Chinese investment in HS2 is "so far off" By Gill Plimmer and Simon Rabinovitch The picture of the Union Jack next to a portrait of the former Chinese leader Mao Zedong was an impressive backdrop. But when David Cameron, the prime minister, and Li Keqiang, the Chinese premier, told a news conference that the Chinese could invest in the controversial £50bn High Speed 2 railway line from London to the north of England, it was greeted with a degree of scepticism in the infrastructure industry. "It's just so far off," said Richard Threlfall, head of infrastructure at KPMG. This is about diplomacy, not High Speed 2. High Speed 2 faces a lot of challenges - approval by parliament, a sceptical public, how to reduce the cost of it, how ultimately the country pays for it - but the financing isn't one of them. Although the coalition has been banging the drum for Chinese investment in the UK, there are several barriers that could slow progress. While the Chinese have cash to invest in roads, power plants and transport, they deploy their money with the expectation the recipient will use Chinese products, technology and contractors. "The provision of finance is just a mechanism to get the real prize, which is a bigger export market for their manufacturing," says Mr Threlfall. What they are interested in is providing a route for Chinese products - tunnel sections and steel fabrication, for example. Richard Laudy, head of infrastructure at Pinsent Masons, the international law firm, agrees. If they put the money in, they want a share of the action as well. They either want the supply chain here; or some of their technology used or they want to bring some of their people in. But because the Chinese technology is not a known or established brand, there would be a degree of nervousness around it. The Chinese have invested billions of renminbi in infrastructure projects in Africa and eastern Europe, selling equipment as part of the deal and winning construction and engineering opportunities at the same time. But in Britain they have faced obstacles. Chinese wind turbine technology has not been backed by the UK financial sector because of its short record, for example. There are also concerns that Chinese engineering qualifications may not be recognised in the UK. Meanwhile, even despite the government's loosening of visa requirements, the Chinese see trade unions, visa restrictions and immigration policies as potential barriers, according to Ellen Zhang, a Beijing-based partner at Pinsent Masons. Ms Zhang says many Chinese investors are interested in forming alliances with existing British contractors as a means of sidestepping these issues. But so far they have found local companies want to retain a high degree of control over the project, "shutting out the Chinese from the supply chain," she says. On HS2, British officials have stressed there would not be any direct Chinese involvement in the railway line's construction, due to be funded by the taxpayer. This means the Chinese could only bid for concessions to run it or invest in peripheral schemes such as developments around stations should the railway open in the 2030s. Although the Chinese are already big investors in British property - with recent deals including an investment in Manchester airport - excluding them from the construction makes HS2 less appealing, says Mr Threlfall. The stations alone are not the big money. They are mainly interesting to the Chinese for their property development potential. Nevertheless the direction of travel is clear. "There's no doubt Chinese money and construction companies will play a bigger role in the UK," says Mr Threlfall. The question is when. Ms Zhang agrees there are deals on the horizon of interest to the Chinese - particularly real estate and offshore wind farm projects. But she warns: "If David Cameron wants to encourage Chinese investment in UK infrastructure, more thought is required on how to resolve issues around the sharing of supply chains. Otherwise," she says, "the Chinese may go elsewhere."