Chal­lenges per­sist for Chi­nese firms inUK

Wrin­kles in in­fra­struc­ture sec­tor in­vest­ment need to be ironed out

China Daily (Canada) - - BUSINESS - By CECILY LIU in London cecily.liu@chi­

Sig­nif­i­cant chal­lenges still ex­ist for Chi­nese in­vest­ment into the United King­dom’s in­fra­struc­ture sec­tor, ac­cord­ing to Richard Laudy, head of in­fra­struc­ture at in­ter­na­tional law­firm Pin­sent­Ma­sons.

The chal­lenges re­late to both Chi­nese com­pa­nies’ unde r - stand­ing of theUKbid­ding process and the UK gov­ern­ment’s long-term fund­ing com­mit­ment to in­fra­struc­ture projects which would guar­an­tee Chi­nese in­vestors’ re­turns on in­vest­ment, Laudy said.

Laudy was com­ment­ing on a new re­port by Pinsent Ma­sons and the UK-based Cen­tre for Eco­nomics and Business Re­search ear­lier this week, which showed that China is set to invest 105 bil­lion pounds ($170 bil­lion) in UK in­fra­struc­ture by 2025 across sec­tors in­clud­ing en­ergy, prop­erty and trans­port.

The po­ten­tial Chi­nese in­vest­ments re­late to a yawn­ing gap be­tween the UK’s cur­rent in­fra­struc­ture needs and the amount of in­vest­ment the gov­ern­ment has planned for the coun­try.

The Na­tional In­fra­struc­ture Plan drawn up by the UK gov­ern­ment iden­ti­fied close to 400 bil­lion pounds of in­vest­ments that need to be made through to 2020, but the re­port has iden­ti­fied real in­fra­struc­ture needs to be closer to 500 bil­lion pounds.

Laudy said the chal­lenge of reg­u­la­tory com­plex­ity re­lates to the fact that bid­ding com­pa­nies have to sup­ply a large amount of in­for­ma­tion in a timely man­ner, and in a struc­tured for­mat, to sat­isfy the needs of theUKin­fras­truc­ture pro­cure­ment process.

“The chal­lenge is un­der­stand­ing how the process works. Chal­lenges range from la­bor mar­ket reg­u­la­tions, to the plan­ning process and how to op­er­ate within the frame­work of EU reg­u­la­tions,” Laudy said.

In ad­di­tion, the UK’s in­fra­struc­ture projects are mainly bid com­pet­i­tively, mean­ing each company or con­sor­tium sub­mits a sep­a­rate ap­pli­ca­tion.

This is very dif­fer­ent from other mar­kets that take ap­pli­ca­tions on a sin­gle ten­der ba­sis, mean­ing Chi­nese in­vestors can di­rectly ne­go­ti­ate with a re­spec­tive for­eign gov­ern­ment about the con­tract, he said.

In this re­spect, it is help­ful for Chi­nese com­pa­nies to master the skills needed to nav­i­gate within the UK reg­u­la­tory frame­work by bid­ding for projects in part­ner­ship with UK or Euro­pean com­pa­nies that are more fa­mil­iar with the process, Laudy said.

Another chal­lenge for new in­fra­struc­ture projects is how projects will be funded in the long term, as Chi­nese in­vestors need to be as­sured of re­turns on their in­vest­ments.

Laudy said there is no sim­ple an­swer to the UK’s longterm fund­ing needs, and the fact its econ­omy is just com­ing out of a re­ces­sion makes it hard for the gov­ern­ment to com­mit to­ward this fund­ing.

“I don’t think the UK gov­ern­ment has the fund­ing avail­able be­cause it is pay­ing back the deficit. If long-term fund­ing for in­fra­struc­ture projects is not com­mit­ted by the gov­ern­ment, the UK may at­tract less for­eign in­vest­ment,” he said.

A sig­nif­i­cant amount of Chi­nese in­vest­ment has al­ready been chan­neled into UK in­fra­struc­ture in the past fewyears.

In 2012, China In­vest­ment Corp, the coun­try’s sov­er­eign wealth fund, bought a 8.68 per­cent stake in Thames Wa­ter Util­i­ties Ltd and a 10 per­cent stake in Heathrow Air­portHold­ings.

In 2011, China’s Che­ung Kong In­fra­struc­ture Hold­ings bought the UK util­ity company Northum­brian Wa­ter for 2.4 bil­lion pounds.

In ad­di­tion to th­ese fi­nan­cial in­vest­ments, a smaller num­ber of Chi­nese in­vestors have re­cently be­come in­volved in the op­er­a­tion and man­age­ment of in­fra­struc­ture projects.

Beijing Con­struc­tion En­gi­neer­ing Group’s 800 mil­lion pound in­vest­ment in the Air­port City Manch­ester project in Manch­ester, UK, is one such high-pro­file project.

The Chi­nese con­struc­tion company will take on half of the pro­jec’s con­struc­tion, along­side theUK­con­struc­tion company Car­il­lion.

BCEG will also help mar­ket the project in China, with the goal of at­tract­ing more Chi­nese com­pa­nies to set­tle their Euro­pean head­quar­ters in Air­port Ci­tyManch­ester.

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