How the US-China Competition Is Playing out in Romania

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How the US-China Competition Is Playing out in Romania

The U.S. fight against Chinese nuclear and 5G technology in Romania will be an important test case.

How the US-China Competition Is Playing out in Romania

A member of staff of the Chinese delegation adjusts a Chinese flag before the arrival of China’s Premier Li Keqiang, at the Cotroceni Presidential Palace in Bucharest, Romania, Wednesday, Nov. 27, 2013.

Credit: AP Photo/Vadim Ghirda

There is an old myth in Romania that during the communist era, dictator Nicolae Ceaușescu systematically avoided developing infrastructure in the eastern part of the country because he feared a Soviet invasion. Today the tension between connectivity and security is playing out in a different way.

The problem of critical infrastructure was highlighted recently by the Huawei saga, which has drawn a digital curtain between China and the United States. Both governments started to cajole or try to put pressure on other countries to take their side. Romania is an interesting arena for the U.S.-China confrontation because it hosts an American military base and an American anti-ballistic shield, as well as a Huawei regional hub and potential Chinese investment in one of the most important nuclear power plants in Central and Eastern Europe: Cernavodă.

In May, after almost four years of negotiations, Romania and China reached an agreement for reactors 3 and 4 of the Cernavodă Nuclear Power Plant, an investment that is estimated at almost $8 billion. Cernavodă, Romania’s only nuclear power plant, was designed during the communist rule of Nicolae Ceaușescu. It currently operates just two reactors, which began operating in 1996 and 2007, but it supplies around 20 percent of Romania’s energy. The Romanian government has tried to finish the construction of reactors 3 and 4 for more than a decade, but it has been a bumpy ride. In 2009, Nuclearelectrica, the government-controlled Romanian company that operates Cernavodă, formed a joint venture with RWE, GDF Suez, ENEL, CEZ, ArcelorMittal, and Iberdrola. Less than three years later, all the foreign companies had withdrawn from the project and Romania was left to search for other alternative partners.

That is when China stepped onto the stage. In 2013, the government of Social Democrat Victor Ponta signed a letter of intent with China General Nuclear Power (CGN). One year later, CGN won the public tender organized by the government, as the sole participant. If this seems like a favor made to the Chinese company, the reality is that China was the only country interested in investing in the Romanian nuclear power plant – remember, just a few years earlier all the involved Western companies withdrew from the project. While the investment was too risky for Western companies, for China it was part of a long-term process of exporting its nuclear technology. While just a baby step, as Cernavodă won’t use Chinese nuclear technology (the reactors will be built using CANDU 6, a Canadian technology), the project could provide China with positive publicity in Europe, adding an important landmark in its nuclear projects portfolio.

China’s nuclear technology, together with its 5G technology and its high-speed railway technology, is at the root of its technological power. Nuclear power has been backed by Chinese President Xi Jinping as an important tool in the fight against global warming and pollution.

Apart from this aspect, exporting its nuclear power is one of the Made in China 2025 goals, so investing in overseas nuclear power plants, especially in the West, is a priority for China. Because of China’s poor reputation regarding the tech field, the Chinese state is taking baby steps in achieving its goal, like investments in the Hinkley Point C Nuclear Power Plant in U.K., the Cernavodă Nuclear Power Plant in Romania, and maybe Atucha III in Argentina.

But because of its Made in China 2025 ambitions, China became a target of U.S. fears. And the United States isn’t fighting China alone; it is urging its allies to look through the same lens. During Romanian President Klaus Iohannis’ visit to Washington, D.C. in August 2019, the Romanian ambassador to the U.S. signed, together with his American counterpart, a memorandum of understanding regarding 5G technology. Without explicitly mentioning Huawei, Romania agreed to restrict the access of any 5G foreign supplier whose ownership is not transparent and is under the control of a foreign government. Although the previous Social Democratic government (for whom Klaus Iohannis was a political adversary) announced four months ago that Huawei would be allowed to participate in building the 5G network and took no steps to implement the memorandum, the fall of the government following a motion of no confidence in Parliament in October complicated things. Iohannis nominated a new prime minister from the National Liberal Party, whose government, if approved by parliament, announced that it will implement the MoU signed by Romania with the United States.

