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China Looking to Invest in US Infrastructure

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China, America’s favorite international lender, has announced a desire to invest in infrastructure projects in the US and Western Europe. In an article in the Financial Times on Sunday (registration required), Lou Jiwei, the chairman and CEO of the Chinese Investment Corporation, China’s sovereign wealth fund, wrote that China feels that its involvement American and British infrastructure projects can help spur global economic growth.

Jiwei cites data from China’s own infrastructure developments over the last few years. Following the 2008 financial crisis, the country introduced a four trillion RMB stimulus package that resulted in a rise in economic growth from 6.8% in 2008 to 10% in 2009.

He believes that both the US and Europe have underinvested in infrastructure. Numbers from the British Treasury and the US Society of Civil Engineers, state that the two countries need to invest $310 billion and $2.2 trillion in infrastructure, respectively.

According to the Shanghai Daily, Jiwei’s comments could provide an answer to questions over how China can help debt-ridden Western countries. These comments come only two weeks after the CIC president announced that China would not help the West at the expense of its own economy.

Of course, China Investment Corporation already has investments in the US. In 2007, It bought a $3 billion stake in private equity firm, the Blackstone Group, and a $5 billion share of Morgan Stanley. Other holdings include Visa ($100 million) and Teck Resources ($3.5 billion).

Also, Chinese investment in international infrastructure is not unprecedented. Over the last decade, the country put huge sums annually into African infrastructure. According to data from the World Bank, Chinese investment in the continent jumped to around $6 billion a year in 2005-2006, up from less than $1 billion in 2001.  

Since then, the country’s African investments have continued to grow. An article in the People’s Daily Online, credits China with helping Africa build 2,000 km of railways, 3,000 km of highways and many stadiums. They also helped build schools and hospitals across the continent. Ethiopian president Meles Zanawi called China’s influence “fundamental and transformative” and cited the country’s quality work and timeliness in construction projects.

Of course, the US and Europe are still a bit more prosperous than most of Africa. At least for now.

Beyond that, questions remain about the seriousness of China’s intentions toward US and UK infrastructure. A response published by the BBC yesterday reminded readers that Chinese officials have expressed an interest in many investments over the past year, including Spanish and Greek bonds, with only minimal action.

The article posits that China seems more interested in using the prospect of investment for PR purposes. The country may be using its economic power to create the impression that it can “save the world economy.”

That said, China certainly has the money to make a powerful impact on Western infrastructure. It’s just a question of whether the West will let them.
POSITION:  No positions in stocks mentioned.