What are the implications of Chinese investment in HS2?

Vincent King, partner at Weightmans LLP21 January 2014 | Vincent King

David Cameron recently promised China's leadership that there will be “very open competition” for investments in Britain's HS2 high-speed rail link.

The prime minister did not offer any further thoughts as to how Chinese investment might be made, which is not surprising as he was talking in general terms.  Ultimately, the prime minister’s statement, and the Chinese government’s welcoming of it, is very much about diplomacy and politics, as well as pure economics.  

In this case the devil really would be in the detail. While the Chinese may have the money to invest in international infrastructure projects, experience elsewhere (particularly in Africa and Eastern Europe) has shown their investment is motivated by a desire to ensure that the project utilises Chinese companies, products and technology. The Chinese have already built an extensive domestic high-speed rail network and any such investment in the UK or elsewhere would primarily be an effort to develop their export market.  

However there have been some problems with China’s internal network and the Chinese government’s own report into a bullet train crash which killed 40 people near Wenzhou in July 2011 revealed the disaster was in part caused by design flaws and sloppy management.

For HS2, British officials have stressed there would not be any direct Chinese involvement in the railway line’s construction, which is due to be funded by the taxpayer. It would however still be possible for the Chinese to bid for concessions to operate HS2 or parts of it and/or invest in related schemes such as developments around stations or smaller schemes which are designed to boost connectivity.

A good example is the proposal backed by local businessmen calling for connections from the proposed new Birmingham station to the airport and surrounding cities, which China Railway Group has recently expressed an interest in building.

These schemes will be very high profile and subject to great scrutiny. Awarding contracts to the Chinese to deliver a significant part of HS2 and related schemes is by no means inevitable. Legally compliant processes would have to be run and thus Chinese success in bidding cannot be guaranteed.

☛ Vincent King is a partner at law firm Weightmans.

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