China is planning massive investment in the UK infrastructure by 2025, as Beijing seeks a haven for outbound investment, according to research conducted by London-based Centre for Economics and Business Research and the law firm Pinsent Masons.
It reported that China is set to invest £105 billion in British infrastructure by 2025. The world’s second largest economy aims to primarily invest in the UK’s energy, property and transport infrastructure. China has already invested £11.7 billion in Britain between 2005 and 2013. The investment includes sovereign wealth fund China Investment Corporation’s acquisition of a 10 percent stake in Thames Water, Britain’s biggest water utility.
The spending is expected to increase significantly, as China looks for safe haven assets to invest in. The investment may be a “game changer” for the UK, according to Richard Laudy, a partner at Pinsent Masons. “We expect this to be the beginning of a major trend as a trickle of Chinese investment turns into a wave over the coming decade,” Laudy added. The UK is expected to rank No 3 in attracting investment from China behind the US and Japan, according to the report.
In the first half of 2014, Britain received a total of £2 billion investment in its infrastructure including property from China, the report said. Prominent investment deals include Sanpower’s $790 million investment in April in House of Fraser and the $187 million real estate investment by China Construction Bank in Old Broad Street in the City of London. However, most of the investments were in projects that deliver safe returns. China’s increased investment also comes as pension funds in East Asia and sovereign wealth funds of the Middle East are actively seeking investment options in the country.
In July, the Chinese premier visited the UK, his visit involved over 200 Chinese business leaders. Where China signed a £14 billon trade deals with UK Li’s visit underscored how the nature of Chinese infrastructure investment has changed. Early Chinese infrastructure investors focused on utilities, such as water companies and airports, companies with predictable revenue streams and reliable returns.
Graham Matthews, a partner in Deloitte’s China services group, said the nation was moving into new-build investments, where its “world-leading expertise” in areas such as high-speed rail made it an attractive partner for the UK. “The financial investments may continue, however, China has knowledge that is very relevant to the UK, which might make strategic investments more relevant. If it is purely financial there is a lot of competition for those deals, however, for strategic investment, China brings other things that makes them a compelling partner.”
Britain has also attracted more investment from overseas than any other European country in the past year, which comes as a major boost to the economy. The number of foreign investment projects in the UK rose by 11 percent in 2013/14 to 1,559, according to a report by UK Trade and Investment. The funding created or safeguarded 170,000 British jobs with some of the biggest increases coming in Wales and Northern Ireland. It strengthened the UK’s position as the leading European destination for foreign investment amid signs the British economy is extending its lead over countries in the Eurozone.
Katja Hall, chief policy director at the CBI, has said: “Attracting foreign direct investment is critical to our economic success and the competition is fierce. For the UK to be the leading destination in Europe shows we are starting to see real dividends from Government action, particularly on corporation tax and the research and development patent box. However, to stay at the top you need to keep improving.”
How might the UK economy benefit from stronger relationship with China?