China charm offensive may not bring back UK investment
Politicians including the Mayor of London Boris Johnson and Chancellor of the Exchequer George Osborne are off to China in the next couple of weeks to try and drum up business.
With expensive infrastructure projects like the expansion of nuclear power coming up, the U.K. is ripe with investment opportunities – something the government delegation will be keen to promote.
The U.K. is attractive to China in the long term because Chinese business people are familiar with how the U.K. works and see it as a reliable market, said Stephen Perry, chairman of the 48 Group Club, which promotes trade between the U.K. and China.
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The news Friday that the Industrial and Commercial Bank of China (ICBC) is investing a £650 million business park near Manchester Airport sparked hopes of a new era of Chinese investment and the U.K.. Meanwhile, U.K. housebuilder Barratt Homes has started actively marketing its London properties in China, with take-up as much as 20 percent of some of its developments.
But there are concerns that attracting investment in the U.K's big infrastructure projects may be a hard sell.
Chinese investment in the U.K has fallen off slightly over the last couple of years. In 2012, the UK was the most popular European destination for Chinese investment, according to the UK's Department of Trade and Industry. Last year, figures from the Heritage Foundation say, more than $6 billion found its way to the U.K. from Chinese in 2012. However, in 2013 the amount invested so far is $2.5 billion.
(Read more: Chinese investment in US may break record in 2013)
The drop coincided with a much-publicized meeting between U.K. Prime Minister David Cameron and the Dalai Lama last year. However, while political relations may have cooled on the meeting, the Chinese have not just been staying away for political reasons, Victoria Barbary, director of Institutional Investor's Sovereign Wealth Center, said.
"China has been pouring more of its excess resources into state owned enterprises, partly for political reasons and also job creation," she said.
(Read more: Invest China)
But there may now be more Chinese money to be invested internationally after a pick-up in new credit in August,following a mini-stimulus program announced by the Beijing government in July which involved pressure on banks to increase lending to exporters.
And the U.K.economy itself is starting to pick up, with London's safe haven status and the relatively weak pound helping to stimulate investment.
Chinese state-backed funds often invest in infrastructure projects abroad – such as airports – because may end up being useful strategically as well as financially, Perry pointed out.
However, it may be trickier to persuade China's banks and sovereign wealth funds to invest in U.K. projects, Barbary argued.
"The Chinese tend to be quite careful with investing in strategic industries like nuclear or telcos or anything like that," she warned.
And, of course, the U.K. government may have concerns about the political implications of Chinese investment in crucial infrastructure. In 2011, the U.S. government sparked a political storm after it rejected a contract from Chinese telecommunications company Huawei to build a cellphone network.
"The government will want to take it slowly and be very careful," Perry said.