The Chinese government announced in April that it will open its infrastructure to private investment; however, it is not clear if that includes foreign capital — a Wall Street Journal report indicates there was no mention of foreign capital, while a Bloomberg report notes private capital is included in the program. The reports also point out that the Chinese government has invited private capital to invest in the past only to later not move forward with those plans.
According to Infrastructure in China — sustaining quality growth, a 2013 report by KPMG, the Chinese government is open to the idea of private investment in its infrastructure:
“We are seeing greater opportunities for both domestic and foreign players to invest private sector capital in infrastructure projects. The fiscal constraints faced by local governments on the frontline of infrastructure construction and development are creating conditions that may encourage faster development of the alternative financing and procurement methods seen in mature Western economies. Central government support and policy initiatives in this area will be areas to watch in the medium term.”
Investors are expected to be able to participate in 80 projects, including railway, ports, hydropower, wind and solar power, as well as oil and gas and chemical industries.
State-owned companies currently dominate infrastructure development and management. The Chinese government suggests investors can form joint ventures with these firms or set up their own companies to invest in infrastructure.
It will be interesting to see if institutional investors from outside China think the market is a good match for their objectives, especially in light of the recent political and regulatory decisions in Europe — Gassled and Heathrow Airport, for example — where government actions are having outsized negative impacts on investor returns. Political and regulatory risk in Europe is uncertain enough, but in a state-oriented economy such as China’s those risks could be even greater.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
