told the Committee that ***.^[153] We were told about the process for accreditation and formulation of reactor designs before the sites go live, and MI5 explained the UK Intelligence Community's role within this process:

     ***

     The Office of Nuclear Regulation is [an] incredibly detailed and a powerful regulator, so we can define things ***^[154]

SSS. While it is understandable that ***—given that Hinkley Point C is still under construction, and the remainder had not been approved at the time of writing—the finished projects must be subject to detailed (and continuing) scrutiny by the Centre for the Protection of National Infrastructure and the Intelligence Community. We expect to be kept informed of the advice provided by the Agencies and key decision timelines.

Advice to the Energy Sector

The Intelligence Community say that "the relationship between CPNI [the Centre for the Protection of National Infrastructure] and the Energy sector is already mature and the understanding of the overall level of threat is well developed".^[155] Examples of CPNI's work are as follows:

• It carries out a number of tailored briefings and engagements at Energy sector forums, which include a considerable focus on China and the wider HSA threat.^[156]
• In response to suspected hostile reconnaissance by *** at Energy CNI sites ***.^[157] (This is an example of non-China-specific work which will nonetheless help harden the UK's CNI ***.)

At the time of writing, the National Cyber Security Centre (NCSC) agreed an annual plan of work with the (then) Department for Business, Energy and Industrial Strategy (BEIS) for its support to the Energy sector. Examples of NCSC's work in this area include:

• the provision of technical support to a new Industrial Control System for Electricity Northwest, one of the UK’s six electricity distribution companies, serving over 2.4m homes;
• a technical design review of Greenergy's implementation of Fuel-FACS, a piece of software that is used to automate fuel terminal operations (Greenergy supplies up to 35% of the UK’s road fuel);
• a review of cyber security improvements at South Hook Liquefied Natural Gas Terminal, a facility that has the capability to supply up to 20% of the UK's gas; and
• a 'deep-dive' consulting exercise with National Grid over changes to the Balancing Mechanism, the system that ensures the UK’s electricity supply meets demand.^[158]

 

Non sector-specific initiatives

514. In addition to the specific advice offered to the Civil Nuclear or Energy sectors, there are a number of CPNI/NCSC initiatives that are not sector-specific—for example:
     • 'Secure Business' risk management advice for UK companies doing business with hostile states—which is freely available on the CPNI and NCSC websites;
     • Project CONISTON, which sought to communicate the Chinese insider threat across Government and Industry^[159] (amongst the CONISTON work strands were a series of briefings advising Government departments and UK Industry representatives on how to detect malicious targeting of staff on their networks); and^[160]
     • Cyber Security Information Sharing Partnership, a joint industry and Government initiative set up to exchange cyber threat information in real time, in a secure and confidential manner.^[161]

 

Wider UK Intelligence Community efforts

515. Investigating the broader Chinese threat to science and technology (of which Chinese targeting of the Civil Nuclear and Energy sectors would form a part) is a key priority for MI5 ***. ***.^[162]When we asked whether other powers were required to respond to the threat posed, MI5 told us that the forthcoming Counter-State Threat Bill^[163] would give it:

     more teeth than we have at the moment to be able to go after individual recruitments in the same way that the FBI indictment … gives American colleagues. So I think there is a gap there and we are looking for that legislation to help us plug it and that will be very helpful. It will take us away from having to prove OSA [Official Secrets Act] links to an ancient piece of legislation.^[164]

516. The Counter-State Threat Bill was subject to a public consultation that closed on 22 July 2021. Our concerns about the slow progress being made on this legislation are set out in Part One of the Report. ***^[165]

TTT. Although Chinese involvement in, and control over, UK nuclear power stations is deeply concerning, it offers only a small snapshot of the attempt to gain control over a range of sectors, and technologies, by an increasingly assertive China. The Government should commission an urgent review to examine and report on the extent to which Chinese involvement in the sector should be minimised, if not excluded.

