Infrastructure investment in large areas of London could boom as emerging market countries, led by China, respond to Britain’s call for £50bn of foreign capital to finance major construction projects.
Shanghai Zhongrong Property Group Co. has recently stepped in to re-develop the Victorian Crystal Palace site in south London, pouring £500m ($810 million) into revitalising the capital’s former commercial hub, which was destroyed by fire in the 1930s.
China’s state planning agency – the National Development and Reform Commission – has just issued a guide for Chinese investors at a ceremony in Beijing alongside Oliver Letwin, the UK the Minister of State at the Cabinet Office. The NDRC has never issued a country-specific guide for Chinese investors before. It outlines 18 of its firms that have ventured into the UK as Chinese cross-border businesses.
The United Kingdom ranked fourth among Chinese funding destinations in 2012, thanks to a near $3bn investment in property and development projects. This is combined with corporate deals, including the multinational Chinese food and beverages manufacturing company head-quartered in Shanghai recently taking a 60 per cent stake in Weetabix.
The China Investment Corporation – a sovereign wealth fund – now owns substantial stakes in British infrastructure, including Thames Water and Heathrow airport; and, the China’s state oil companies PetroChina and Sinopec have invested in North Sea oil.
London’s mayor Boris Johnson secured pledges of Chinese investment to rebuild the Royal Albert Dock in east London, on a recent trip to the Beijing, with other investments coming from the state-owned Industrial and Commercial Bank of China, which has undertaken the funding of a £650m enterprise zone in Manchester airport.
China’s foreign investment has been booming for over a decade as it encourages its domestic businesses to spend excess funds won through nearly four decades of market reforms on stakes in Western brands, resources and infrastructure.
However, the US is ultimately set to be China’s largest target market for property investment, with Chinese cross-border real estate funds there estimated to leapfrog the current $1.3bn being poured into the UK by Singapore (currently the world’s No.1 foreign property investor), by 2016.
This sentiment is echoed by the Asia Forecast 2014, published by Colliers, which estimates Chinese investment in foreign property will more than double this year.
Large overseas investments coming out of China used to require prior state approval, but a threshold has now been set where this is no longer required for investments totalling anything under $1bn.
The NDRC used to have to approve foreign investments in mining or resources of over $300m, and other deals valued at over $100m, but these rules too, have now been relaxed.
The lifting of such restrictions opens up investment in such areas to mid-sized Chinese companies and provincial Chinese firms, who are consequently able to invest more readily in international markets.
Foreign regulatory requirements, however, can mean some Chinese buyers stumble after making major Western purchases – with environmental, legal and financial compliance posing fresh hurdles which they never had to navigate back on home soil.
Add to that, higher labour costs in comparison to what they pay their workers back home, and the business risk factors mean comprehensive due diligence must be undertaken fully by Chinese companies before joining the rush to invest in foreign firms.
— Story from Worldbox: http://worldbox.net
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