Because of the U.S.-China confrontation, Huawei doesn’t have many allies. Even Victor Ponta, the ex-prime minister who supported closer ties to China and facilitated Chinese investments in Romania, asserted that if Romania has to choose, it should take the side of the United States and the EU.

It’s not only Chinese 5G technology under the microscope in Romania — nuclear power and Cernavodă is also being reexamined. During Iohannis’ visit to Washington, he talked to U.S. President Donald Trump about U.S.-Romania cooperation in the civilian nuclear industry, which was mentioned in the joint declaration of the two presidents. In one of her last acts as prime minister, Viorica Dăncilă, the leader of the Social Democratic Party, signed an MoU with U.S. Secretary of Energy Rick Perry regarding civil nuclear cooperation. As Dancilă was known as a supporter of closer ties to China, the memorandum on nuclear cooperation was a surprise, as some saw it as an attempt to sabotage CGN’s investment by opening the door for an American company.

Geopolitics aside, Western companies are not interested in investing in Cernavodă, partly because it isn’t profitable, and partly because, after Fukushima, the Western nuclear energy sector has stagnated. The only sign of American interest in Cernavodă is in the form of an American-Korean consortium, which is interested in the modernization of reactors 1 and 2. But even this is not foreign direct investment, but a tender by Nuclearelectrica, which will pay around 1.5 billion euros in order to refurbish the two reactors.

With CGN building reactors 3 and 4, the American and Chinese offers seem to complement each other. Although there were rumors that the American-Korean joint venture may be interested in reactors 3 and 4, a person with knowledge of the situation told me that there won’t be any type of competition between the American and Chinese companies.

In the meantime, the United States has added CGN onto its entity list, which means that no American company will be allowed to sell technology to it. And now, the United States seems interested to attract other allies onto its side as well.

It’s not only the United States that is worried about Cernavodă, but also the EU and the National Liberal Party, which will probably form the next government. In May, party officials came out with a few inquiries regarding Cernavodă, related to the idea of a potential debt trap but without mentioning the word. They were interested to know if Romania would be forced to use only Chinese money or could access other types of funding; if the Chinese know-how is trustworthy; and if Romania could renounce the project sometime in the future, without penalties.

The biggest problem raised by the National Liberal Party in working with the Chinese company is that CGN was accused in 2016 of spying in the United States, albeit without any connections to possible allegations of spying on the Romanian plant. CGN is therefore in the same situation as Huawei, tainted by spying allegations and linked to the Chinese state.

The EU may have an important role to play regarding the Chinese investment in Cernavodă, because it wants to limit foreign investments, especially Chinese ones, in European critical infrastructure. To empower itself, in April, the EU launched a framework for screening foreign direct investment similar to the American CFIUS. Moreover, because the Chinese investment in Cernavodă also requires state aid, as Romania will subsidize the price of energy, the EU will probably investigate it, as it did with the Paks II Nuclear Power Plant in Hungary. But China has the Hinkley Point C precedent as a backup, when the EU accepted CGN’s bid to implement a nuclear project in the U.K., also with state aid.

The cases of Huawei and CGN in Romania, both caught in the current U.S.-China standoff, are relevant for the entire region. After signing an MoU with Romania regarding 5G technology, the United States followed up two weeks later with a similar (or even identical) MoU with Poland. And if CGN is forced to give up the Cernavodă investment because of U.S. pressure, its U.K. investment will probably share the same fate.

Once again, Romania, with a history of being caught between warring empires, finds itself having to navigate the competition between two great powers. As a firm U.S. ally, its choice will be decided by the amount of U.S. pressure. But what happens in Romania will be a good guide to how U.S.-China competition will play out, from the U.K. to Poland and beyond.

Andreea Brînză is Vice President of The Romanian Institute for the Study of the Asia-Pacific (RISAP). Her research focuses on the geopolitics and geoeconomics of China and especially on the Belt and Road Initiative.