Opinion published in the Financial Times, 27 November 2011
By Lou Jiwei (Chairman and chief executive officer of China Investment
Corporation)
Central to international efforts towards promoting strong and balanced
growth is the need to generate demand, not only in developing countries
but, more importantly, in developed countries. The imperative poses a
critical question: where is new demand to come from? The answer lies in
boosting investment in infrastructure - and China is keen to get involved.
The narrative of infrastructure development in places such as the US
indicates how such investment powers an economy forward. China�s growth
story in recent years provides further proof. Now, infrastructure in
Europe and the US badly needs more investment.
Traditionally, Chinese involvement in overseas infrastructure projects
has been as a contractor only. Now, Chinese investors also see a need to
invest in, develop and operate projects. In a sign of this
determination, the China Investment Corporation, the sovereign wealth
fund, is now keen to team up with fund managers or participate in
public-private-partnerships (PPP) in the UK infrastructure sector as an
equity investor.
Infrastructure spending is an important way to boost consumption and it
also acts as a spur to economic growth. One need only look at China to
see what can be achieved. Between 1979 and 2007, China committed vast
resources to infrastructure development. In the wake of the 2008
financial crisis, the government introduced a Rmb4,000bn economic
stimulus package, with a large part of the money directed into
infrastructure. As a result, China's annual economic growth rose from
6.8 per cent to more than 10 per cent from late 2008 to the end of 2009.
Infrastructure is underinvested in European countries and the US. The
British Treasury has estimated that by 2015, �200bn will be needed to
invest in energy, water, transport, digital communications, waste
disposal and other related projects. Meanwhile, the American Society of
Civil Engineers estimated that the US needs to spend at least $2,200bn
on infrastructure repairs or rebuilding. Free of the inflationary
pressure that afflicts many emerging economies, the US and Europe should
make substantial investment.
We cannot count on developing countries to deliver a stable economic
recovery on their own. China has taken a set of ambitious and effective
measures to stimulate domestic demand and consumption. Yet Chinese
consumption is still small as a share of the global total. If the world
stakes too much on the export-led growth strategy, it may turn out to be
a "zero-sum" game to the detriment of the global economy.
Long-term investment in infrastructure is still inadequate. Governments
should introduce pro-investment policies to create an attractive
environment. This should include making fiscal adjustments, reducing
taxes and offering bank loans at discounted rates. These measures will
generate demand for equipment manufacturing, put more people on the
payroll and cut back on unemployment benefit spending.
For commercially viable projects with potential high returns, the
government could invest with local or overseas institutional investors
in a PPP arrangement that would allow the sharing of risks and returns.
The UK is one of the most open economies in the world, a position
bolstered by its sound legal system. PPP is a regular form of investment
in infrastructure development that should be encouraged and replicated
in other developed countries.
Governments seeking external investment in infrastructure should relax
regulatory restrictions where necessary, and promote transparency and
predictability for investors.
Infrastructure projects normally involve an investor, developer,
operator and contractor. Chinese involvement has traditionally been in
the fourth. Now we also see a need to get involved in the other three.
Local knowledge is essential. Foreign investors without this expertise
cannot lead a project. Local co-investors and operators can fill this
gap. Governments should encourage domestic players to take the lead in
infrastructure projects, and attract foreign investment.
Sovereign wealth funds invest on a diversified and balanced basis, with
a proportion of portfolio geared towards stable returns over the long
run. Infrastructure represents a suitable choice for sovereign wealth
funds to invest directly or through fund managers, with the aim of
seeking stable and sound financial returns. CIC believes that such an
investment, guided by commercial principles, offers the chance of a
"win-win" solution for all.
URL:
http://www.ft.com/intl/cms/s/0/e3c5aacc-18ed-11e1-92d8-00144feabdc0.html#axzz1f1PrpXII
***
China eyes western infrastructure
By Jamil Anderlini in Beijing and George Parker in London
Financial Times, 27 November 2011
URL -
http://www.ft.com/intl/cms/s/0/2d795a90-190e-11e1-92d8-00144feabdc0.html#axzz1f1PrpXII
China Investment Corporation, the country's main sovereign wealth fund,
plans to invest in the dilapidated infrastructure of developed
countries, starting with the UK, according to Lou Jiwei, the fund�s
chairman.
The $410bn Chinese fund "is keen to team up with fund managers or
participate through a public-private partnership in the UK
infrastructure sector as an equity investor", Mr Lou writes in an
opinion article in Monday�s Financial Times.
"We at CIC believe that such an investment, guided by commercial
principles, offers the chance of a 'win-win' solution for all."
Mr Lou recently returned from a visit to the UK where he discussed
details of potential Chinese investment in UK infrastructure. British
officials say one project attracting interest in Beijing is the proposed
high-speed rail line between London and the north of England.
The British government is looking to UK pension funds and sovereign
wealth funds in the Middle East and Asia to help finance upgrades of
roads, railways, ports and social housing.
George Osborne, Britain�s chancellor of the exchequer, wants to find
funding for �30bn of new infrastructure projects to boost the UK's
flagging economy. The drive is a key part of his growth review, to be
announced on Tuesday as part of his autumn economic statement.
In his article, Mr Lou suggested Chinese companies and investors wanted
to own and operate infrastructure in the west as well as help build it.
"Now infrastructure in Europe and the US badly needs more investment,"
Mr Lou wrote. "Traditionally, Chinese involvement in overseas
infrastructure projects has just been as contractors. Now Chinese
investors also see a need to invest in, develop and operate projects."
Many Chinese officials and academics have been calling for a
diversification of the country's $3,200bn foreign exchange reserves into
real overseas assets, including infrastructure.
Although the reserves' composition is a state secret, the vast bulk is
invested in highly-rated sovereign debt, particularly US Treasury bonds.
CIC was set up in 2007 with a small portion of the reserves and given
the task of making riskier offshore investments and earning higher returns.
At first, most of its offshore investments were in the financial sector
but more recently the fund has invested in natural resource-related
companies and dabbled in real estate.
The fund has invested nearly all of its available funds already but is
expected to receive a long-awaited fresh injection of capital in the
coming months.
Many senior Chinese officials complain that western politicians often
discriminate against investors from China, because of fears about the
country�s rise and the intentions of its state-controlled companies,
which are the most active abroad.
Mr Lou did not mention those concerns in his article but did say that
"governments seeking external investment in infrastructure should relax
regulatory restrictions where necessary, and promote transparency and
predictability for investors".
But he praised the UK as "one of the most open economies in the world"
with a "sound legal system", and said CIC has already built up
"considerable positions in the UK market."
UK-based equity analysts say public equity investments in London by
China�s State Administration of Foreign Exchange, which manages the bulk
of the $3,200bn reserves, now account for roughly 3 per cent of the
combined equity of companies in the FTSE 100 index.
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