It seems only a few days ago that I was explaining why China was not going to save the PIGS’ bacon — if they want to invest in Europe they can wait until the situation severely deteriorates to get more bang for their buck.
Now Robert Peston is talking up Chinese investment in British infrastructure:
Perhaps the most important cause of our economic malaise is that for years as a nation we have been living beyond our means, in deficit with the rest of the world, buying from other countries far more than we produce, till our indebtedness became unsustainable.
By contrast China has been consuming far less than it produces, accumulating vast surpluses.
So as we work down our debts, the hope of the government has been that the Chinese could be persuaded to invest some of their vast surpluses in our infrastructure, in a way that would ease the pain of our economic slowdown and would yield a decent return to China over the long term.
That’s why the Chancellor of the Exchequer was today so delighted that China’s sovereign wealth fund, China Investment Corporation, which controls more than £250bn – has bought a stake of almost 9 per cent in London’s water and sewage business, Thames Water.
Britain has been happily munching on that Chinese-manufactured free lunch of consumer goods and cheap labour, but now she wants to enjoy the benefits of China’s years of thrift and productivity by having China pay for infrastructural improvements.
The first thing to note is that selling equity seems much better than selling debt. A lot of Chinese resentment toward America stems from America’s protectionist attitude to its economy — America won’t let China freely acquire equities with their surplus dollars. Debt — especially debt that gets paid with newly-printed money — creates a relationship of mutual antagonism. Creditors and debtors have a history of trying to screw one another. Equity — i.e., Chinese ownership — gives more of a shared incentive for success.
The second thing to note is that China may still be reluctant to invest now. With Britain holding a huge debt bomb — and looking at a future of excruciating deleveraging — it seems pretty likely that China will be able to get more bang for their buck in the near future than they can now.
Thirdly, as a result of the Opium Wars, the governing class in China hold a grudge against Britain. A shared future — with China as an investor in Britain — would undoubtedly go a long way to heal some wounds.
And China, I should add, do infrastructure quite unlike anyone else:
While America and the West have shifted their economies toward endless consumerism, tourism and globalisation China has been busy building herself into the greatest industrial powerhouse in world history. Infrastructure undoubtedly plays a huge role in that.
So it largely seems like a good idea. But there’s still a long way to go before we can truly say China is an investor in Britain. Until then, Britain needs to be the leading investor in British infrastructure.