British Chancellor George Osborne visited Chengdu last month as part of a week-long visit to China where he launched bidding on construction contracts worth £11.8 billion (US$17.95 billion) for HS2, a high-speed rail line between London and the Midlands that will be one of the largest infrastructure projects in the country in the coming decades.
It was not by chance that he made the announcement in China.
Osborne hailed a “golden era of cooperation between our two countries”, saying it’s crucial that “businesses and communities from across the UK feel the full benefit of closer economic links with China”.
Nowhere is the growing closeness clearer than in infrastructure.
As we found in our recent China Invests West research report, the big shift is that Chinese businesses are increasingly becoming co-funders and co-contractors in UK infrastructure projects, rather than making indirect investments through sovereign wealth funds such as CIC.
We saw this happen with Beijing Construction Engineering Group which made a major investment last year in the £800 million Manchester Airport City project.
Four out of five of the world’s largest construction and engineering companies are Chinese and their appetite for investment in advanced economies such as the UK is only set to grow.
Of course, there are many reasons the UK is an especially attractive choice for Chinese contractors but perhaps the most important are its transparent business environment, its under-capitalised infrastructure sector and the government’s close political ties with China.
We are already seeing a growing number of Chinese investors partnering with UK firms such as real estate developer ABP, which has invested £1 billion in the Royal Albert Docks development in East London.
In the coming years, we are likely to see a rise in both real estate and energy projects, including offshore wind developments and other renewable power networks.
Also, the HS2 announcement raises the prospect of increased investment from China in the transport sector.
However, Chinese companies will need complete transparency and certainty when it comes to policy decisions on infrastructure including the planning process and labour market regulations.
This is absolutely crucial for long-term infrastructure investments which rely on a steady stream of returns over many years.
If these issues are addressed, the next 10 years will be full of opportunities for UK and Chinese companies.
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