HIGHLIGHTS

British Steel Nationalisation Sparks Investment Treaty Row Between the UK and China

Jingye Group Invokes the 1986 UK–China Bilateral Investment Treaty, Seeking Compensation After the Scunthorpe Takeover

The United Kingdom government's decision to fully nationalise British Steel has triggered a significant international investment dispute with its former Chinese owner, Jingye Group. The dispute raises important questions about the extent to which states may rely on national-security and public-interest considerations to take control of strategically important industries owned by foreign investors.

1. Background to the Nationalisation

On 16 July 2026, the UK government completed the full nationalisation of British Steel, taking control of the Scunthorpe steelworks, the country's last remaining primary steel production site, from China's Jingye Group.

The move followed the enactment of the Steel Industry (Nationalisation) Act 2026, which received Royal Assent and provided the legal framework for bringing the steelworks into public ownership under a public-interest test.

The government had already assumed operational control of the plant in April 2025, citing national-security concerns and the risk that the furnaces could be shut down. More than a year later, the government proceeded with full ownership.

Jingye had acquired the insolvent British Steel in March 2020 for a reported £70 million, together with commitments to invest approximately £1.2 billion in modernising the plant. By the time of nationalisation, however, the UK government had reportedly spent around £377 million operating the business. Government expenditure was projected to exceed £600 million by mid-2026 and potentially reach more than £1.5 billion by 2028.

2. Jingye Group's Response

Jingye strongly opposed the nationalisation, describing it as an “unlawful expropriation” and arguing that the UK had failed to respect its international investment obligations.

The company reportedly considered the compensation offered by the UK government to be close to negligible when compared with the value of its investment and alleged losses. Jingye has initiated the consultation procedures contemplated under the 1986 China–UK Bilateral Investment Treaty (BIT) and has reserved its right to pursue international arbitration.

China's Ministry of Commerce has also criticised the takeover. It has argued that the nationalisation disregarded Jingye's contribution to the British economy and could damage confidence among Chinese investors considering investment in the United Kingdom.

3. The 1986 UK–China Bilateral Investment Treaty

The central legal instrument in the dispute is the 1986 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China for the Promotion and Protection of Investments.

The treaty provides protections to qualifying investments made by investors of one contracting state in the territory of the other.

Of particular importance is Article 5(1), which addresses expropriation and nationalisation. It generally prohibits the taking of protected investments unless the measure satisfies specified conditions, including a public-purpose requirement and the payment of compensation.

Accordingly, the dispute is likely to centre on whether the UK's nationalisation complied with the treaty's requirements and, crucially, what compensation is actually payable.

4. The Jurisdictional Question

One of the most important issues is not necessarily whether the nationalisation was lawful, but what an arbitral tribunal is actually empowered to decide under the treaty.

Article 7(1) of the 1986 BIT contains a relatively narrow arbitration clause. It limits the scope of arbitration to disputes concerning the amount of compensation, rather than necessarily providing a general right to arbitrate every dispute concerning the legality of an expropriation.

This creates an important threshold question.

If Jingye commences arbitration, the tribunal may first have to determine whether it has jurisdiction to examine the legality of the UK's decision to nationalise British Steel or whether its jurisdiction is restricted principally to determining the amount of compensation payable.

This distinction could significantly affect the scope of the proceedings.

5. National Security and Public Purpose

The UK government's principal justification for taking control of British Steel is expected to be its national-security and strategic-industry concerns.

Steel production is considered strategically important because it supports defence, infrastructure, construction and other critical sectors of the economy. The government had previously expressed concerns that the closure of the Scunthorpe furnaces could undermine the UK's domestic steelmaking capacity.

The UK's position is therefore likely to be that the nationalisation was undertaken for a legitimate public purpose and was necessary to protect a strategically important national asset.

However, the existence of a public purpose does not automatically resolve the compensation question under an investment treaty. An arbitral tribunal may still need to determine whether the treaty's other requirements were satisfied.

6. The Valuation Dispute

The valuation of British Steel at the time of the takeover could ultimately become the most significant financial issue in the dispute.

