China Invests (Literally) in Main Street

This was just a matter of time - - the China Investment Corporation (CIC), the sovereign wealth fund, plans to investment in the dilapidated infrastructure of developed countries.  Lou Jiwei, chairman and chief executive officer of the CIC, has an article in today's Financial Times - - China can help the west build economic growth.  Jiwei writes the following:

"The narrative of infrastructure development in places such as the US indicates how such investment powers an economy forward.  China's growth story in recent years provides further proof.  Now, infrastructure in Europe and the US badly needs more investment.

Traditionally, Chinese involvement in overseas infrastructure projects has been as a contractor only.  Now, Chinese investors also see a need to invest in, develop and operate projects.  In a sign of this determination, the China Investment Corporation, the sovereign wealth fund, is now keen to team up with fund managers or participate in public-private-partnerships (PPP) in the UK infrastructure sector as an equity investor.

Infrastructure spending is an important way to boost consumption and it also acts as a spur to economic growth.  One need only look at China to see what can be achieved.  Between 1979 and 2007, China committed vast resources to infrastructure development.  In the wake of the 2008 financial crisis, the government introduced a Rmb4,400 billion economic stimulus package, with a large part of the money directed into infrastructure.  As a result, China's annual economic growth rose from 6.8 percent to more than 10 percent form late 2008 to the end of 2009.

Infrastructure is underinvested in European countries and the US.  The British Treasury has estimated that by 2015, Gbp 200 billion will be needed to invest in energy, water transport, digital communications, waste disposal, and other related projects.  Meanwhile, the American Society of Civil Engineers estimated that the US needs to spend at least $2,200 billion on infrastructure repairs or rebuilding.  Free of inflationary pressure that afflicts many emerging economies, the US and Europe should make substantial investment."

Jiwei sums up our deficit driven future probably the best - - "We cannot count on developed countries to deliver a stable economic recovery on their own."