The substance of this is essentially confiscation, expropriation.
It sets a dangerous precedent because the private sector, as we know, really does have a role to play here.
I guess the key stakes for Jin Ye Group and the UK government, all the objectives, are quite different.
And this does not increase that attractiveness.
And companies outside of the UK will be extremely wary.
There are a whole package of issues that you should be aware of.
What are the obligations under the contract?
What could be the potential risks?
I don't think it's going to be really cutting into the diplomatic and political situation between the two countries.
A Chinese company stepped in to save British steel when few others would.
Six years later, the UK government has stripped it of control.
Was this a commercial decision or another sign that geopolitics is rewriting the rules of global investment?
What comes next?
And who ultimately stands to pay the biggest price?
Welcome to the chat lounge.
I'm Tzu Yun.
Joining me for a discussion on the controversial nationalization of British steel.
Zhang Gong, professor of economics, University of International Business and Economics in Beijing.
Bai Xianyue, partner, grand old law firm Tianjin Office, China.
And Mike Baston, a China observer and senior lecturer.
At the University of Southampton in the United Kingdom.
It's great to have you all back on the show, gentlemen.
So to begin with, let's walk through how this dispute unfold.
Mike, you're in the U.K.,
How did we get from Jingye Group's acquisition of British Steel in 2020 to the UK government's decision to nationalize the company?
It's a complicated situation.
I think there's been a lot of pressure on the current government to look at not just steel, but water in particular and other public utilities where there is a view, I'm not saying I share this view, there is a view that
The privatization or even partial privatization hasn't worked well in the public interest.
And the public are paying more.
They're seeing inefficiency.
So we're talking about railways in particular, not just steel and water, as I said.
So I think there's been a sort of
Building of pressure on whatever government to do something about that.
Many would argue that privatizations we started in the 1980s were a little bit reckless, they were sold off too cheaply, and we're paying a lot more than our counterparts in Europe.
So I think that's where it's really come from.
And the decision to take back public control, which is something that the new Prime Minister Andy Burnham has pledged to be one of his
Main policies has not really come as a huge surprise, but the implications and where we go from here are really very, very unclear.
And it's a very, very different situation.
So there has been a lot of pressure.
And the main argument is that these
Public utilities, major parts of the UK economy are not working for the public good and serving the public well, and the public, the British people are not getting value for money.
And again, that's something we'll probably discuss more and more.
We'll explore whether nationalization will work for this, especially when given, you know, there are a lot of similar cases in British history.
But looking back also on this case, what would you say was the key turning point that set this dispute on the current course then, Mike?
And also, if there was a key turning point, I think the previous Prime Minister, Sir Keir Starmer, I think, again, was under pressure to act.
I think perhaps within his own party, there's been a lot of pressure.
Certainly, Labour governments traditionally are
More pro-nationalisation, if you like, or re-nationalisation and some sort of government, if not government ownership, but government control.
So I think the key, if there is a turning point, or the key pressure point has probably come from within the Labour Party and moves to actually
Do something while they're in office and not in opposition.
So I would think that's something that probably didn't receive that much attention, but was probably uppermost in the decision making that really had taken place before the current prime minister was in power.
So I think it's probably a party political issue that has really driven this quite more than you might see publicly in the news.
And John, from a Chinese perspective, what would you say?
Well, let me point out that the nationalization of companies in UK is not uncommon.
It has happened, you know, times after times in the past.
And I think that's fine.
The issue is not so much about nationalization.
The issue is much about due process.
This is a foreign entity.
It's different from a British enterprise.
China and UK do have a bilateral investment treaty in place, which means that the Chinese investments, Chinese assets in the UK need to be protected by the British government.
And I think this whole process, as being reported in the press at this point, lacks a total process, a due process that adheres to the bilateral investment treaty.
That is why a Chinese company here, the Jingye Steel Group, is crying foreplay at this point.
It's companies basically being overtaken forcefully without owner's consent, without due respect for protection of property rights in the UK.
It was not only stripped off the ownership of the company, but also stripped off the management operation control of the company.
And this is hard to fathom in a country that erodes the rule of law.
The key point here, it's more about due process, it's about protection of foreign assets, protection of property rights in the United Kingdom.
Indeed, one reason why this case has drawn so much attention or controversy is the extraordinary speed with which two pieces of legislation concerning this case were passed.
The first was the Steel Industry Special Measures Act.
Normally, a bill, especially in the UK, takes months or even longer to work its way through Parliament, right?
Involving multiple readings, committee scrutiny, debates in both houses, and finally, royal assent.
Yet this act, which many see as targeting a single Chinese private company, completed the legislative process in just six and a half hours on April 12th last year.
It was even passed on a Saturday after the Labour government recalled MPs from their Easter recess, the first Saturday sitting during a parliamentary recess since the
Falklands War in 1982.
And the second one was the Steel Industry Nationalization Act introduced in May this year and brought into force just two months later.
From a constitutional and political perspective,
Just how unusual was this?
And what do you make of the speed and manner in which these two laws were enacted?
Although this is not really unprecedented, but still, it's quite extraordinary to see the efficiency and speed with which this piece of law was introduced.
