"Made in China" nuclear reactors a tough sell in global market

China will need to convince buyers of the reliability of its technology

As China signs global deals to export its nuclear power technology, it faces a huge obstacle: it still needs to show it can build and safely operate these reactors at home.

Aided by foreign technology acquired during three decades of development, China has the highest number of reactors being built and ambitions to export its home-grown models to an overseas market worth hundreds of billions of dollars.

Premier Li Keqiang told an annual parliamentary meeting this week that the China aimed to increase its share of global sales in a range of advanced industries, including implementing major projects in nuclear power.

And in a sign of progress on exporting its own nuclear technology, China signed a preliminary agreement last month to sell its flagship Hualong 1 reactor to Argentina.

But despite state media describing the deal as the model's "maiden voyage", China has not yet built Hualong 1, raising questions about the country's capacity to deliver reactors for the global market.

"Our fatal weakness is our management standards are not high enough. There is a big gap with international standards," said Xu Lianyi, a senior expert at China's State Nuclear Power Technology Corp (SNPTC), referring to the challenges China faces expanding its nuclear power sector.

SNPTC, which was set up to receive technology transferred from Westinghouse Electric Co., is trying to develop another reactor ultimately targeted at the world market.

Although China has operated Western-designed reactors at home for more than 20 years, it will need to convince buyers of the reliability of its own technology, particularly given a chequered reputation on industrial standards and safety in some other areas such as mining.

China's first Hualong 1 project, in Fujian province, may not be completed until 2020, assuming it breaks ground this year and construction goes smoothly, said Li Ning, dean of the School of Energy Research at Xiamen University.

TECHNOLOGICAL PROBLEMS

China has been slow to approve new nuclear projects after a year-long safety review following Japan's Fukushima disaster in 2011.

Beijing has promised to stick to the highest safety standards, using so-called "third generation" reactors like Hualong 1 and CAP1400, another home-grown model identified for future export.

Due to be based on technology transferred from Westinghouse, the launch of CAP1400 will depend on the completion of a pilot Westinghouse third-generation reactor in Zhejiang province, which is facing a three-year delay because of technological problems.

Reflecting the obstacles of breaking into a market dominated by the likes of France's Areva and Russia's Rosatom State Nuclear Energy Corp., Beijing is encouraging consolidation to cut internal rivalry and pool intellectual property and financial resources.

Plans for a merger between SNPTC and state-run electricity producer China Power Investment were unveiled on Feb 3, potentially creating a firm with total assets of more than 600 billion yuan ($96 billion), industry experts estimate.

The strategy is similar to one used in the high-speed rail sector. By adapting foreign technology for a huge home network, China's trainmakers are now emerging as global competitors for Siemens, Alstom and Bombardier.

Under a hotly-fought multibillion-dollar nuclear power deal struck with Pittsburgh-based Westinghouse, China secured a significant technology transfer agreement in 2007.

China has been absorbing and localising the technology to develop the CAP1400 and says it has full intellectual property rights on the model and Hualong 1.

The Beijing office of Westinghouse, which is now controlled by Japan's Toshiba Corp, did not immediately respond to requests for comment.

While technology rights may not stoke tensions, Beijing's pledge to aid the overseas expansion of Chinese firms risks raising the hackles of competitors if sectors like nuclear are deemed unfairly subsidised.

A fax sent to China's National Development and Reform Commission seeking comment on the country's nuclear strategy was not responded to.

CONFIDENCE

Along with Argentina, progress was being made on potential nuclear deals with Turkey and South Africa, said Wang Zhongtang, chief engineer at SNPTC.

But an official at the China National Nuclear Corporation, which is leading efforts to export Hualong 1 to Argentina, said China still has "huge amounts of work to do" before it can become a nuclear powerhouse, including rolling out Hualong I at home. The official declined to be named because he was not authorised to speak to the media.

With 22 reactors in operation, and a further 26 under construction, China aims to raise its total domestic nuclear power capacity to 58 gigawatts (GW) by 2020, up from 20.3 GW at the end of last year, in a programme estimated to cost $100 billion. Nuclear capacity would still only meet 3 percent of total electricity needs by 2020.

The China representative of the World Nuclear Association, an industry body, said China needed to show it had operational experience, particularly in a foreign environment to sell its new designs abroad.

"It is a question of confidence from outside of China," said Francois Morin.