On December 16, 2006, the Chinese government awarded U.S.-based Westinghouse Electric Corporation a multi-billion dollar contract to supply China with its next generation of nuclear reactors. The contract, which represents the single largest commercial nuclear power deal in history, provides for the construction of four nuclear plants. Stephen Tritch, Westinghouse president and chief executive officer, said the company hopes the four plants will start operating in 2013. [1]

Upgrading China’s Civilian Nuclear Power Capabilities
The sale marks an important step toward meeting China’s objectives for nuclear power production. In March 2006, the Chinese cabinet decided to increase the country’s nuclear energy capacity from its current level of about 9,600 megawatts (representing less than two percent of China’s overall energy production) to 40,000 megawatts (over four percent of China’s overall energy output) by 2020. To meet this target, China will need to construct some 32 additional nuclear power units, each capable of generating at least one gigawatt (1,000 megawatts) of electricity. [2] In addition to U.S.-made reactors, China has also imported reactors from Russia, France, and Canada. (See related story on Russian nuclear sales to China). Despite continuing improvements in China’s domestic manufacturing capabilities, the government expects to rely on foreign suppliers of civilian nuclear technology for the foreseeable future. [3]

Chinese policy makers claim they chose the U.S. system rather than the competing offers from Russia’s AtomStroyExport and France’s Areva because Westinghouse promised to transfer substantial nuclear power technology to China’s energy industry. [4] To secure the contract, Westinghouse agreed to expend 50 percent of the value of the contract on goods and services produced in China. [5] The advanced pressurized water AP-1000 reactor to be provided by Westinghouse uses an innovative design that was approved by the U.S. Nuclear Regulatory Commission only in January 2006. [6] Its technological enhancements (e.g., gravity-driven water flows) should result in its operating more safely and less expensively than most existing models. [7]

The bidding among French, Russian, and American companies provided leverage for China to secure these advantageous technology transfer provisions and offset arrangements. China also benefited in the negotiations from having one of the largest potential markets for imported nuclear technology. [8] In addition, acquiring the third-generation AP-1000s will help China’s nuclear industry manufacture more advanced reactors for domestic use and foreign exports. Consequently, Chinese commentators believe the Westinghouse transaction will over time help China to reduce its dependence on foreign nuclear technology. Currently, the Chinese government must import about 90 percent of its core civilian nuclear technology and equipment. [9]

Advancing Sino- American Nuclear Energy Cooperation
Chinese commentators consider the deal a major breakthrough in U.S. high-technology transfers to China. They note that the Sino-American civilian nuclear cooperation agreement signed in 1985 did not come into effect until 1998. It took another six years before the two governments, in 2004, signed a bilateral statement of intent on peaceful nuclear use, nuclear nonproliferation, and counter-terrorism that reinforced China’s status as a nuclear trading partner. [10] In this context, Chinese observers describe the Westinghouse deal as a ringing endorsement of China’s nuclear nonproliferation credentials, as well as recognition of China’s growing importance in the commercial nuclear market.

The Chinese media point out that the Westinghouse deal, which is valued at $8 billion and will provide 5,500 jobs in the United States, will help China reduce the perennial U.S.-China trade imbalance and possibly address demands by the U.S. Congress for greater access to the Chinese market. The agreement was signed during the first session of the U.S.-China Strategic Economic Dialogue headed by U.S. Treasury Secretary Henry Paulson and Chinese Vice-Premier Wu Yi, which gave the deal added prominence. [11] A further bonus is that, since Toshiba currently owns Westinghouse, the deal might further advance the current Sino-Japanese reconciliation that began with the advent of the new Japanese government headed by Prime Minister Shinzo Abe.

Opportunities for Expanded U.S.-Chinese Nonproliferation Cooperation
Beyond the Westinghouse purchase, Chinese officials have indicated interest in cooperating with the United States on other nuclear energy programs. Beijing agreed earlier this year to join the Generation IV International Forum (GIF). Under this U.S.-led effort, the major civilian nuclear power producing countries have been collaborating since 2001 to develop a fourth-generation nuclear reactor that would be more efficient than existing models. The GIF has identified six high-priority reactor types as subjects for further research. [12]

China’s decision to expand civilian nuclear cooperation with the United States could also encourage the two governments to expand their dialogue on nuclear weapons proliferation and arms control issues. Chinese government officials recently reaffirmed their interest in having the commander of their strategic forces, Gen. Jing Zhiyuan, visit the United States this year to discuss nuclear doctrine and policy. U.S. President Bush requested the exchange last April when he met with Chinese President Hu Jintao. [13] A similar dialogue helped reduce tensions between the U.S. and Soviet nuclear weapons establishments during the Cold War.

While in Beijing in December 2006, U.S. Energy Secretary Samuel Bodman discussed nonproliferation issues with China’s Atomic Energy Authority Chairman Sun Qin. [14] Shortly thereafter, a U.S. Department of Energy representative commented at a briefing of the foreign press that the Chinese government had expressed interest in participating in all dimensions of the U.S. Global Nuclear Energy Partnership (GNEP). [15] A core objective of the GNEP, which is focused on countries already possessing advanced civilian nuclear energy programs, is to develop new, proliferation-resistant technologies for recycling potentially valuable nuclear materials, such as plutonium, remaining in spent nuclear fuel.

The GNEP also aims to discourage the spread of plutonium separation (“reprocessing”) technologies to additional countries through a fuel-leasing arrangement. Under the scheme, nuclear supplier nations would provide fresh fuel for civilian nuclear power plants located in user nations that agree to refrain from enrichment and reprocessing. The resulting spent fuel would be returned to the fuel supplier and recycled using a process that does not produce pure separated plutonium. Finally, GNEP members would also seek to develop a new type of nuclear reactor for countries with rudimentary nuclear power programs. Such reactors would have improved safeguards to counter the danger that nuclear materials or technologies might be stolen. [16]

Sino-American differences over Iran and North Korea persist, but China and the United States have increasingly come to cooperate on other regional nonproliferation issues. Although Beijing continues to decline participation in the U.S.-led Proliferation Security Initiative (PSI), its representatives joined those of eleven other countries at a late October 2006 meeting in Rabat, Morocco, to discuss how
to implement the “Global Initiative to Combat Nuclear Terrorism.” The Russian and American governments launched the Global Initiative with great fanfare at the July 2006 G-8 summit in St. Petersburg. Unlike the PSI, which focuses on impeding transfers of dangerous weapons to rogue states like China’s ally North Korea, the Global Initiative aims primarily at denying terrorists access to nuclear materials by improving protective measures.

In addition, China has recently taken steps to strengthen its nuclear export control regulations to address the threat of nuclear terrorism. On November 9, 2006, Chinese Premier Wen Jiabao signed new nuclear export control regulations intended to provide the Chinese government with more control over the end use of exported nuclear technology. A new provision requires governments importing Chinese nuclear equipment to seek Beijing’s consent before attempting to use the technology to enrich uranium to a level above 20 percent. [17]

Economic considerations appear to have been a major factor behind the Westinghouse deal, as the Chinese government appears to have seen an opportunity to acquire advanced civilian nuclear technology on favorable terms. The contract will not only expand China’s domestic production of nuclear power but will also improve its position as a global supplier of commercial nuclear services. Other developments, however, suggest that Beijing sees the deal as part of a broader nuclear engagement with the United States and other foreign governments that is encompassing a growing set of nonproliferation initiatives.

Richard Weitz, Hudson Institute and Jing-Dong Yuan, Monterey Institute Center for Nonproliferation Studies