And it also, I guess, highlights the priority of the current labor administration, among which, I guess, is this push for nationalization of some of the key industries, as Mike just referred to.
I think it also marks a shift of the political kind of a priority for the current administration.
And of course, this particular case we're discussing really involves an industry that is quite special, I think, also quite unique in the sense that it has a large employee workforce at stake because apparently this particular company currently employs thousands of people.
And the potential labor dispute and discontent or any other potential disputes or problems could also be a major concern that really prompts the current administration
To push through this piece of legislation at such an exceptional speed, I would say.
It also indicates that how urgent it was, at least from the perspective of the Labour government.
So in order to introduce, I guess, a lot of effort behind this has been made in order to achieve such a speed.
I think Mike mentioned that behind us there was a very strong party politics in play or political power there.
So from your perspective,
To what extent do you think such a force has played its role?
Or why couldn't the UK government and Jinye reach a deal reportedly after several rounds of negotiations before talks finally collapsed?
Well, I don't have specific information on this particular aspect of this dispute, but my sense is from what the media has been covering recently, and it's been a very hot topic in the past few days, for the past few weeks,
I guess there are quite a number of different reasons.
First of all, there exists a misalignment of objectives on the parties involved, you know, the Jim Yeager and the UK government.
As we can
We can all understand well i guess you know the key sort of stakes for junior group and the uk government
All the objectives are quite different for junior group or they've run into some challenges over the years since the acquisition of this british steel
I guess there are a lot of quite a number of different reasons tripping to this result
That is for example you know
The COVID-19, the shift of geopolitical landscape, the tariff war, the Ukraine war, etc.
All contributed to a prospect of this industry that was quite different as Jinye Group anticipated a few years ago.
So the business prospect has, to a large extent, shifted to a not extremely optimistic prospect.
And for UK government, I guess, their top priority is, first of all, I think, is the stability or any potential sort of a dispute from the workforce, the power of the trade union.
And to appease these large number of employees, thousands of them, and also nationalization of a particular industry, particularly steel industry, which is rightly regarded as a fundamental sort of essential industry that is key to the national economic security or something.
So for junior group at this stage, I think they would expect a fair compensation with a due process in place to process their request.
And hopefully they can get a fair treatment.
But UK government, I guess that is not their top priority anymore.
Because I guess from UK government's perspective, they think the Jinye Group probably couldn't continue its operation, which is, I'm not sure, because we don't have access to the specific contract that they have signed between them and the specific terms and conditions in that contract.
What does that mean?
Would imply because of those agreements, for example.
But I guess there probably are contract provisions basically setting forth all types of different scenarios going forward when they entered into this agreement.
But again, we don't know the specifics of that.
Again, as I said, it's not easy for the two parties to reach a deal at such a short time, although we wouldn't exclude the possibility that if the two parties come together and sit down together and have some in-depth discussions about what could be the options for the two parties, I hope they will reach an agreement in the next few months, even one or two years, hopefully.
We'll explore the compensation part later on.
But about the target, I think Mike and Xinyue both mentioned the UK government says nationalization was necessary to safeguard Britain's steelmaking capacity and protect thousands of jobs, obviously, the so-called public interest,
But
Jinye argues its own restructuring plan was designed to achieve exactly that by replacing two aging blast furnaces dating back to the 1930s with lower emission electric arc furnaces.
And Jinya says this would have reduced losses, lowered carbon costs, and aligned British steel with the UK's net zero ambitions and the global transition toward greener
Steelmaking, while avoiding large-scale job cuts.
Xiaoyue, you mentioned the UK government might have concern that this wouldn't serve its purpose, or Jingye is unable to reach its goal.
But
You haven't let it try that, right?
And Mike, from a commercial perspective, wasn't Jingye pursuing a fairly conventional industrial restructuring strategy?
I think they were.
I echo the points made about due process.
I think it needs a lot of investigation and we need to know a lot more and the two parties need to
Be or certainly the British government, I think, need to be much more transparent and disclose much more than they have, because Jing Ye's takeover was seen as very, very necessary and also very, very comprehensive.
And plans were in place.
It wasn't a desperate measure by the British government to find someone somewhere who could pump some money in.
So it was
Very, very well thought out and seen as a very, very strategic move, long-term move at the time, and until recently still was.
So I think Junior do have a very strong argument here.
And the onus really is on the British government to almost come clean about
The economics of this, the financial implications of this takeover, which is, as the other panellists have said, was quite unprecedented
To call Parliament back on a Saturday and to almost push this through very quickly, does seem to require patience.
Further explanation.
I don't think we can go into too much of this detail.
I personally don't see why we can't have some sort of public-private compromise here.
And that's what's happened with some of the nationalisations where the private sector has a very, very important role to play.
But perhaps government is equally there as some sort of partner as well.
So there's perhaps some sort of partnership compromise going forward that I would possibly personally advocate that is in everybody's interest.
But does Jinye agree with such a plan?
That's what I think the British government need to have done, need to be doing, is talking to Jinye more about alternative possibilities and not simply what appears to be a wholesale renationalization, which I think is important.
