Osborne woos Chinese to support Northern Powerhouse

Chancellor aims to tap into China’s appetite for direct investment through co-funding and co-constructing projects round the world.

Jackie Whitelaw
24 September 2015

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Opportunities for investment in the Northern Powerhouse were displayed for the delight and hopefully interest of Chinese investors as Chancellor George Osborne continued his visit to the country.

Osborne has already offering loan guarantees for £2bn of hoped for Chinese investment in Hinkley and has been offering opportunities on HS2. Northern Powerhouse is an obvious connection with the latter and as part of the HS2 discussion the Chinese have been invited on an HS2 ‘regeneration tour” visiting areas of commercial opportunity in London, the Midlands and the North.

"As we continue to work more closely with China, we have an unprecedented opportunity to secure significant investment into some of our most ambitious projects across our Northern Powerhouse" - George Osborne

Osborne presented Chinese investors with a selection of £24bn worth of investment opportunities in the North of England ahead of the upcoming State visit by President Xi in October.

Speaking in the city of Chengdu, the Chancellor said “there are unprecedented opportunities for Chinese investment into the Northern Powerhouse as the UK and China enter a golden era of economic cooperation”.

Infrastructure and regeneration investment projects such as the Atlantic Gateway – a series of projects connecting the Port of Liverpool to the City of Manchester; and Science Central, a cutting-edge development in the heart of Newcastle, are set out in a new Northern Pitchbook that was presented in Chengdu.

At the same time, Britain’s Northern leaders said a new wave of transformational Chinese investment can revolutionise Northern infrastructure.

Key projects for which investment is sought include:

• Manchester Place: an opportunity to deliver three new zones of more than 10,000 homes with a combined value of over £3 billion
• Sheffield Retail Quarter: working with Sheffield City Council to create new city centre homes and centrally located offices
• South Bank, Leeds: an exciting new regeneration scheme covering more than 130 hectares in the city centre

Alongside the Pitchbook, the Chancellor also announced:

• potentially doubling Enterprise Zones across the North
• commissioning a new government report looking at existing links between UK and Chinese cities to help us better understand how we can attract more trade with China
• a commitment to reinvigorate partnerships between Northern and Chinese cities, including Sheffield’s Sister City agreement with Chengdu, which has fostered significant business, civic and cultural links since 2010
• the secondment of staff from the China Rail Construction Corporation, the world’s largest railway company, to Mott MacDonald, the UK based management, engineering and development consultancy, in Manchester
• the findings of a city-clusters research project based on the Chongqing-Chengdu cluster and the Northern Powerhouse
• a new service, established by Lancaster University, to bring together UK and Chinese universities, researchers and businesses to take research to commercialisation
• a new joint PhD programme to teach the next generation of Chinese Radio Astronomers at the Square Kilometre Array headquarters at Jodrell Bank
• a new offer on the Chevening Scholarship Programme to those in the Northern Powerhouse who wish to strengthen ties with Chinese students. Durham, Lancaster, Leeds, Liverpool, Manchester, Newcastle, Sheffield and York universities (the ‘N8’) have all expressed an interest so far

He said: “As we continue to work more closely with China, we have an unprecedented opportunity to secure significant investment into some of our most ambitious projects across our Northern Powerhouse. From Liverpool to Newcastle, we are opening up our doors to investment that will not only help us to grow and create jobs, but will allow us to build infrastructure to rival any region in the world.

“Visiting China with other Council leaders from across the North has enabled us to build on our existing strong relations with Leeds’ partner city of Hangzhou and to meet potential new partners for trade and investment" - Judith Blake, Leeds City Council

"The North of England is already a magnet for foreign investment into the country and we’ve seen with announcements from Nissan and Hitachi into the North East recently highlighting how perfectly poised our Northern Powerhouse is to attract the eye of global companies.”

Commercial Secretary to the Treasury Lord O’Neill said that the meeting with the Chinese was about compelling investment cases but also about learning from China’s experience of rapid urbanisation.

“Today is about making sure that the North is at the heart of our plans to grow investment into the country and we will be able to showcase compelling projects to ambitious Chinese investors,” he said.

“But it is also about making sure we are cooperating and learning from China’s urbanisation experience, including the progress China has made in supporting and coordinating regional development and promoting the development of city clusters.”

The Chancellor and team were joined by leaders of England’s northern cities including Leader of Leeds City Council Judith Blake. She said: “Visiting China with other Council leaders from across the North has enabled us to build on our existing strong relations with Leeds’ partner city of Hangzhou and to meet potential new partners for trade and investment.

"Bringing investment into our major regeneration and transport schemes across the North will deliver a long overdue boost to the economy providing many much needed job opportunities."

According to Pinsent Masons/Cebr ‘China Invests West’ report, Chinese businesses are now becoming co-funders and co-contractors in UK infrastructure projects, rather than making indirect investments through sovereign wealth funds. 

"The Chancellor’s courting of the Chinese for HS2 is evidence of this in action and is part of a wider picture that has already seen considerable investment and involvement in several major redevelopment projects across the UK including in London, Manchester and most recently in Salford, Leeds and Sheffield,” said Pinsent Masons infrastructure director Jon Hart.

“We are already seeing this happen, such as Beijing Construction Engineering Group, which made a major investment last year in the £800M Manchester Airport City project.

“Four out of five of the world's largest construction and engineering companies are now Chinese, with a growing appetite for investment in advanced economies such as the UK due to its transparent business environment, under-capitalised infrastructure sector and close political ties with China,” he said.

“We are already seeing a growing number of Chinese investors partnering with UK firms, such as real estate developer ABP which has invested £1 billion in the Royal Albert Docks development in East London. In the coming years, we’re likely to see a rise in both real estate and energy projects, including offshore wind developments and other renewable power networks."

Key facts – source HM Treasury

1. China’s contribution to world GDP has risen from below 2% in 1990, to almost 15% in 2014.
2. Chinese GDP growth officially slowed to 7% in the first half of 2015. Many commentators believe that growth is really slower at close to 5%. However, even with slower GDP growth this year, China will represent around a quarter of global growth.
3. China’s outward direct investment has tripled since 2005. And on current trends China will triple its stock of ODI by 2020 making it the world’s second largest (well behind the US) outward investor.
4. The UK’s FDI stock of $11.8 billion in 2013 was the largest in Europe, more than France and Germany combined.
5. China accounts for 3.6% of UK exports. China is the UK’s sixth biggest goods export market.
6. Chinese equities accounts for less than 5% of household wealth.