The Chinese government has stated that by 2020, non-fossil energy would account for 15% of its primary energy consumption, and the discharge of CO2 per unit of GDP would be reduced by 40% to 50% compared to its 2005 level. According to experts’ forecasts, by 2020, China’s nuclear power installed capacity will have grown from 40 GW to 75 GW, and installed capacity under construction increased from 18 GW to 45 GW. Experts from the China Atomic Energy Authority are furthermore expecting Chinese installed nuclear power capacity to reach 100 GW by 2030 and 400 GW by 2050.
In order to control the quality of the design and manufacturing of nuclear safety-related equipment, China’s National Nuclear Safety Administration (NNSA) issued two sets of regulations, The Supervision and Management Regulations for Civilian Nuclear Safety Equipment (HAF601) in 2004, and The Supervision and Management Regulations for Imported Civilian Nuclear Safety Equipment (HAF604) in 2008.
These regulations have a considerable impact on foreign companies in the industry, who face key issues such as restrictions to market access and domestic competition at lower levels of quality.
Because nuclear plants in China are based on French, Russian, Canadian and American technology, there is a major shortage of locally-produced components in China that meet international standards for nuclear power plants (NPPs).
Chinese manufacturers, however, are not waiting for foreign competitors to take control of this market. The NNSA has been clearly devoting resources since 2004 to the HAF601 certification of local manufacturers. In 2009, the safety authority granted more certifications for HAF601 than HAF604 (183 compared with 145).
From a strategic point of view, China’s authorities have plans to localize the production of civil nuclear power equipment components, by up to 85%.
From a tactical perspective, Chinese manufacturers are trying to get involved in the design and manufacturing of every type of equipment component, so that they can become the ideal partners for foreign industry players who face growing pressure to localize production. The local industry, which is spread widely across China, is geographically overwhelming the foreign entrants who are generally established close to major cities such as Shanghai, or near China Guangdong Nuclear Power Group headquarters in Shenzhen, southern China.
The pressure is not only a matter of technology transfer, but also one of timing and costs. Although China’s nuclear power industry has ambitious targets to reach by 2020, the global nuclear renaissance affects foreign manufacturers, who have other markets to cater to besides China. In pushing for the localization of production, the Chinese engineering institutes are also taking into consideration the timing of delivery, transportation delays and costs, and manufacturing costs, all of which impact the development of China’s nuclear industry.
The regulator
The NNSA is the state authority that controls and monitors the equipment used in China’s civil nuclear power market. This entity, however, only has 50 experts, and a number of institutes and research centers are therefore involved in the decision process leading to the certification of nuclear power equipment components. Applications are inspected on a preliminary basis by the NNSA, then sent to the Northern Regional Office in Beijing, which leads the inspection process. Finally, they are reviewed by a panel of experts from the Chinese Academy of Mechanical Sciences and Technology, its subsidiary the Nuclear Radiation and Safety Centre, and also the Beijing Nuclear Safety Inspection Centre and the Suzhou Nuclear Safety Centre.
Obtaining a certification can take from seven months to almost a year. Different factors explain this long wait, such as, but not limited to, a lack of communication with the inspector, poor translation into Chinese of the application, and misunderstandings regarding the NRO feedback.
Imports
HAF604 is the certification required for all equipment components that are designed and manufactured outside China. Foreign companies are required to have obtained a certification from national standards bodies such as ASME (USA), RCC-M (France), KTA (Germany), or OTT (Russia).
The HAF604 market is expected to grow steadily in China. A survey conducted jointly by Beijing University, the National Center for Nanoscience and Technology, and the National Science Library shows that a majority of components still needed to be imported. In terms of types of certification, our analysis distinguishes five major component categories in both standards: design, manufacturing, design and manufacturing (implying heavier investment in research and development), installation and non-destructive testing.
Operators in China import critical components which cannot be manufactured locally or whose quality overseas is clearly superior to the domestic production. For example, in 2008, only two foreign companies in the piping industry, Erne Fittings (Austria) and Tectubi Raccordi (Italy), were granted HAF604 certification, while 17 local components makers had already obtained HAF601 certification. In 2009, however, HAF604 certifications were awarded to 13 component manufacturers, and the same number of HAF601 certifications were handed out to local manufacturers.
Why does the NNSA accept so many foreign companies in the piping industry?
Accounting for all players in the local piping industry, there are 63 component makers certified for design, manufacturing and installation activities, and only 16 international competitors. However, only 19% of the local players certified have design capabilities (a total of 12), compared with 43% of the foreign competitors (a total of 7). Based on this observation, the Chinese engineering institutes are obviously conscious of the lack of research and development capabilities within the domestic industry, and of the demand for foreign made supplies of qualified safety-related components.
While the number of certifications may decrease in the future, the list of certified equipment components is due to expand in order to better protect domestic industry players. Foreign companies already face local competition in every segment of the market, but still benefit from the advantage of offering higher quality products, critical to guaranteeing the safety of a NPP. The price issue is important in China, with local budgets standing on average at around one-third of the prices offered by foreign suppliers. This price disparity has three consequences: a slowdown in the purchase of foreign equipment, heavy investment in the local industry in partnership with the engineering institutes, and growing pressure on foreign manufacturers to localize their production. European companies should be the first to face these issues, in particular French and the German players who together make up 54% of companies with HAF604 certifications. In comparison, very few US companies are certified; of the 35 certifications by American companies, 22 belong to one company–Westinghouse. And although Russia’s Atomstroyexport may be planning two more VVERs at Tianwan, no Russian companies have been certified yet.