It sets a dangerous precedent because the private sector, as we know, really does have a role to play here when it comes to public utilities.
I think even people on the Labour benches would agree now that thinking has changed, that wholesale nationalisation, wholesale government ownership often
Is not a good thing.
And some investment and interest and very, very important discipline from the private sector can be very, very beneficial.
So I think that the government really needs to get back around the table with Jin Ye and explain more fully and listen much, much more and take things forward from there.
And hopefully, Andy Burnham is very pro-business.
He's made that very, very clear.
He's pro-business.
Private sector as well as talking about public utilities and i think one of the panelists mentioned that ownership often is an issue but serving the public and being good for the economy does not necessarily mean being publicly owned
There can be some sort of partnership here so we need to see dialogue and the onus is on the british government to really instigate that
But if there is no such a public-private partnership, do you think Jingya's request for some, I think it's £1 billion compensation rate, is justified?
I think whatever compensation comes out of the detail of the agreement.
Is justified.
And I think if that's the case, then I don't see why not.
I think this has really sprung on them.
It really is what appears to be quite a hostile move, I have to say, and not knowing the real detail, I think compensation most definitely.
And if that's the figure really comes out of the deal and where the situation is,
What the agreement was in the first place, and I suspect there must have been something in that deal on some sort of renationalization, then yes, absolutely.
And again, the British government need to respond to that and make it clear that they will honor that.
And if not, why not?
And again,
Dialogue, I think, is necessary.
The most important thing is getting the two parties around the table.
The £1 billion compensation is, I think, one of the key reasons why they cannot reach agreement, because what the UK government would offer is much lower than that.
So, John, your take.
Well, I think the phrase nationalization is a better way of describing this, actually.
In my view, you look at what the genius still has been saying, that the British government doesn't want to pay anything.
That's what genius has been publicly saying so far.
And certainly they're going to be disagreeing upon this one billion pound number.
So the substance of this is essentially confiscation, expropriation.
This is the kind of thing that the so-called European value cannot tolerate.
I think at the end of the day, if there's no agreement over the compensation amount,
The British government should just be hands-off and respect the rule of law here.
I understand all these issues surrounding different strategies with respect to going forward, different concerns, this misalignment of interests, blah, blah, blah.
I mean, all these things I totally understand.
But at the end of the day, they have to reach an agreement.
If there's no agreement, maybe go to an arbitration court or something.
But, you know, hastening, I would describe as a kangaroo legal process, within six hours and come out using a domestic legislation to overrule an international treaty.
Is something that cannot be tolerated in today's world.
This is unprecedented.
I think it's amounting to what the British companies have experienced themselves in the 1960s.
That's a big controversy.
Yeah.
So I think at this point, there's probably no turning back.
They're going to go to a arbitration court.
It's going to be a lengthy process to discover the fact discovery process.
And I just hope that the arbitration panel can be impartial and objective and deliver some justice here.
This has been the chat lounge.
We'll check out what's going to happen next right after the short break.
Stay with us.
The strong wind was howling and whistling.
He was the first Chinese citizen to graduate from Yale University in the mid-19th century.
I was born on the 17th of November.
She had prominent features.
Three of us were old enough to lend a helping hand.
He navigated between two vastly different cultures and moved further to realize his dream and promote understanding between the people of China and the United States.
Ye Mingxin was a native of Hanyang.
I realized no danger.
China is really awakening.
And find My Life in China and America.
Welcome back.
We continue our chat on the British steel nationalization saga.
Like John just mentioned, some people describe the move as effectively legalizing expropriation.
Or in China, a lot of people see it as some robbery.
But whatever the arguments on both sides, British steel is now being brought into public ownership by law.
And Jingye now said it has launched dispute settlement procedures under the China-UK bilateral investment treaty.
While reserving the right to seek international arbitration and pursue compensation.
So, Xianyue, I'm not sure how familiar you are with this Sino-UK bilateral investment treaty, but how much protection do you think such a treaty could realistically provide for Jingye in a case like this?
Well, in terms of the bilateral investment treaty, well, it provides some of the general very broad principles that are supposed or are requested from each party to be extended to the investors coming from their own home country.
Apart from that, it does provide a mechanism for the dispute resolution whenever they arise.
As in this case, for example, whenever there's any disputes, the parties or the business from each party, from each country,
Whenever they carry out some business, trade or investment in the jurisdiction of the other country, for example, whenever there's any disputes, it is set forth a basic sort of a mandatory procedure for the disputed party to follow.
As we are talking about the Jingye, for example, what Jingye group need to do now, if there's no way the two parties can settle among themselves, that is to reach an agreement,
For example, Jingye group is required to initiate a consultation, basically a negotiation process
Which needs to give the other party six months in the least.
So before the expiry of this six-month period of time, no arbitration process can be initiated.
So basically, before this negotiation process or consultation process, so Jingyan need to make sure that he has sent its clear requirements, what are the objectives he wants to achieve, what are the things he wants to, for example, composition, let's say.
Or requires from or expect from the UK government, et cetera.
So it has to make that clear to the UK government.
And if the UK government either declines or expressly says, you know, no, we don't accept this.
