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  • Apr 24, 2014
  • Updated: 5:40pm
BusinessEconomy
INFRASTRUCTURE

U.S. opens door to Chinese investors

Washington hopes to tap Beijing's large pool of capital to fund its US$8tr modernisation push amid heavy debt load at its local governments

PUBLISHED : Friday, 25 October, 2013, 3:23am
UPDATED : Friday, 25 October, 2013, 4:21pm

The United States faces a massive US$8 trillion infrastructure investment bill, and is courting Chinese investors since many of its own local governments are in financial difficulties, according to a US Chamber of Commerce report.

"The US is poised to undertake the most significant expansion and modernisation of its infrastructure since the 1950s," the chamber said in its report.

"This is taking place in the context of significant pressure on federal and local budgets. The pressing need for capital to modernise US infrastructure is creating substantial new opportunities for Chinese investors."

At a minimum, more than US$8 trillion in new investment would be needed in transportation, energy and water infrastructure until 2030, or US$455 billion per year, the chamber estimated. "In reality, a much higher amount of investment will likely be necessary."

The expansion came against a backdrop of a dramatically changed global economy that boasted new players, the report said, citing China as the most important of the new players.

"With a large and growing pool of capital, China is well positioned to participate in US infrastructure," it added.

But Chinese investors were likely to be selective about taking up opportunities, said Mao Tong, a partner at international law firm Squire Sanders in Hong Kong.

A typical Chinese investor wanted to invest in a US city with good financial standing, said Mao. "I doubt Chinese investors are interested in places like Detroit [which went bankrupt]," he added.

US public funds for infrastructure have dwindled due to the 2008 recession and other factors, the chamber said.

Ratings agency Moody's Investors Service has downgraded several local US governments because of their high debt arising from heavy pension liabilities. Nine of the 50 states have adjusted net pension liabilities (ANPL) greater than their annual revenues, it said.

ANPL is the difference between the fair market value of a pension plan's assets and its adjusted liabilities.

Moody's found that 30 of the 50 largest local US governments (including cities, towns and districts) had ANPLs greater than revenue. Chicago is a severe extreme with ANPL at 680 per cent of revenue.

In recent months, at least three US cities - Detroit, Stockton and San Bernardino - have gone bankrupt.

While the US was open to investment, investment from China could give rise to legal and political challenges, the chamber warned.

Given the strong history of Chinese companies being at least partly owned by the government, the issue of state control might result in US regulatory or political scrutiny of Chinese participation in infrastructure projects, it said.

One of the biggest challenges for Chinese participants was US concern over Chinese commercial and state espionage, the chamber said.

"The US intelligence community has characterised Chinese intelligence services as among the most capable and persistent intelligence threats against the US, and the US Department of Justice considers Chinese espionage one of its top priorities."

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spyeatte
The U.S. has a long history of building toll roads. In one state, Oklahoma, which is one the more conservative states, the joke among people from out of state is that the sign on the highways should read: Welcome to Oklahoma, please pay toll. . .But it seems to work. That is one way of financing all of these infrastructure projects which is by building toll roads and bridges that are financed by bonds. I see no reason why China's huge holdings of U.S. treasuries couldn't be transferred to bond issues to fund infrastructure. As long as the infrastructure projects are well planned and researched so that revenue from traffic is sufficient to fund the bonds, risk would be fairly minimal and not subjected to political wrangling. How this would be received by local residents, that I'm not sure. But it would likely put more political pressure on the federal government to balance its budget to cap the amount of treasury bills being issued. But it would not address the issue of the trade deficit which is the source of all of those excess dollars floating around.

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