beyondbrics

Friday’s news that the China Investment Corporation, the country’s $410bn sovereign wealth fund, had taken a stake in Thames Water has all the makings of a game-changer.

True, the investment – an 8.68 per cent stake in Kemble Water, the utility’s holding company – will bring no new capital to London’s water and sewerage services. The CIC bought its stake from a consortium of investors led by Macquarie, the Australian investment bank. So it will be hard – though surely not impossible – for George Osborne, the UK chancellor who was in China this week urging the country to invest inUK infrastructure, to claim this as a big success.

Nevertheless, it is a first step. And China moves slowly. A decade ago it promised to put $8bn into Brazilian infrastructure. Nothing happened for years. But the money has started to flow.

The UK, of course, has nothing on offer to rival the potential of Brazil’s recently-discovered offshore oil fields. And so far, CIC’s Thames Water stake – quite a small deal between institutional investors – is simply a way of getting better returns than those offered by US Treasury bills.

But as beyondbrics reported last June, when China makes a move, it does so quietly. Then, the CICC, a subsidiary of the CIC, became the first Chinese member of the London Stock Exchange. Jin Liqun, chairman of the CIC’s supervisory board, told beyondbrics:

“The UK has been really very open to capital inflows and investment from other countries, which has been very good for the UK economy. Chinese companies are looking to IPO in London. It is a very positive sign and I think we should be encouraging (Chinese) companies to expand their business in Europe through the gateway of the UK.”

This was echoed this week by Lou Jiwei, chairman of the CIC, writing in the FT, who praised Britain as “one of the most open economies in the world” with a “sound legal system”.

Of course, if China really wants to put money into British infrastructure, it must bring new capital to new projects. This will only happen step by step. As Liquin told beyondbrics, “We want smooth sailing.” But Friday’s deal – coming immediately after an agreement on the UK’s role as an offshore trading centre for the renminbi – shows that the boats are in the water.

Related reading:
China eyes western infrastructure, FT
China can help west build economic growth, FT
Osborne urges Chinese to invest in UK projects, FT
The New Trade Routes: Brazil and China, FT