Starting from that point on, Jingjie need to spend at least six months for consultation process.
And it's only upon the expiry of this process
Continue to start an arbitration process as provided under the bilateral treaty.
So these are procedures and the mechanism for the parties to follow.
Other than that, the bilateral treaty itself, apart from the general sort of principle of any dispute,
For example, fair and equitable treatment of the businesses from each country, carrying out business in the other country.
Whenever there's any appropriation or nationalization, the process should be transparent, it should be equitable, it should follow due process, and each party's business should be given sufficient time.
A fair sort of a chance to make their case and given a chance to be heard, et cetera.
So those are the general legal principles to apply.
So other than that, the bilateral treaty itself won't be always sufficiently able to resolve the disputes per se.
Then Mike, during this six months, at least six months period, do you expect Jinye and the UK government could reach any agreement or have they exhausted every avenue for compromise?
Do you think anything essential can happen to turn this around?
I think he can.
And the eternal optimist in me thinks that it will.
Obviously, the due process, the arbitration process is there.
That's sort of set in stone.
That's the way it is.
Obviously, it doesn't appear to be very fair.
Again, I think to Gene, you have to say that very clearly.
But there's nothing to stop some sort of dialogue and somebody instigating some sort of dialogue at any time.
And again, the onus is on
Perhaps the British government to hold out an olive branch and perhaps even just explain why, in more transparent terms, why they did what they did and then invite Jingye around the table to discuss this and explain this.
I think some sort of negotiation or some sort of dialogue is perfectly possible and it perhaps needs
The British government to hold out that hand, because let's not forget, there's a wider, longer term, more strategic issue here.
And that is the attractiveness of the UK economy to private investors.
And this does not increase that attractiveness and companies outside of the UK will be extremely wary.
Even where there's a very, very definite, sound business proposition that works in the public interest for the UK.
And that way will be the case with private sector interests from outside the UK.
You know, that's perfectly possible and should be considered and invited and may be accepted.
But will that continue to happen?
And what sort of reputation will the British government achieve through this if it is left as it is, and junior left empty handed and shortchanged massively?
So
I think, yes, that there's the arbitration process, but there's nothing to stop members, perhaps junior members of the British government, perhaps on Andy Burnham's behalf, to instigate some sort of friendly dialogue to develop some sort of better relationship that could lead to a solution that is more satisfactory, shall we say, to both parties.
So, yes, I think that really is the focal point.
Andy Burnham and his team and the British government really need to look long-term and the long-term damaging implications that this will have for investment in the UK.
Then John, do you share this view or do you think Mike's suggestion like a public-private partnership is a viable solution?
Well, I'm absolutely in agreement with that, but I'm still quite skeptical whether the British government will do something like this.
I think probably it is in the government's interest, the new administration, the Burhan administration's interest to come out and work out sort of a compromise here so as not to really tarnish British reputation as a good place for foreign direct investment.
But, you know, I think it boils down to the issue of money.
You know, if you look at the entire history of the thing, there's a fundamental force at work, which is that, you know, the steel industry in the UK is very difficult to survive and thrive.
You know, I'm pretty sure GE has done its best to try to make this workable.
Remember the predecessors of Genius Steel have also tried their fair share of effort to try to revive this company, but they have failed.
Tata Steel is an example.
They have also did their part as well.
So in this very difficult environment, in my view,
If it is the British government's long-term objective to still have a primary steelmaking industry, still at least one company still operating in UK, this boils down to money issue, right?
It boils down to a good subsidy to make it viable in the UK.
And if that's the case, I think it should pay.
In different forms, I guess.
And this is a legitimate Chinese company making a legitimate investment.
They put their money into this operation and they have tried their best.
They have come up with alternative solutions, tried to make it work, with which the government doesn't agree.
That's fine.
Then, you know, you take it over in a due process, only emphasize the due process, which is apparently lacking up to now.
But I think there's still a chance to some time for the British government to do something about it and compensate this company, I would say.
Hopefully, this is the direction they're going to go.
And to avoid the lengthy and probably also quite costly arbitration process, I guess, right?
And work out something and see what's going to happen.
Just to echo that point, I think the key here might be the fact that it's a new administration and Andy Burnham will want to be seen to be doing things differently, obviously different policies as well and a different approach and perhaps holding out an olive branch more so than the previous administration, even though it's the same party.
Because he must have his eye on the next general election, which is only around the corner, not too far away, and being reelected properly as prime minister.
So that offers some sort of glimmer of hope.
But maybe Jean-Yves could consider that and approach this new administration through junior members as well.
So the newness of the administration might offer some hope.
So I concur with John's comments, yeah.
Yeah, there's still time for other maneuvers.
If the case does go to arbitration, how strong do you think Jingye's legal position is?
Well, for the moment, we don't know a whole lot of the specific aspects of the cases yet.
For example, what is the contract like?
What are the key contract provisions regarding disputes?
And what are the representations and guarantees
Or a commitment on the side of the UK government and Jinye Group.
