China: infrastructure spending will boost Western growth. We’ll help.

CIC investing in Western infrastructure

Today’s ft.com contains a commentary from Lou Jiwei, chairman of the mainland sovereign wealth fund, China Investment Corporation.  In it, Mr. Lou argues that global economic recovery can’t come from developing countries alone.  Developed nations must expand as well.  To help this latter effort along, the CIC is preparing to participate in Western infrastructure projects as  “investor, developer, operator and contractor.”  Projects could be in “energy, water, transport, digital communication, waste disposal…”  The CIC’s first stop will be the UK.

In a companion article, the FT says that a proposed high-speed rail line between London and northern England has caught China’s eye.

Why?

Why do this?  …and why the UK, of all places?  After all, it isn’t that long ago that China was demonizing the UK for invading China in the mid-eighteenth century to force the mainland to accept opium imports from British colony, India.

I can see several reasons for the CIC proposal, aside from the salutory effect infrastructure spending may have on Western economies:

–infrastructure projects can provide higher returns for China’s massive foreign currency holdings than government bonds will.  China is such a super-size investor that liquidity may not be that different,

–successful infrastructure upgrades can buy public goodwill and political influence,

–reversal of the “normal” flow of equity investment funds from developed to developing is a sign of China’s increasing importance in the world economy,

–Chinese industrial and service companies may have a greater chance to win contracts for such projects than they might otherwise,

–the UK is small enough that Chinese spending can have a significant, highly visible impact,

–the UK may be a showpiece.  It could provide entrée into the Eurozone and ultimately to the US,

–the UK is apparently willing to accept Chinese money and not raise spurious “national security” objections to prevent mainland investment.

investment considerations

CIC-backed projects could provide a mild–mostly psychological–boost to the UK.  It’s possible that private investors may be allowed to invest side-by-side with the CIC, as well.

Better transport… alternatives could take business away from direct competitors.  Better rail links, for example, might be bad for commuter airlines or for delivery trucks.

On the other hand, better overall infrastructure support could lure industrial or service businesses from elsewhere in the EU.

So far, however, we don’t have enough information to act on.

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