China set to invest over £100 billion in UK infrastructure by 2025, says Pinsent Masons

According to a report published today by international law firm Pinsent Masons and the Centre for Economics and Business Research (Cebr) 'China Invests West: Can Chinese investment be a game-changer for UK infrastructure?', China is set to invest £105 billion into UK infrastructure  by 2025.

The report finds that of the £105 billion, the leading recipients will be the energy, real estate and transport sectors. The UK energy sector will be the biggest target for Chinese capital, with investment in projects including nuclear energy, wind power generation and photovoltaic power generation could be set to reach £43.5 billion by 2025. The real estate and transport sectors could receive £36 billion and £19 billion respectively over the next decade.

Richard Laudy, head of infrastructure at Pinsent Masons, said:

"As the need to modernise UK's major infrastructure gets greater by the day, the projected influx of Chinese investment into UK infrastructure is expected to be a welcome boost to the construction industry in particular and UK economy as a whole.  As a foreign investor China is going to become increasingly important for UK infrastructure by 2025.  This means UK-China partnerships need to grow over the next decade. 

"Our report finds that this level of investment is going to be a game-changer for the UK infrastructure.  Over the past few years we have seen China's role as an investor evolve from making indirect investments through sovereign wealth funds – Chinese businesses are now becoming co-funders, co-developers and co-contractors in major UK infrastructure projects.  We are already seeing this happen – for example, Beijing Construction Engineering Group making a major investment in Manchester Airport City." 

UK and Chinese business leaders consulted for the report are already seeing a clear rise in the number of joint-ventures between UK and Chinese firms, including one of the largest real-estate developments in the UK, Royal Albert Docks in East London and the transformative development at Nine Elms in Battersea. 

Business leaders also believe that the energy sector is expected to see a continued increase in Chinese investment in projects including offshore wind farm development and other key renewable power networks.   However, the report finds that this will pick up significant pace in the latter half of the forecast period.

The report finds that as much as £19 billion will flow into transport such as roads, rail and airports. However, given the need to develop the current position in respect of policy on public ownership, planning policy and funding mechanisms, particularly in respect of project finance and investment returns and the restrictive effect that this can have on private investment, this investment is highly likely to come towards the end of the forecast period, in the 2020s.  Therefore, according to the research no immediate flow is expected into transport.

The report, in addition to identifying the level of Chinese investment capital projected into UK infrastructure over the next ten years, expects China to use its vast domestic manufacturing capability and capacity to export equipment and materials for UK infrastructure and real estate projects where it is providing investment.  This development is expected to change the landscape of the infrastructure industry in the UK as the Chinese enter the supply chain over the next ten years. 

Richard said:

"Over the coming decade, we expect a significant increase in direct investment from the Chinese coming through in the shape of joint-ventures and strategic alliances. Four out of five of the world's largest construction and engineering companies are now Chinese with a growing appetite for infrastructure investment and with the potential to invest vast amounts of capital in advanced economies in Europe.

"Entry by China into the UK market will create significant sector opportunities to provide expertise on how to operate in the UK market effectively – from labour market regulations to the planning process and how to operate with the framework of EU regulations.

"However, with UK public finances still under pressure, uncertainty around government support for infrastructure is still a key concern for the infrastructure sector. If the UK wants to unlock Chinese investment to fill in the funding gap to modernise its aging infrastructure, the UK government will need to address issues around policy and further develop the pipeline for investment – delay and lack of clear commitment on policy will only create uncertainty for investors.

"Although, the flow of investment from China has already started – we expect this to be the beginning of a major trend as a trickle of major Chinese investment turns into a wave over the coming decade."

Report highlights

• Between 2014 and 2025, a total of £105 billion of Chinese money will flow into UK infrastructure and real estate investments, including a total of £43.5 billion into energy infrastructure, £19 billion into transport and other infrastructure, and £36 billion into real estate.
• Joint ventures and strategic partnerships with China’s massive construction and engineering corporations to play a catalytic role to make this reality, transforming UK construction sector
• UK ranks third globally, out of 144 countries, in the Pinsent Masons and Cebr Infrastructure Investment Attractiveness Index
• Chronic underinvestment has created an infrastructure need close to £500 billion in the UK, more than the £383 billion of projects set out in the UK’s National Infrastructure Plan.
• UK’s strained public finances and pressured household incomes create problem of affordability for infrastructure
• China’s economy to become world’s largest, approaching $30 trillion by 2030
• Chinese savings to reach $12 trillion in coming decade, representing more than 30% of global savings
• China to increasingly seek investments in advanced, innovative economies