China to invest $169bn in UK infrastructure by 2025

China is expected to invest $169bn in infrastructure in the UK between 2014 and 2025, according to a report by law firm Pinsent Masons. Most of this money, $70bn, will go into Britain’s energy sector, with property and transport expected to receive $58bn and $31bn respectively.  

The most likely investment route for Chinese capital is through joint ventures, and the ultimate aim is to increase the market for China’s manufacturing industries, in particular heavy engineering and building materials. The report comments: “The reality is that partnership will ultimately be about creating ever more opportunities for China to export equipment and materials to the UK and other Western markets.”  

Richard Laudy, a partner in Pinsent Masons, said greater Chinese investment was likely to be a “game changer” for the UK. He said: “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.”  

The report found that a total of $3.2bn was invested by China in UK infrastructure in the first half of this year. Notable projects included the services conglomerate Sanpower’s $790m shareholding in House of Fraser, China Construction Bank’s $187m stake in Old Broad Street in the City of London and sovereign wealth fund China Investment Corporation’s 10% shareholding in Heathrow airport.  

The UK government has tried to encourage China to invest in new-build infrastructure rather than property, so far with little success – partly because there have been too few new-build schemes available in the wake of the 2008 financial crash. This may change if the Chinese become involved in the $23bn Hinkley Point C nuclear plant, which is possible after a nuclear co-operation deal was signed by China Premier Li Keqiang and British Prime Minister David Cameron in June. 

The success of Hinkley Point would also set a precedent for direct Chinese involvement in the European construction market. So far, Europe has proved a difficult proposition for Chinese firms, especially in the wake of China Railways’ disastrous involvement with a motorway project in Poland in 2011.   

The Industrial and Commercial Bank of China said the joint venture strategy may lead to the formation of Chinese-controlled companies in the UK: “Chinese enterprises may look favourably towards the formation of joint ventures as they can provide many potential benefits. However, from cumulative lessons learned from international experiences, strategic alliances will gradually transform into independent investment.”  

The UK is third in attracting infrastructure investment from China, behind the US and Japan. China’s total outbound investment is estimated to increase from about $100bn in 2013 to $600bn in 2025.  

In June this year China offered to ‘swap’ a 123km tunnel for UK nuclear and rail work.