So what are the obligations involved and what happened over the past few years in terms of a performance of the contract in the process of the last few years
So which party did what and where things went wrong what was the disagreement when the dispute arose and what are the you know focal points the two parties are basically fighting over
Etc etc
And also when it comes to arbitration it is a long process
There are a technical aspect of this process
It takes some real expertise to be successful
I would say in terms of arbitration a lot of skills involved in the process and advocacy skills production of evidence
And also witnesses, for example, what are the factual background, you know, from the different perspective of the two parties.
And also in the process of performance of the contract, whether there were any breaches on both sides or on one side, on what areas of the dispute, whether Jinye Group has a strong point on particular issues, etc.
So there are a whole lot of different factors we have to take into account when making prediction about outcome of the arbitration process, which can last for, you know, one, two, three years sometimes.
And also sometimes it has a lot to do with councils.
You know, the council play a significant role, sometimes critical role in the process.
If Jin Jie decides to move forward to instigate the arbitration process, I guess there's a procedure to follow, for example, to appoint arbitrators.
And then move on to appoint the chief arbitrator or presiding arbitrator, and then the tribunal will be formed.
So it's up to the tribunal to make decisions on many aspects of the arbitration, and there are a whole lot of different procedural tools the parties can utilize.
And again, depending on the specific dispute and the specific evidence, there are various arbitration, I would say, arms or procedure tools that they can rely on to, for example, compel the other party to produce some of the evidence that, you know, it does not necessarily have or have access to.
Group being a foreign investor, you know, I don't know, they probably don't have access to some of the evidences that might be useful to them or might be favorable to their stance, for example, in the arbitration.
So there is a whole lot of things that we need to be aware of going forward.
And the process can be very long.
And there are a lot of skills involved and the evidence witnesses across the examination
When it comes to the hearing itself, which will not happen very soon, I guess, at least not in the next one year, for sure.
In terms of the outcome, the possible outcome of the arbitration process, there are so many things that we need to consider.
So it's hard to predict just yet.
Right.
Thanks for the elaboration of the whole procedure.
But given the time and cost involved, as illustrated by Zhengyue just now, John, is there a risk that Jingye could ultimately win the legal case but fail?
Still suffer significant financial damage in the process, and even to the point of affecting its long-term competitiveness.
According to your understanding or knowledge of Jinya Group...
I'm not intimately familiar with the company's operation, but I know this is a very large steel company in China.
It's been fairly successful in the domestic market.
And this investment in the UK represents a big step, a major investment overseas for this company.
Apparently, this hasn't been a success for it.
And I think in terms of how we define winning the case, I think it boils down to return on investment.
I think as long as it can recoup some of the investments, minimize its loss, and hopefully the British government is going to compensate the company with an adequate payment.
That makes up at least its initial investment.
I think it's already winning the case for the company.
I think to some extent, the UK as a destination for foreign direct investment's reputation has already been tarnished a little bit.
I hope it's not going to continue to deteriorate.
You know, after all, UK is still a very important market for Chinese companies and for Chinese investments as well.
Let alone its role in attracting Chinese investments, Chinese funds in the financial area.
London is a huge financial market, even from China's perspective.
I think this overall relationship
It's still very much stabilized.
I don't think it's going to be really cutting to the diplomatic and political situation between the two countries.
It's a thorny business issue here.
And let's just put it this way.
It's a thorny business issue and it's a solution to resolve this problem and move forward.
And I hope also a junior group will learn its lesson, be a little bit more cautious when it comes to expand overseas.
I would say in many parts of the world, the markets are pretty tough for Chinese companies.
It's always been a very difficult and valuable position and to make it work.
So it's probably more of a management lesson, I guess, a strategic management lesson.
Right.
Resolve this as soon as possible and put this thing behind.
We'll have the lessons later on.
But for Jingya Group itself, if it doesn't or it couldn't get what it desires in terms of the compensation, do you think it will be weighed down?
No, I think I'm just, you know, we don't know the full extent of the situation over there, but it's my guess that they probably have already written off that 20 million pound investment.
And, you know, they probably try to recoup as much as they can.
So this, again, my widest guess, I don't expect the top management company have much high expectation at all.
Yeah, it's already a very difficult situation right now.
Okay.
China's Commerce Ministry and Foreign Ministry have both expressed strong dissatisfaction saying Beijing will safeguard the legitimate rights and interests of Chinese companies with strong measures.
So, John, in practical terms, what options does Beijing actually have?
Well, you would expect that the Chinese government agencies would come out and make statements like this.
It's not surprising to me at all.
But in terms of the real, any substantive measures the Chinese government can do,
I don't know.
I think it's probably the Ministry of Foreign Affairs will talk to the counterparts in the UK government and probably so will the Commerce Ministry here.
But other than that, well, I guess the government officials at the Commerce Ministry will point to that bilateral investment agreement and say, look, you know,
We have a clause here, right?
We need to do something about this.
We have a treaty here.
That's probably what they're going to do.
I wouldn't be thinking about some kind of a retaliatory measure, and I don't think that's going to happen.
Again, that's my guess.
But I think what these two ministries are more likely to do essentially is to communicate with their counterparts to alert to them the importance of resolving this issue and hopefully can move forward.
I don't see much they can do at this point.
