Chinese money flows into UK(2)

Another is CIMC Modular Building Systems, which supplies modular building units to UK projects.

Before the Labour Party came into power in 1997, most UK infrastructure projects were funded by the government. Since then, however, there has been greater demand on the central and local governments to find private sector money for projects, says Julia Court, co-head of construction at the law firm King & Wood Mallesons.

This trend accelerated after the 2008 recession, when there was greater pressure on public sector spending in the UK. This coincided with China's emergence on the international scene as an investor, Court says.

With the UK government recognizing the important role Chinese investors could potentially play in the nation's infrastructure sector, UK Trade and Investment has been active in China promoting these opportunities to Chinese investors.

Court says the UK's infrastructure sector is an attractive investment target because of its relative stability and long-term sustainable returns. On average, the returns for both public sector utility infrastructure and private sector infrastructure projects range between 8 and 15 percent.

The returns for greenfield projects, which are new construction projects, are likely to be higher because of the risks associated with building a new project.

Court says investors in UK infrastructure include pension funds, private equity, sovereign wealth funds, individual investors and more recently construction companies.

Traditionally, construction companies only focused on the construction aspect of a project, which generates returns of about 4-5 percent. But in the past 20-30 years, they have become investors in UK infrastructure. By becoming the financial investors in a project, construction companies can maximize their returns.

Challenges ahead

Despite great potential for Chinese investment in UK infrastructure, challenges still persist, one of them being a negative perception of Chinese investment, especially in the nuclear sector.

Last year, Mark Pritchard, an MP and a member of the UK's Joint Committee on the National Security Strategy, was quoted by the Financial Times as saying that Chinese companies should take only a "minor" role in sensitive sectors such as energy.

Encouragingly, the UK government has dismissed these doubts and fears about Chinese nuclear companies and have given them a level playing field to compete against other international nuclear companies for UK projects.

Ed Davey, British minister for energy and climate change, said in a previous interview with China Daily that Britain's energy market is completely open to Chinese investors both as minority and majority investors.

Tony Ward, UK head of power and utilities at EY, a global consultancy, says there is an international lack of confidence in Chinese nuclear technology, although there is no evidence to support that concern. This is a challenge the Chinese need to overcome by proving themselves step by step in international projects, he says.

"There is a perception internationally that the ability to build complicated reactors in China might be a consequence of corners being cut somewhere. There is no evidence of that."

Another challenge is Chinese companies' lack of understanding of the regulatory system within the UK infrastructure sector, says Richard Laudy, head of infrastructure at Pinsent Masons, an international law firm.

Laudy says bidding companies have to supply a large amount of information in a timely manner and in a structured format to satisfy the needs of the UK infrastructure procurement process.

"The challenge is understanding how the process works. Challenges range from labor market regulations, to the planning process and how to operate within the framework of EU regulations," Laudy says.

Investors bid competitively for UK infrastructure projects, meaning each company or consortium submits a separate application.