China: Sovereign wealth to the rescue of the West?

As Europe and America face a double-dip recession, the Chinese propose investing in infrastucture projects.

China Investment Corporation (CIC), the country's biggest sovereign wealth fund, has approached the British government to find out if it can invest in public-private partnership projects, according to the BBC. Almost simulaneously the OECD has warned that Britain is set to follow Germany into recession. Although, the OECD reckons this down-turn will occur in the UK at the start of next year, and is likely to be mild.

The British government is keen to get such infrastructure projects going in an effort to stimulate economic growth.  

Recently, The Economist commented on Liverpool's burgeoning links with China in Here comes the Yuan and how the city was attracting sizeable investment capital due to its twinning with Shanghai: "Liverpool Vision (the council’s inward investment arm) has set up a dedicated office in Shanghai. The Peel Group, an infrastructure and real-estate outfit, hosted a pavilion at the Shanghai World Expo last year. It is courting Chinese sovereign-wealth funds to develop Liverpool’s derelict northern dockyards. The plans include a 60-storey “Shanghai tower”  ...  The Peel Group has already secured Chinese cash for a development in Birkenhead, across the Mersey."

Perhaps this is the start of a far more productive, mutually beneficial relationship between China and the UK, and augers well for other countries in the beleaguered West. In June, UK PM David Cameron announced an additional £1.4bn of trade agreements between the two countries, and predicted that bilateral trade could hit US$100bn by 2015.

The prospect of China's sovereign wealth stimulating British growth through infrastructure investment adds to this flowering trading connection.

By the end of 2010 CIC's assets under management reached US$410bn. Set up in 2007 to manage China's foreign exchange reserves, the fund has already invested heavily in international equities. In 2007 it acquired a US$3bn holding in Blackstone, an American private equity concern, and a 9.9% stake in Morgan Stanley, a US investment bank. According to a 2009 report in Economic Observer, CIC began directing its resources more towards the "real economy". So in August this year the fund spent US$3.5bn buying stock in GDF Suez, a French energy multinational. 

This latest foray into infrastructure takes it deeper still into the real economy. And will improve the effectiveness of the UK and those G20 nations willing to engage. No sign yet, it seems, of such investment opportunities being realised in America, which needs an injection of capital to improve transport links, stimulate activity and reduce unemployment.

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