All right.
And on the UK side, the government says following nationalization, it has appointed a new management team tasked with turning British steel into a commercially sustainable low carbon enterprise.
Ironically, that's almost exactly what Genia says it had been trying to do.
Mike, is the UK government likely to succeed where Jinya says it wasn't given the chance?
Well, let's see.
I certainly think they have to succeed.
I think they've put a lot of pressure on themselves because Labour is often tarnished.
Certainly the opposition parties, Conservative in particular, will throw this at them.
The nanny state and 1970s.
We had a three day week.
We have unions that will use this.
To their own advantage.
And government ownership, wholesale ownership will be seen as outdated and inefficient, bureaucratic, etc.
So they need to succeed.
It depends on how clearly they've really thought this through, and I suspect they haven't.
And this is perhaps where the new administration really needs, again, to provide more transparency and talk very clearly about
Who is on this team, who is part of this team.
And hopefully there's a lot of experience there from people in the private sector and not just from steel and related industries.
And it's not some government, we often say Quango, which is really not very, very geared up to take a company into a different area, a low carbon, more competitive, perhaps more internationally competitive.
So
Realistically, the chances are slim
Because we don't often see this with the UK government and other governments really when they run.
It's often the case that governments really hand over to the private sector.
So they're putting a lot of pressure on themselves.
They need to explain their strategy.
They need to explain the composition of this team, where it came from and how they're going to consult widely in order to succeed.
And that's a real clear milestones and milestones.
Progression statements along the way.
And that has to happen quickly.
And again, Burnham must be very, very aware of this, because if it does fail, and is seen as more of a drain on the public purse, and the UK economy does not do well, then this will be highlighted as a strategic error on behalf of the UK government.
So we need to see action and improvement very soon.
Right.
But like John mentioned earlier, in British history, it has nationalized a number of major industries and companies over the decades, right?
From steel and coal to railways, Northern Rock, Rolls-Royce, and British Leyland.
But to those cases, only Rolls-Royce's aero engine business still exists in anything close to its original corporate form.
The rest were eventually privatized, broken up, merged, or fundamentally restructured.
Mike, what do those historical precedents suggest about the likely future of British steel?
Well, that's what I was hinting at, that the precedence in economic history does not bode well and it does not point to optimism.
So again, the onus is on the British government to make it clear that this is a different approach.
This is a different management team.
Okay, it's government-owned, but in effect, it is a private sector approach.
And I do...
Agree and my views have changed over the years that private sector disciplines and private sector input, particularly when we're transitioning towards a more sustainable future, low carbon, low emissions, a more green use of green energy.
It's nearly always, if not always the case that the private sector provides that input and that impetus and really makes things happen and creates lasting change.
So again, it's not
Terribly clear and the um the success of ratings shouldn't really be that high at the moment
But again the new administration need to make this very very clear precisely what they're doing and even more importantly who's responsible and who's involved
And again holding out that olive branch to junior i think is still an option that they should consider and pursue
Then what broader implications will this dispute have?
That's coming up right after this.
From the refreshing cup of tea that starts your morning to the paper that you write on, the roots of many familiar parts of modern life can be traced back to ancient ideas.
Join us on Made in Ancient China,
And discover how ideas born millennia ago became some of the world's greatest treasures.
Made in Ancient China brings you stories of human ambition, inspiration, and connection.
Now available on all major podcast platforms.
Welcome back to the Chat Lounge.
Let's move on to the broader implications of this.
Some Chinese commentators have compared this episode to the fable of the farmer and the snake, suggesting Jingye rescued British steel only to lose it.
And like I think John also mentioned, this has already tarnished British reputation as an open, rules-based destination for foreign investment.
Mike, do you agree?
I think I do, broadly.
I think John made the point that Jingyi are probably going to look at themselves and look at their strategic management, and maybe that is an issue as well.
But broadly, looking at this situation, there's already...
A damage limitation exercise needed by British government.
And not just when it comes to Jinye and perhaps the Chinese government and bilateral relationships, but internationally generally.
This is quite a, it was quite a sudden move.
It's quite unprecedented.
And when they accepted that bid and the word save British Steel was used by the British government as well, when that was accepted, they should have thought this through very, very clearly.
And made sure that if this came to the situation that they needed to step in, that the process was very, very clear and compensation was very, very clear.
And they still need to do that.
So I think, yes, British government reputation is definitely tarnished.
I think that's the headline.
But there are some people arguing that this is only an exceptional case involving a Chinese investor in a politically sensitive industry, right?
Like you all mentioned that there are a lot of maybe geopolitical or
Party political factors factored in.
John, they're saying in today's geopolitical climate, companies from other countries may assume that this wouldn't happen to them.
So are we overstating the broader international impact of this case?
Well, I think the UK government is making this argument that steel industry is of national security interest.
That's indeed true.
Because this is the only mill that actually is making primary steel production, meaning that they're using the raw materials.
Iron ore to make steel, not using recycled materials.
And they want to keep a factory like this, at least one, in UK.
It's the only one right now.
And at least what they're saying is that they're concerned about Jinye shutting down this operation.