---

1. Centre for the Protection of National Infrastructure (CPNI) website.
2. The remaining 11 sectors are: Chemicals, Defence, Emergency Services, Finance, Food, Government, Health, Space, Telecommunications, Transport and Water.
3. Oral evidence—GCHQ, *** October 2020.
4. Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy (the 'Integrated Review') was published on 16 March 2021 and sets out the Government's vision of the UK's role in the world. It contains a number of actions which the Government commits to taking in support of that view. A refresh of the initial Integrated Review was later published on 13 March 2023 (after evidence-taking for this Inquiry had concluded).
5. 'Briefing Paper: New Nuclear Power', House of Commons Library, 29 July 2020.
6. Department for Business, Energy and Industrial Strategy, Digest of United Kingdom Energy Statistics 2020, 30 July 2020. The UK's nuclear energy output was reduced in 2019 due to a series of prolonged outages at two nuclear plants (Dungeness B and Hunterston B). In 2018, nuclear power accounted for 20% of UK electricity supply.
7. Written evidence—Cabinet Office, 3 September 2019.
8. In 2016, the European Commission found that CGN could not be considered to be independent of SASAC. 'RPT-Chinese state-owned companies face greater scrutiny of EU deals after ruling', Reuters, 13 June 2016.
9. Written evidence—***, *** October 2020.
10. Written evidence—***, *** December 2018.
11. Written evidence—JIO, 24 August 2016.
12. 'China's long game to dominate nuclear power relies on the UK', The Guardian, 26 July 2018.
13. Also known as the UK HPR1000.
14. 'China's long game to dominate nuclear power relies on the UK', The Guardian, 26 July 2018.
15. 'Chinese willing to hand over control of UK nuclear plant', Financial Times, 18 September 2018.
16. 'UK government could take stake in Sizewell nuclear power station', BBC News, 16 September 2020.
17. 'China's long game to dominate nuclear power relies on the UK', The Guardian, 26 July 2018.
18. 'UK government could take stake in Sizewell nuclear power station', BBC News, 16 September 2020.
19. 'Government considers taking equity stakes in nuclear plants', The Times, 6 October 2020.
20. 'Toshiba's UK withdrawal puts Cumbria nuclear plant in doubt', BBC News, 8 November 2018.
21. 'Korean energy firm rescues UK's Moorside nuclear power project', The Guardian, 6 December 2017.
22. 'UK close to ditching plan for Cumbria nuclear plant', Financial Times, 9 November 2018.
23. 'Clean energy hub proposes nuclear development for Moorside', Nuclear Engineering International, July 2020.
24. 'Nuclear: Hitachi "withdraws" from £20bn Wylfa project', BBC News, 15 September 2020.
25. 'Wylfa nuclear project: Donald Trump plea over site sale dismissed', BBC News, 28 June 2020.
26. Oral evidence—GCHQ, *** January 2017.
27. ***
28. Written evidence—Cabinet Office, 31 October 2016.
29. Oral evidence—GCHQ, *** January 2017
30. Oral evidence—MI5, *** December 2016.
31. ‘UK’s reliance on China’s nuclear tech poses test for policymakers’, Financial Times, 14 February 2019.
32. Written evidence—HMG, 24 August 2016.
33. 'UK's reliance on China’s nuclear tech poses test for policymakers', Financial Times, 14 February 2019.
34. Oral evidence—NSS, *** October 2020.
35. Oral evidence—NSS, *** October 2020
36. Letter to the ISC Director from the Private Secretary to the Prime Minister, 30 April 2021.
37. Foreign involvement in the Critical National Infrastructure, Cm 8629, 6 June 2013.
38. Written evidence—HMG, October 2020.
39. For example, 'Chinese Hinkley backer is accused of espionage', The Times, 11 August 2016; and 'Nuclear espionage charge for China firm with one-third stake in UK's Hinkley Point', The Guardian, 11 August 2016.
40. Written evidence—JIO, 24 August 2016.
41. Written evidence—JIO, 27 October 2017.
42. Written evidence—HMG, 18 April 2019.
43. Written evidence—JSTAT, October 2020.
44. ***
45. Oral evidence—MI5, *** October 2020.
46. Oral evidence—MI5, *** October 2020.
47. Written evidence—HMG, 18 April 2019.
48. Written evidence—JIO, 27 October 2017.
49. Written evidence—JSTAT and NCSC, 5 December 2018.
50. Written evidence—JSTAT, October 2020.
51. Oral evidence—MI5, *** October 2020.,
52. Oral evidence—MI5, *** October 2020.
53. Written evidence—HMG, 18 April 2019.
54. Written evidence—CPNI, February 2016.
55. ***
56. Written evidence—HMG, 13 November 2020.
57. Written evidence—HMG, 13 November 2020.
58. Written evidence—HMG ***, August 2016.
59. Oral evidence—MI5, *** October 2020.
60. Oral evidence—HMG, *** October 2020.
61. Oral evidence—HMG, *** October 2020.
62. Oral evidence—NSS, *** October 2020.
63. ***
64. Written evidence—CPNI, 2014.
65. Written evidence—CPNI, 2014.
66. Oral evidence—NCSC, *** October 2020.
67. Oral evidence—NCSC, *** October 2020.
68. Written evidence—JSTAT and NCSC, *** December 2018.
69. Oral evidence—NCSC, *** October 2020.
70. Written evidence—JIO, 24 August 2016.
71. Oral evidence—NSS, *** October 2020.
