UK embraces Chinese investment

February 2014  |  FEATURE  |  FINANCE & INVESTMENT

Financier Worldwide Magazine

The UK is seemingly standing on the brink of a transformative phase in its infrastructure development. Currently the country is wrestling with a number of divisive issues, particularly around the future of its transport and energy networks. The UK is suffering from overcrowding of its airports, particularly in the South East and London, as well as its railways system. The nature of the UK’s future energy projects is also up for debate.

While the ultimate outcome of these problems is yet to be determined, one consequence has already become clear. No matter what solutions the UK eventually settles upon, China and Chinese investors will play an essential, formative role in the future of UK infrastructure development.

In the latter months of 2013, both Prime Minister David Cameron and Chancellor of the Exchequer George Osborne pledged their support to Chinese investors looking at opportunities to invest in the UK. Mr Cameron also positioned the UK as a key advocate of a free trade agreement between China and the European Union; it would seem that Mr Cameron and his government is doing as much as possible to attract Chinese investors.

Chinese interest appears to lie in the future of high speed rail in the UK. China currently has the world’s largest and fastest growing high speed rail network of its own, boasting nearly 6000 miles of track, and may now be turning its attention to the UK’s own aging and oversubscribed railway network. Although Chinese investors will not be placing any direct financing into the construction phase of the new £50bn ‘HS2’ line, Chinese bidding for the concession to operate the new railway or invest in schemes around the route and its stations seems likely. Chinese Premier Li Keqiang noted, following talks with Mr Cameron, that “The two sides have agreed to push for a breakthrough and progress in co-operation in the areas of nuclear power and high speed railway.”

The potential influx of capital from Chinese investors would no doubt be a huge fillip for the beleaguered HS2 program, which has met fierce competition across the political spectrum. Chinese technical expertise surrounding the rapid deployment of the technology needed to create the network would also be happily received. To that end, China has already begun efforts to sell its high speed rail technology abroad.

Furthermore, following a decision by the British government in October 2013 to make it significantly easier for non-European banks that want to set up investment banking operations in London, China Construction Bank has announced its intention to apply for a branch licence to operate in the UK. The new ruling is aimed primarily at Chinese banks looking to expand their European operations. Further engendering this air of Sino-British cooperation, London is attempting to become one of the leading financial hubs dealing in yuan transactions.

An additional sign of China’s interest in the UK’s transport infrastructure came in October 2013 when it was announced that the Manchester Airport Group will work with the Beijing Construction Engineering Group (BCEG), as well as the UK’s Carillion Plc and the Greater Manchester Pension Fund, to develop the ‘Airport City’ project around Manchester Airport. The £800m investment by the Chinese firm will see a vast complex of offices, hotels, manufacturing firms, logistics and warehouses developed around Britain’s third busiest airport. It is hoped that eventually the joint venture will be able to attract a number of international businesses, creating in the region of 16,000 jobs in the process.

In the energy sector Chinese investors, in association with France’s EDF Energy, will form a consortium to build the Hinkley Point C nuclear plant in Somerset. China National Nuclear Corporation and China General Nuclear Corporation will take a 30 to 40 percent stake in the consortium between them. The two reactors at Hinkley Point C will cost £8bn each and will provide enough power to supply 7 percent of Britain’s homes for around 60 years. China Investment Corporation has also been particularly active in the UK; the company acquired a stake in each of Heathrow airport and Thames Water in recent years.

In 2013, Chinese property developers invested approximately £1.2bn in the development of the Royal Albert Dock in Liverpool, and £720m was also invested by Chinese conglomerate Dalian Wanda Group to help develop a hotel in southwest London. The Zhongrong Holdings Group has also announced its intention to rebuild the Crystal Palace in London for around £500m.

Despite the political and economic optimism generated by impending Chinese investment, some British commentators have identified the potential national security risk. This is particularly relevant in the energy sector. Indeed, at the time of writing the government had refused to be drawn on whether China’s investment in the UK’s nuclear industry was approved by the National Security Council, the organisation which assesses the risks associated with foreign investment in critical national infrastructure projects.

As the debate around the feasibility of HS2 continues to rumble on and the UK continues to strive for a solution to its other transport issues, one thing remains clear: as the most open Western country to Chinese investment, undoubtedly Chinese investors will play an influential role in the next phase of the UK’s infrastructure development.

© Financier Worldwide

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Richard Summerfield