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John Ross: $62b in investment pot, with more to come

2015-10-26

Source: China Daily    Published: 2015-10-23

 

John Ross was quoted in China Daily`s round up of Xi Jinping`s visit to London

 

President Xi Jinping`s visit has resulted in about 40 billion pounds ($62 billion; 54.5 billion euros) of deals in the UK, including Chinese investments which are set to take in nuclear power, high-speed rail, oil, electric buses, theme parks and investment in research and development in the new wonder material graphene.

 

If China becomes more involved in providing long-term finance to the UK`s infrastructure, particularly the proposed H2 high speed rail link and commuter services around Manchester to facilitate Chancellor of the Exchequer George Osborne`s Northern Powerhouse project, total investments could exceed 100 billion pounds, according to some forecasts.

 

The major advantage for the UK in accepting this new source of long-term finance is reducing its borrowing needs so that the fiscal deficit can be eradicated and converted into a surplus on target by 2019-20.

 

 

Britain`s International Development Secretary Justine Greening and China`s Minister of Commerce Gao Hucheng shake hands after signing an agreement as Chinese President Xi Jinping and British Prime Minister David Cameron look on at 10 Downing Street on Oct 21. Rao Aimin / Xinhua

 

Gareth Leather, Asia economist at Capital Economics, the London-based economic consultancy, believes the Chinese money is opportune.

 

"The one thing the UK government is not prepared to do at the moment is borrow more money since its key mission is to bring the deficit down. These deals allow long-term investment in British infrastructure projects without having to pay up front for them."

 

He says few Western countries other than Britain, which has built a reputation as an open economy, would be so relaxed about Chinese investment.

 

"In France, for example, there would be so much controversy about the selling off of state assets. One of the reasons why the UK can fund such a huge current account deficit is because it is open to foreigners buying it assets."

 

But George Magnus, an associate at the Dickson Poon China Centre at Oxford University, is skeptical about whether the UK needs to be so enthusiastic about accepting the cash.

 

"Thirty billion pounds in terms of the UK economy is neither here nor there since it is not a particularly onerous proportion of GDP. So why couldn`t the government just issue gilts at low rates of interest," he asks.

 

China`s investment in the Hinkley Point nuclear power station has proved the most controversial, with some groups in the UK fearful it is a potential threat to national security.

 

Simon Walker, director-general at the Institute of Directors, one of the UK`s biggest business member organizations, believes this is not the case.

 

"Companies around the world are hungry to invest in Britain, and can bring the skills and capital needed to deliver major infrastructure like new power plants. We welcome investment in nuclear energy whether it comes from China, France, Japan, South Korea or anywhere else," he says.

 

Magnus at Oxford, however, says there are concerns because it is the Chinese state rather than commercial companies involved.

"French company EDF is part owner of Hinkley power station and nobody questions this. I think it is the identification with the Chinese state that is the issue. We are quite happy doing deals with Chinese companies like Huawei and Alibaba."

 

Stephen Glaister, professor emeritus at Imperial College London and one of the UK`s leading authorities on infrastructure, says it is still unclear what form the Chinese involvement will take.

 

"HS2, according to its own forecasts, will make a 30-billion-pound loss so the UK government will have to form some separate investible entity, otherwise the Chinese will effectively just be making loans to the project and not investing in it."

 

He says, however, no one should have any qualms about the Chinese being involved in the construction and supplying the technology for high-speed rail.

 

"It would all be subject to UK safety approvals which are very strict. The number of accidents per passenger mile in the UK are the best in Europe by a long way and that is because we are very strict in testing and certification."

 

John Ross, a senior fellow at Chongyang Institute for Financial Studies at Renmin University of China and a former director of economic policy for the mayor of London, says the proposed investments in the UK reflect China`s new role as a financial superpower.

 

"The biggest and strongest industry in China is no longer manufacturing but finance. That has been totally confirmed by the launch of the Asia Infrastructure Investment Bank earlier this year."

 

He believes the UK is making the right call being the most open country to China in the West.

 

"China wants to build the renminbi into a major international currency but it will take time, perhaps 15 to 20 years, for it to develop Shanghai into a financial center to facilitate this."

 

"It could, however, use one of either London or New York to internationalize its currency. You only have to contrast the reception they have had in the UK this week from Cameron and British business to the hostility they consistently get from the US, to know which they regard as the safer bet."

 

John Ross is a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China.



 

Key Words: Xi Jinping   UK   investment  

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