72. Written evidence—JIO, 24 August 2016.
73. 'China threatens to pull plug on new British nuclear plants', The Times, 7 June 2020.,
74. 'UK's reliance on China’s nuclear tech poses test for policymakers', Financial Times, 14 February 2019.
75. Oral evidence—HMG, *** October 2020.
76. Written evidence—HMG ***, August 2016.
77. Written evidence—HMG, August 2016.
78. Oral evidence—NCSC, *** October 2020.
79. Oral evidence—MI5, *** October 2020.
80. Written evidence—JSTAT and NCSC, *** December 2018.
81. Written evidence—JSTAT and NCSC, *** December 2018.
82. Written evidence—JSTAT and NCSC, *** December 2018.
83. 'Cyber-attack targets UK's nuclear industry', The Telegraph, 30 November 2019.
84. Written evidence—NCSC, 3 December 2020.
85. The US Entity List is a tool used by the Department of Commerce to restrict the export, re-export and in-country transfer of certain items, listed under the Export Administration Regulations, to entities (individuals, organisations or companies) that are potentially involved in activities that are contrary to the national security or foreign policy interests of the US
86. 'US warning on Chinese nuke plans in Cumbria', Sunday Times, 16 December 2018; 'U.S. Blacklists China Nuclear Firms Accused of Aiding Military', Bloomberg, 15 August 2019.
87. 'Fact Sheet: Executive Order addressing the threat from securities investments that finance certain companies of the People's Republic of China', White House, 3 June 2021.
88. 'Spy warning on Chinese nuclear company', The Times, 25 October 2018.
89. 'China tensions raise doubts over UK nuclear projects', Financial Times, 6 August 2020.
90. 'Donald Trump warns Hitachi not to sell Anglesey nuclear site to China', Sunday Times, 28 June 2020.
91. Oral evidence—NSS, *** October 2020.
92. Oral evidence—NSS, *** October 2020.
93. Written evidence—JSTAT and NCSC, 5 December 2018
94. ***
95. 'US warning on Chinese nuke plans in Cumbria', Sunday Times, 16 December 2018.
96. Written evidence—JIO, 27 October 2017.
97. Written evidence—JIO, 13 November 2020.
98. 'CNI Series: Energy (Strategic cyber threat assessment)', NCSC, 2017. The electricity network is made up of assets that generate, transmit and distribute electricity across the UK (for example generation stations, substations, cable tunnels, switching equipment and control rooms managing the network). National Grid, SSE and Scottish Power are responsible for electricity transmission. There are considerable interdependencies between the electricity sector and other critical assets across other CNI sectors (such as telecommunications, finance and transport), meaning that of the Energy sub-sectors, electricity is perhaps the most important. The gas sector comprises assets such as gas platforms, terminals, storage facilities, odourisation plants, pressure reduction and compressor stations, and control rooms managing the network. The downstream gas sector includes 250,000km of pipelines (known as the National Transmission System), and 21m consumers. National Grid is the sole owner and operator for gas transmission, but no longer deals with gas distribution, which is handled by four companies: Northern Gas Networks, SGN, Cadent Gas, and Wales and West Utilities. The oil sector is made up of assets such as oil platforms, terminals, refineries, storage facilities, pumping stations, control rooms managing the network, and transport to the forecourts and airports. Pipelines are also part of the sector; a small number of these are owned by the UK Government, with the rest being owned by oil companies.
99. 'China’s promised energy revolution', Financial Times, 20 November 2017.
100. 'The world is investing less in clean energy', The Economist, 5 September 2019.
101. Oral evidence—NSS, *** October 2020.
102. Written evidence—NCSC, 2017.
103. Written evidence—NCSC, 2017.
104. Written evidence—GCHQ, 8 May and 26 September 2019.
105. Oral evidence—NCSC, *** October 2020.
106. Written evidence—HMG, 18 April 2019.
107. Oral evidence—MI5, *** October 2020.
108. 'National Grid blames lightning strike for blackout', The Guardian, 20 August 2019; 'National Grid blames lightning strike as it faces Ofgem power cut investigation', Sky News, 20 August 2019.
109. Written evidence—Cabinet Office, 16 August 2019.
110. Written evidence—UK Intelligence Community, October 2018.
111. Written evidence—NCSC, 2017.
112. Written evidence—NCSC, 2017.
113. Written evidence—NCSC, 2017.
114. Written evidence—NCSC, 2017.
115. Written evidence—NCSC, 2017
116. Written evidence—NCSC, 2017.
117. Written evidence—UK Intelligence Community, October 2018; NCSC, 2017.
118. 'National security assessment of scenarios of Chinese majority and minority ownership in Hinkley', Department for Energy and Climate Change, July 2015.
119. 'Statement of Cooperation in the Field of Civil Nuclear Energy 2015', HMG, 21 October 2015.
120. 'National Security Strategy and Strategic Defence and Security Review 2015', HMG, November 2015.