Domestic manufacture
The number of HAF601 certifications is 3.5 times as large as HAF604 certifications, because of the four-year gap between promulgation of the two standards. The peak in HAF601 certifications was in 2006, and was mainly associated with the start of construction of the Ling Ao phase II project.
Since the promulgation of HAF604 in 2008, HAF601 component certifications have risen, although its relative share has fallen
The manufacturing of nuclear safety-related equipment is an expansion of coal-fired plants’ product lines. Heavily industrialized provinces such as Jiangsu, Shanghai and Zhejiang have traditionally provided coal-fired power plants with valves, pipes, pumps and cables.
The massive deployment of NPPs to 2020 should have a tremendous impact on the local industry. Of the 15 regions where plants are expected to be built, 12 already have local manufacturers of Class 1 components (equipment inside containment that is designed to work in normal and emergency conditions). Hainan, Guangxi and Fujian, on the other hand, do not have a local nuclear equipment industry. China’s most important province in terms of civil nuclear power, Guangdong, has a rather poorly developed industrial network. However, we expect that the emergence of dedicated industrial parks in the provinces of Guangdong (Zhuhai), Sichuan (Chengdu), Shandong (Haiyang and Yantai), Zhejiang (Haiyan) and elsewhere will eventually enable local industry to provide most of the supply of mechanical and electrical components to the nearest NPPs.
Applicants for HAF601 certifications are not required to have a foreign certification. Our research shows that out of 559 HAF601 certifications granted as of May 2010, only 29 have an ASME N-stamp certification. Given that the N-stamp is fairly new in China (most certifications began in 2006), we can expect local industry players who design and manufacture Class 1 equipment to start consulting with accreditation companies such as TÜV Süd, Bureau Veritas or SGS. Not only would these companies be in a better position to secure their business in AP1000 technology, they might move up the list of foreign equipment buyers.
The majority of China’s manufacturers are newcomers to the industry. Only a third of the overall number of designs certified under HAF601 are from manufacturers who are linked to an engineering entity. A similar situation exists in France, where the CEA (Atomic Energy Commission) supports the technological development of the local industry through programmes such as the Burgundy Nuclear Partnership.
In terms of market segments, the local industry covers almost every niche. However, Chinese engineering institutes provide 20% of the total number of certifications on the back of their design capabilities, and are a core driver of overall industry development. Going forward, we expect more interaction between the local manufacturers and these institutes. With regard to installation and non-destructive testing, the market is dominated exclusively by state-owned companies; however, private companies are massively involved in the manufacturing process.
Following up on the certifications for design, let’s focus on the manufacturers who design their own components. A few manufacturers are research institutes such as the Zhongkehua Nuclear Power Technology Research Institute (cabinets), Shanghai Power Equipment Research Institute and Nuclear Power Institute of China (electrical penetration), the Institute of Nuclear and New Energy Technology (valves), and an affiliated factory of the University of Shanghai for Science and Technology (braces).
But the majority of components manufacturers (excluding joint ventures) are private companies, such as Anhui Cable, Changyan Cable, Chuanyi Automation, Guanghua Instruments, and so on.
As for JVs, they represent a classic model of partnership with state-owned companies: CNNC and Sufa, Darda (Germany), Flowserve (USA); Xi’an Nuclear Instrument Factory and Honeywell (USA); Shanghai Cable Factory and Fujikura (Japan).
HAF601 certification is also applicable to wholly-owned foreign enterprises (WOFEs). In JVs and WOFEs, we mostly see components that are manufactured in China, but whose design has been transferred from foreign-based headquarters to the JV or the local branch. We can expect, however, that improvements in Chinese engineering will lead to more technical innovation being ‘made in China’ going forward.
There are 28 components registered for certification under HAF601 in China by 21 foreign enterprises. The commitment from foreign investors will vary depending on the type of Chinese partner. Most of the time, a JV with a private Chinese company will only involve the manufacturing of components. In a JV with a state-owned company, the deal will usually include both design and manufacturing activities, which can be viewed as a strategy either on the part of the foreign partner to establish a stronger base in the Chinese market, or on the state-owned company’s part to leverage its market access into a deeper commitment from the foreign partner.
The list of foreign companies includes five WOFEs such as Walsin Lihua (Taiwan), Tekoku Electric and Hitachi (Japan) and Suzler (Switzerland) and 16 JVs that include noted vendors such as Areva, Flowserve, Morimatsu, Spie Thermatome, Honeywell and Manoir Industries.
Foreign companies began applying for certification as early as 2004 (e.g. Spie Thermatome, for pipes and fittings), but only half of the certified components are certified as Class 1 components. As for the WOFEs, except for two investments from Walsin, all companies involve manufacture Class 2 and 3 components, which indicates a poor degree of technology transfer. Class 2 equipment functions inside the containment but is not expected to function in accident conditions; class 3 equipment works outside the containment. Meanwhile, it is interesting to note that local investments by countries which have traditionally sold NPPs to China have generally remained limited: only four French companies, and no investment at all from Canadian and Russian manufacturers.
From 2004 until the end of 2009, none of the components registered for certification under HAF601 by foreign companies have been key components needed by the market. This reflects not only a poor degree of technology transfer, but also foreign companies’ likely reluctance to support the development of China’s domestic civil nuclear industry by providing it with key assets, such as digital control systems, steam generator valves, main pumps for primary circles, and heavy forgings.
Author Info:
Arnaud Lefevre Baril is the Beijing-based president of Dynabond Powertech Service.
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