The Chinese owner of British Steel has initiated a formal dispute resolution process under an international treaty, seeking compensation from the UK government over its decision to nationalise the Scunthorpe steelworks. Jingye Steel stated it would pursue recovery via China's bilateral investment treaty with the UK, following more than a year of negotiations regarding the payout amount. This dispute could strain relations between China and the UK.
Background of the Nationalisation
In April last year, Prime Minister Keir Starmer announced the UK government would take control of British Steel on national security grounds, emphasising the importance of retaining domestic steel production from iron ore at the Scunthorpe plant in Lincolnshire. Insiders revealed that fears of 2,700 immediate job losses in a historic British industry also played a significant role. Jingye had planned to close the plant within days, which would have rendered it impossible to reopen and left the company with substantial losses.
Jingye's Claims and Negotiations
Jingye revealed in June last year that it intended to recover up to £711 million in debts owed by British Steel, though industry sources indicate the company is seeking more than £1 billion. The decision to invoke the UK-China investment treaty is expected to give Jingye leverage in negotiations. The company stated on its WeChat account that it hopes the UK government will fully safeguard the legitimate rights and interests of Jingye and other Chinese businesses, as well as global investors.
Impact on UK-China Relations
The dispute could put pressure on the relationship between China and the UK. Jingye bought British Steel in 2020 in a government-brokered deal, but the company struggled amid a global glut of steel, largely due to overcapacity in China. After a six-month period, the dispute could be referred to an international arbitrator under the China-UK treaty. While Jingye had been prepared to walk away from the Scunthorpe steelworks, the UK takeover might increase its chances of recovering some money.
Future of British Steel
The UK has since announced plans to significantly reduce the amount of steel that can be imported tariff-free, a move that could make British Steel a more attractive business, according to industry insiders. The government is likely to seek new private owners after a brief period of national ownership. Any new owner will probably demand large subsidies to invest in new electric arc furnaces needed to decarbonise the company's products. The government has been approached for comment.