But the president mentioned, really, Jingyi has another plan of developing another technology to continue this operation.
Jingyi has no intention of totally shutting down this operation in the UK.
But that's another story here.
But I think even though the British government takes a position that is of a national security interest, I haven't seen any press coverage reports about using the fact that this is a Chinese company as an excuse.
That means that it probably doesn't have much to do with geopolitical connection here.
Right.
I think this is a private company, not a stable enterprise from China.
It's only making steel.
The argument about steel being a national security interest is debatable, in my view.
If we still stick to the WTO framework, this is actually being ruled out.
I mean, look at the WTO's
Relevant clause.
It's more about providing an exemption for things related to war, making war, right?
And this is not so much connected with war, I guess.
So the argument about steel being very special is the argument first made by President Trump, I think years ago during his first administration, when he started to impose the steel and aluminum tariffs, if we still remember that.
And that was subject to a lot of criticism at the time.
But today in UK, the government may take that position.
I can accept that, to be honest.
But I think the good thing is that they haven't really mentioned China.
So I don't believe they're doing this out of a concern that this is actually being run by a Chinese company.
So it's not so much of a geopolitical concern here.
It's more of a national security concern.
That's fine if they take that position, you know, that's OK.
But again, I would say, you know, if you want to nationalize it, that's OK. You have to go through the due process and make the due payment to compensate for the confiscation.
I mean, not confiscation, but the taking away of private property rights.
But this is a discussion for a moot point at this point.
I don't think we're turning back.
As I said, my hope is that there could be some meaningful negotiations, still some meaningful negotiations between the two parties to come up with an acceptable amount of compensation so that this lengthy process of arbitration can be avoided.
And also all these nasty things associated with that process can be avoided.
Do you expect this case to affect Chinese companies' willingness to invest in the UK or Europe more broadly in the future?
To some extent, I guess.
Companies will realize that this kind of a heavy asset investment ultimately does bear its official risk.
Be very careful.
And sometimes it does involve politics.
So that's probably a lesson for Chinese companies.
And this kind of a situation is not immune.
Even in Europe, I think it's prevalent pretty much everywhere.
In the United States, in Latin America, in the Middle East, Southeast Asia, probably every government can take a position like this.
But it's a little bit hard to swallow that in places even like in Europe, they're doing something like this.
That's actually quite surprising to me.
And Xingyue, from a legal perspective, what would you say is the biggest lesson this case holds for Chinese companies investing overseas?
Stay away from sectors with potential national security implications?
Yeah, well, this is a good example for the Chinese companies to sort of realize there are a whole lot of things that you need to be prepared for when it comes to international investment overseas investments.
Investment, for example, many of the Chinese companies, they didn't pay much attention, at least previously, to, for example, due diligence before any foreign overseas investment even started.
And the leadership or the decision makers of Chinese companies need to be aware that you never make major decisions or significant decisions on instinct only.
And you need to have a full and accurate understanding of the business environment.
Of the legal system, the contract, the terms and conditions.
And when it comes to performance of a contract, I guess you need also to be aware that once the contract is signed, there are a whole package of it.
Issue that you should be aware of.
What are the obligations under the contract?
What could be the potential risks under the contract?
And also, being a business owner, you need to have a full team to assist you when it comes to major decision making.
For example, depending on where you go, you need to have a legal expert, financial expert, or ESG experts.
And because those professional expertise can make a huge difference before you make this type of a major decisions,
They will provide some very critical guidance when it comes to some of the major issues that you will probably have to confront when you go overseas.
Because you don't have a full picture of what you're going to be experiencing and what are the business environment like.
So you definitely, the easiest way and the most efficient way and always the most reliable way is to rely on your experts.
Sometimes external assistants, legal professionals to be part of your team, to make some decisions.
Of course, that involves some of the cost.
But this will definitely be the money well spent.
So Jinye is, I would say, another example of, although I'm not sure what really happened and what Jinye did in the past few years, but still it is a good example that the Chinese companies
Do need to be more careful and to do their homework before going overseas and to have professional experts to be part of their team, to provide professional assistance, consultants, and provide necessary and valuable, sometimes invaluable, advices to them before making major decisions.
That might have a long-standing impact on their business.
John, your take?
I think you touched upon this earlier, but can you further elaborate a little bit, you know, the biggest lesson for Chinese companies investing overseas?
John?
Yeah, well, I very much concur with Mr. Bai, who is a lawyer in this space, I guess.
Do due diligence and make sure that it gets adequate advice.
In terms of the investment environment in the country,
Of investment and make sure that the exchanges are protected.
Think about the contingencies and all the things that a good lawyer should be able to advise.
But I think Jin Ye has done all that as a leading steelmaker in China, right?
But he didn't realize there will be such an outcome, right?
Well, I mean...
These are things you should really do before you make the plug.
But that does not always guarantee every success.
I think there will be successes, there will be failures.
You never know.
But at the very least, I think due diligence, good advice, these are things absolutely Chinese companies should do before the EU makes such a major investment.
Then, Mike, your take here?
I think, again, I'm in agreement.
Also, to be fair to Jingye, I think that this action was quite surprising, to say the least.