The UK government has maintained that the business had extremely limited, potentially zero, market value because of its financial condition and the substantial costs required to keep the plant operating.

Jingye, by contrast, is likely to argue that the value of the investment should not be assessed simply by reference to its immediate financial difficulties. It may point to its original acquisition, investment commitments, expenditure on the business, the strategic value of the steelworks and the potential future profitability of a modernised operation.

The tribunal could therefore face competing approaches to valuation.

The ultimate compensation figure may depend on factors such as:

• the fair market value of the investment;
• the financial condition of British Steel at the relevant date;
• Jingye's expenditure and investment commitments;
• the future economic prospects of the steelworks;
• the impact of government intervention on the value of the business; and
• the appropriate valuation methodology under international investment law.

7. Expropriation and Compensation

At the heart of the dispute is the distinction between the right of a state to regulate or nationalise property in the public interest and its obligation to compensate a protected foreign investor.

International investment law generally recognises that states retain sovereign authority to regulate activities within their territory, including sectors involving national security and essential infrastructure. However, where state action amounts to an expropriation of a protected investment, applicable treaty obligations may require compensation.

The British Steel dispute therefore illustrates the tension between state sovereignty and investor protection.

The UK may argue that nationalisation was a legitimate and necessary response to a national-security threat. Jingye, meanwhile, may contend that regardless of the government's policy objectives, its investment was taken and must be compensated in accordance with the BIT.

8. Why the Dispute Matters

The British Steel dispute has implications extending beyond Jingye and the UK–China relationship.

Governments in several advanced economies are increasingly treating steel, semiconductors, energy infrastructure and other industries as matters of strategic and national-security importance. This has resulted in greater government intervention in businesses owned or controlled by foreign investors.

The dispute therefore raises a broader question:

How far can a state go in protecting a strategically important industry before its actions trigger international investment-treaty obligations?

The case is particularly significant because the investor is Chinese and the host state is the United Kingdom. It could therefore become an important reference point for future disputes involving Chinese investment in strategically sensitive sectors.

9. Broader Implications for International Investment Law

The dispute also highlights several important developments in contemporary international investment law.

First, it demonstrates the continuing importance of older bilateral investment treaties. Although the 1986 UK–China BIT predates many modern investment treaties, its wording may determine the scope of Jingye's available remedies.

Second, the dispute highlights the importance of treaty drafting. The apparently narrow arbitration provision concerning compensation could substantially restrict the issues that an arbitral tribunal is able to determine.

Third, the case illustrates the growing importance of national-security considerations in investment disputes. Governments increasingly rely on national security to justify intervention in strategic industries, while foreign investors seek protection under investment treaties.

Finally, the dispute demonstrates that the amount of compensation can be as contentious as the legality of the government's conduct. Even if the UK's public-purpose justification is accepted, the parties may remain deeply divided over the economic value of the investment.

10. Conclusion

The nationalisation of British Steel represents a significant intersection between national security, state sovereignty and international investment protection.

Jingye's invocation of the 1986 UK–China BIT places the UK's takeover under the scrutiny of international investment law. The ultimate dispute may turn less on whether the UK had a legitimate public purpose for intervening and more on the treaty's narrow arbitration clause and the amount of compensation properly payable.

The valuation of the Scunthorpe steelworks is likely to be particularly decisive. The UK government's assertion that the business had little or no market value contrasts sharply with Jingye's position that its investment and the underlying potential of the steelworks justify substantial compensation.

Whatever the eventual outcome, the dispute could become an important case study in the relationship between national-security measures and investment-treaty protections, particularly as governments around the world seek to secure domestic capacity in strategically important industries.

Sources

1. Al Jazeera, “Why is China protesting about the nationalisation of British Steel?”
2. EJIL: Talk!, “National Security as a Sword for Expropriation: The UK-China BIT on the Brink.”
3. Kluwer Arbitration Blog, “The British Steel Takeover and the UK-China Bilateral Investment Treaty.”
4. Global Times, “China's Jingye Group demands full compensation from UK over British Steel nationalization.”
5. EUROMETAL, “Jingye vows legal action, seeks ‘full recovery’ after UK nationalizes British Steel.”