Chinese firms target UK renewal drive

As Britain overhauls its airports, railways and energy assets, businesses on the mainland are lining up for a slice of the action

PUBLISHED : Monday, 15 April, 2013, 12:00am
UPDATED : Monday, 15 April, 2013, 3:43am

Chinese companies are increasingly pursuing investment opportunities in big British infrastructure projects, industry players say.

There would probably be a big increase in Chinese investment in British infrastructure this year, said David Percival, an international business development director at Deloitte China.

"One or two large deals will lead to double-digit growth in Chinese infrastructure investment in the UK," Percival said.

Chinese companies were interested in investing in airports, renewable energy, oil and gas, railway and nuclear projects in Britain, said Shourav Lahiri, a partner at Pinsent Masons, an international law firm.

"Chinese firms are definitely interested in the construction of infrastructure projects in the UK," Lahiri said. "Building projects in developed economies allows them to move up the value chain and increase their brand position.

"The UK needs £400 billion [HK$4.77 trillion] of investment in infrastructure by 2020 and has opened the doors to investors from China."

A Chinese state-owned enterprise (SOE) was interested in investing in British airport projects, and an SOE in the power industry was looking at getting involved in wind power projects off the British coast, Lahiri said.

In Britain, Pinsent Masons recently hosted a delegation from the China International Contractors Association, which has 3,000 members and facilitates Chinese contractors' overseas work.

During the visit, the delegation expressed interest in the £4.1 billion Thames Tideway Tunnel, Lahiri said. The Thames Tideway "super sewer" is a 25-kilometre tunnel under the River Thames in London that will discharge sewage and rain water, and its opening is planned for 2022.

In October 2011, Yuanda China, the world's biggest curtainwall company, secured a £300 million cladding contract for the 225-metre tall Leadenhall Building in London, designed by award-winning British architect Richard Rogers and nicknamed "the cheese grater", according to British media reports.

It was the biggest project ever won by a Chinese contractor, Lahiri said.

"UK contractors are expressing strong interest in exploring tie-ups with potential Chinese investors and contractors," he said.

Chinese interest in British infrastructure had increased significantly over the past two years, partly because the British government had identified international investment in the country's infrastructure as vital and undertaken a diplomatic push to promote opportunities to the Chinese authorities, Lahiri said.

In November 2010, Prime Minister David Cameron led the biggest-ever British trade mission to China, with a view to attracting Chinese investment in Britain, said Peter Allison, the managing director of Inframation, a firm that provides data on global infrastructure deals.

"This is a particularly important point, because there are frequent reports of Chinese investors being concerned about how they are treated in Western countries," Allison said.

"There is often a perception among Chinese that their investment may not be welcomed by certain countries."

Britain was the biggest infrastructure market in western Europe, with nearly one-third of the region's brownfield infrastructure deals, he said.

Over the past five years, 48 per cent of Chinese investment in British infrastructure - or £4.4 billion - had been in electricity transmission and gas pipelines, while 39 per cent - or £3.6 billion - had been in the water and wastewater sector, Allison said.

The State Administration of Foreign Exchange, which manages China's foreign currency reserves of US$3.3 trillion, set up a British firm called Gingko Tree in 2009. Gingko Tree paid £550 million for a 40 per cent stake in Universities Partnership Programme, a student accommodation business, in January this year, he said.

"One of the biggest drivers of Chinese investment in UK infrastructure is China's need to invest capital in overseas markets. With US$3.3 trillion of reserves, China needs to diversify away from traditional asset classes such as public equities and government bonds in favour of infrastructure," Allison said.