It surprised a lot of people here, a lot of commentators here, myself included.
So I think how much due diligence they did, in my experience working with Chinese companies, which is quite extensive over many years, looking to internationalize.
Certainly in the early days, if we go back quite a few years, it perhaps wasn't as diligent and detailed as it could have been.
But in recent years, it has been.
And Chinese companies are very much geared up for international expansion with international teams, staffing teams from different countries, different cultures, and very thorough due diligence.
As thorough as it can be, you're never entirely sure until you arrive, so to speak.
So I think it's a little bit simplistic to assume that their approach perhaps could be more detailed or more professional.
I think it probably was.
I think the issue, there's probably an issue if you're buying into a public utility and a previously government owned utility.
Or wholly owned organization, possibly.
But that said, again, you wouldn't expect that government to suddenly backtrack, U-turn, and really almost sort of take everything into control so quickly and so suddenly.
So I think we really need to show a bit of sympathy towards Jingye and really, again, that the finger is firmly pointed at the British government.
But again, for international firms, Chinese firms going internationally,
Generally, I think the success record is very, very high and they're integrating very, very successfully.
And we see Chinese brands becoming more prominent internationally as a result.
So I think generally this is a blip, I think.
And I think it has a lot to do with perhaps government control.
So, yeah, maybe be a little bit more wary if you're buying into a previously government owned brand.
And have a contract that perhaps really is watertight in that respect and does guard against wholesale takeover from that government at very short and sudden notice.
Yeah, a bit more wary there.
John, I think there are also some suggestions that maybe Chinese companies need to be far more cautious when investing in industries that could later be classified as strategically important or tied to national security issues.
Is it hard to tell which sector has the potential to have such implications?
Well, let me also point out that the large scale, what we called OFDI, Outward Foreign Debt Investment from China,
It hasn't had a very long history here.
I mean, it started about, I think, less than 10 years ago.
And Chinese companies are certainly starting to learn more and more lessons here.
And certainly, they're getting more and more sophisticated and sure about making investments overseas.
They start to realize that it's going to be a very different environment.
With a lot of factors totally out of control and, you know, other things like, you know, political and geopolitical issues that we would never face here in domestically here in China.
So it's a new landscape and corporate China is learning lessons here.
And I think, you know,
There's a general trend towards being more cautious about taking into consideration of these sort of political and geopolitical concerns and factors.
And I think it's a good thing for these companies.
I think the money probably paid for advice regarding these matters are very well spent.
And I think, you know, it's a good thing that more and more careful evaluation of these investment opportunities at corporate level could contribute to their greater success overseas.
It's also going to be a trend, if you will, for all investors, you know, for global investors, right?
Yeah.
Not just the Chinese ones.
All right.
And last question, I think John already mentioned this, is about, you know, the impact on Sino-UK relations, more broadly.
John didn't expect to have that much implications on bilateral ties.
But Mike, what would you say?
Could it become another source of friction in bilateral trade and investment?
Or will both sides try to fence the dispute and prevent it from spilling over into broader relationship?
I think the latter, but you never know.
It's certainly not good news for bilateral relationships between, obviously, the UK and China.
And indeed, as I said earlier, the UK and other governments, it sets a dangerous precedent.
And when governments behave like this, it really doesn't send a good signal to international trade.
And as John pointed out just now, the trend...
Towards increased integration of private companies with government-owned companies internationally is something that will continue, most definitely.
So I think governments, both governments in this case, will realise that we don't want this to spill over and we don't want this to develop in some sort of tit-for-tat trade row, an internecine relationship where everybody agrees
Loses but it could it could be cited if there's another issue that isn't related it could be brought to the fore
So we hopefully let's see it there's some sort of negotiation arbitration processes
Perhaps it'll be quicker and both sides or sony junior are a little bit happier
Their outcome and then there's a lot of learning to do and governments can move forward and almost forget about this
So let's let's hope it doesn't but i think again the new administration need to make that very very clear that they're going to be very open-minded and almost like a new broom sweep clean and take things forward
And look for more and more dialogue.
Perhaps there wasn't dialogue between the British government and Genia.
And again, the onus would have been on the British government.
So more dialogue going forward.
So let's hope bilateral parties, the world economy is not in great shape, the UK economy in particular.
So we do need to see very, very good working relationships across governments internationally.
And hopefully that will be the case.
Right.
And on that note, we wrap up our chat for this session.
Many thanks to Mike Bastin from the University of Southampton, Professor John Ghosn from the University of International Business and Economics, and Bai Xingrui from the Grandolol firm Tianjin Office in China.
Please tell us what you think of this topic and the show.
Please drop us a line at radio at cgtn.com.
Mike Toon, thank you for being with us.
Join us again for more chat at the chat lounge next week.
Till then, take care.
The best military commander is not he who fights a hundred battles and wins every one of them.
The best military strategy does not lead to the desiccation of the enemy's capital city.
Decoding the Art of War will help you understand why there's no art in war and how Sun Tzu stayed undefeatable using the science of war with fun stories and insightful breakdown of famous battles.
Find Decoding the Art of War wherever you listen.
