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Chinese investment risks being stifled

Over the next few years we expect Chinese investors to change the landscape in the UK as their appetite to invest, especially in developed countries, grows.

However, the Chinese are concerned about barriers to investment before, during and after a lifecycle of an infrastructure project. A number of issues have already cropped up on UK projects in which the Chinese have invested, or are about to invest.

There are crucial differences between investors from China’s financial sector and investors from other industry sectors.

Chinese industrial investors invest for many reasons, and a financial return is just one. In other parts of the world they have successfully employed a strategy of investing in projects to secure Engineering Procurement and Construction contract opportunities or the sale of equipment.

Supply chain obstacles

But when it comes to UK infrastructure projects, they have found problems in getting a slice of the cake in terms of supply chain opportunities. For example, Chinese wind turbines are not recognised by the UK financial sector as “bankable” due to a short track record.

“The Chinese see trade unions, visa restrictions and immigration policies as potential barriers on large projects which will take years to deliver”

However, if the Chinese are not given the opportunity to establish a sufficient track record, the bankability issue will never be resolved.

In spite of the chancellor’s recent announcement around visa requirements for Chinese businessmen and tourists, the Chinese see trade unions, visa restrictions and immigration policies as potential barriers on large projects which will take years to deliver.

They are also concerned about qualifications of Chinese engineers not being recognised in the UK.

These issues could not only affect Chinese firms during the bidding for projects, but are likely to appear in the later operation-stage as well.

Localism factor

The Chinese are looking at strategic partnerships with infrastructure and construction companies in the UK to mitigate some of these issues and concerns.

However, localism is also an issue for Chinese investors attempting to form an alliance with a local partner in the UK infrastructure space.

“Issues around the sharing of supply chain opportunities and getting manpower into the country could potentially put off investors”

Chinese companies have encountered difficulties with local companies requiring a high level of control over a project while offering only a limited financial contribution and shutting the Chinese out from opportunities in the supply chain.

Although in the coming years we expect to see further China-UK tie-ups on infrastructure projects, issues around the sharing of supply chain opportunities and getting manpower into the country could potentially put off investors in the short term.

Commercial and energy potential

The next big deals on the horizon likely to be of interest to the Chinese are expected to be real estate projects and offshore wind farm developments.

We also expect to see the disposal of major government assets, from oil and gas facilities to airports.

If George Osborne wants to encourage increased Chinese investment in UK infrastructure, more thought is required on how to resolve issues around the sharing
of supply chain opportunities and localism. Otherwise, the Chinese may start looking elsewhere.

Ellen Zhang is a Beijing-based partner in Pinsent Masons’ China outbound projects team

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