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China buys into Thames Water for £500m

  • @BawdenTom

China has made the first of an expected flurry of investments in Britain's ailing infrastructure, buying nearly 10 per cent of Thames Water, the UK's largest water and sewage company.

The estimated £500m deal follows talks in Beijing this week with Chancellor George Osborne, who is looking for overseas investors to finance a massive reconstruction of the UK's infrastructure with the added benefit of boosting the economy.

"It is a vote of confidence in Britain as a place to do business," Mr Osborne said. "This investment is good news for both the British and Chinese economies."

The deal, financed by the giant CIC state investment fund, marks the next phase of China's quest for global economic dominance. It is expected to unleash a series of infrastructure investments in the UK and across Europe – with the HS2 high-speed rail link planned between London and Birmingham thought to be on its wish list.

Dominic Nash, an analyst at Liberum Capital, said: "The Chinese have got a mandate to expand in utilities and infrastructure and they're not going to go away. We have a massive need for capital that we can't finance ourselves and the Chinese have the money and want to sell products and services all over the world."

Mr Nash said this latest deal marks a development in China's investment strategy as the country seeks to spread the ever-increasing amount of money at its disposal.

China's phenomenal growth has seen the value of foreign currency reserves at its disposal for investment more than quadruple to $3,202bn (£2,061bn) in the past six years.

It kicked off its foreign ownership phase about 10 years ago by buying US Treasury bonds. Around the middle of the last decade it turned its attention to natural resources, snapping up commodities such as iron ore, gold and platinum as well as land.

In 2008, China branched out further, investing in struggling US banks and European sovereign debt. It has also been snapping up the high-quality assets such as MG Rover, Volvo and Saab.

Buying British: Chinese Investments

1997: State-owned Nanjing Automobile buys MG Rover.

2009: Chinese sovereign wealth fund, CIC, becomes leading shareholder in Canary Wharf after £880m bailout of Songbird Estates, majority owner of the Docklands development.

September 2011: Britain and China sign memorandum of understanding on infrastructure, essentially an agreement for more Chinese investment.

20 January: 2012 CIC buys 8.8 per cent stake in Thames Water.

Future: China expected to bid to build the £32.7bn high-speed rail link (HS2) between London and Birmingham.