121. 'Policy Outcomes of the 10^th UK-China Economic and Financial Dialogue', HMG, 17 June 2019. At the time of writing, there was also a separate UK-China Energy Dialogue, co-chared by the Secretary of State for BEIS along with their Chinese counterpart.
122. 'UK looks to remove China's CGN from nuclear power project', Financial Times, 25 July 2021; 'China's nuclear power firm could be blocked from UK projects', The Guardian, 26 July 2021
123. Foreign involvement in the Critical National Infrastructure, Cm 8629.
124. Oral evidence—NSS, *** October 2020
125. Oral evidence—NSS, *** October 2020.
126. Oral evidence—NSS, *** October 2020.
127. Oral evidence—NSS, *** October 2020.
128. Oral evidence—NSS, *** October 2020.
129. We now understand that, as part of the restructure of several government departments in February 2023, the Investment Security Unit (ISU) has returned from BEIS to the Cabinet Office. The Committee has not been in a position during this Inquiry to scrutinise the effectiveness of this transfer, or the reasons behind it. Whilst, in principle, we would have welcomed the move to return the ISU to the Cabinet Office, where the relevant security expertise, capabilities and infrastructure are more likely to be in place, as we have previously noted, unfortunately, effective oversight has not been put in place.
130. Letter from Minister for Business and Industry to the ISC Chairman, 7 December 2020. (This letter was placed in the Libraries of both Houses and is publicly available).
131. As previously noted, as part of the restructure of several government departments in February 2023, the Investment Security Unit (ISU) has returned from BEIS to the Cabinet Office. The Committee has not been in a position during this Inquiry to scrutinise the effectiveness of this transfer, or the reasons behind it. In principle, we would have welcomed the move to return the ISU to the Cabinet Office, where the relevant security expertise, capabilities and infrastructure are more likely to be in place. However, as outlined earlier, unfortunately, effective oversight has not been put in place.
132. The ONR does not regulate defence nuclear sites and activities.
133. Oral evidence—HMG, *** October 2020.
134. Oral evidence—GCHQ, *** January 2017; HMG answer to Parliamentary Written Question 20270, 17 December 2015.
135. Written evidence—HMG Red Team, August 2016.
136. Written evidence—HMG Red Team, August 2016.
137. The Huawei Cyber Security Evaluation Centre (HCSEC) (commonly referred to as the 'Cell') opened in November 2010 under a set of arrangements between Huawei and HMG to mitigate any perceived risks arising from the involvement of Huawei in parts of the UK's Critical National Infrastructure. HCSEC provides security evaluation for a range of products used in the UK telecommunications market. Through HCSEC, the Government is provided with insight into Huawei's UK strategies and product ranges. NCSC, as the national technical authority for information assurance and the lead government operational agency on cyber security, leads for the Government in dealing with HCSEC and with Huawei more generally on technical security matters. (Huawei Cyber Security Evaluation Centre (HCSEC) Oversight Board Annual Report 2021.)
138. Oral evidence—NCSC, *** October 2020.
139. Written evidence—Cabinet Office, 22 October 2019.
140. 'National security assessment of scenarios of Chinese majority and minority ownership in Hinkley', Department for Energy and Climate Change, July 2015.
141. 'Hinkley Point: George Osborne says new deal is unchanged', BBC News, 16 September 2016.
142. 'Hinkley Point: George Osborne says new deal is unchanged', BBC News, 16 September 2016.
143. 'National security assessment of scenarios of Chinese majority and minority ownership in Hinkley', Department for Energy and Climate Change, July 2015.
144. Oral evidence—NSS, *** October 2020.
145. Written evidence—HMG, 18 April 2019; no comparable figure was provided for NCSC.
146. Written evidence—HMG, 18 April 2019.
147. In its evidence, MI5 explained that CPNI increasingly *** with most of its advice and campaigns applicable to many different CNI sectors ***.
148. Written evidence—HMG, 18 April 2019.
149. Oral evidence—NCSC, *** October 2020.
150. Oral evidence—NCSC, *** October 2020
151. Written evidence—HMG, 18 April 2019.
152. Oral evidence—MI5, *** October 2020.
153. Written evidence—Cabinet Office, 16 August 2019.
154. ***
155. Written evidence—HMG, 18 April 2019.
156. Written evidence—HMG, 18 April 2019.
157. Written evidence—HMG, 18 April 2019.
158. Written evidence—HMG, 18 April 2019.
159. Written evidence—HMG, 18 April 2019.
160. Written evidence—HMG, 18 April 2019.
161. NCSC website
162. Written evidence—MI5, 23 October 2019.
163. Now known as the National Security Bill, which was introduced in Parliament on 11 May 2022 (after evidence-taking had concluded for this Inquiry).
164. Oral evidence—MI5, *** October 2020.
165. Written evidence—HMG, 18 April 2019.

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