EXPLAINER
The UK’s decision to take over British Steel fuels a brewing dispute with China amid a change in political leadership in London.
A Chinese company is seeking compensation from the UK government for investment losses following the nationalization of a steel mill last week.
On Sunday, Jingye Steel asked Britain to immediately stop “flouting international investment rules” and “promptly, fully and effectively compensate the company for all investment losses incurred as a result of the decision to nationalize British Steel.”
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The UK government took operational control of the company last year after Jingye Group said it was considering closing blast furnaces at its Scunthorpe plant in northern England, the last in the UK to produce “clean steel” from raw materials.
Here’s what we know about this dispute:
Why nationalize the plant?
The government says it nationalized British Steel to protect the country’s steelmaking capacity and prevent the company’s Chinese owners from closing the plant’s blast furnaces.
The Department for Business and Trade announced the move on Thursday, saying it would save thousands of jobs and protect Britain’s national interests by ensuring the supply of domestically produced steel for major construction projects and the defense industry.
“British Steel now belongs to the British people and we are focused on the future: stabilizing the business, supporting the communities that rely on it and building a resilient, competitive and decarbonised steel sector for the years to come,” Business Minister Peter Kyle said in a statement.
The dispute comes as Labor Party leader Andy Burnham is expected to succeed Keir Starmer as prime minister on Monday, potentially starting his first term in office with a standoff with China, one of Britain’s biggest trading partners.
How did China react?
In a statement on Sunday, Jingye Group said the British side “ignored targeted ongoing investments and ‘significant contributions'” while offering “almost zero compensation.”
The company also noted that the UK had spent 377 million pounds ($507 million) running British Steel as of the end of January. The total is expected to exceed £600 million ($807 million) by the end of June and possibly top $2 billion (£1.5 billion) by 2028.
China said it will closely monitor developments and “take appropriate measures to protect legitimate rights and interests if warranted.”
China’s Ministry of Commerce said the UK “ignored” Jingye’s contribution to the British economy and that it “forcibly seized and then nationalized” British Steel in the name of national security, “seriously damaging” Jingye’s legitimate rights and interests and “seriously damaging” Chinese investors’ confidence in the UK.
China’s Foreign Ministry pointed to the UK’s legal obligations, saying: “China and the UK have signed an investment protection agreement, and the legal and legitimate rights and interests of investors must be fully protected in accordance with the law.”
China and Britain signed a bilateral investment treaty in 1986 that includes “protection against arbitrary expropriation without compensation” – a clause cited by Jinye in his claim for compensation.
What happened at British Steel?
British Steel has reportedly played a significant role in the UK economy due to its ability to produce steel from raw materials rather than from recycled scrap metal.
The Scunthorpe plant employs around 2,700 people and produces around three million tonnes of steel per year. But this was not always profitable.
In 2016, Tata Steel sold the company for £1 to private equity firm Greybull Capital, which renamed it British Steel.
However, amid the financial crisis in 2019, the British government’s insolvency service took over management of the company, which was sold the following year Ginye
The UK government says British Steel was losing hundreds of thousands of pounds a day while running the struggling steel company. It says that the plant is counting on the support of the British government in its future work.
Government ministers have said that if financial losses continue, the UK will be entirely reliant on international markets to supply key materials needed for construction and other sectors.
“British Steel is part of the fabric of our nation and a cornerstone of Britain’s industrial strength,” Prime Minister Keir Starmer told Parliament.