Why the chancellor wants China's cash

Will China be investing more in British infrastructure?

Perhaps the most important cause of our economic malaise is that for years as a nation we have been living beyond our means, in deficit with the rest of the world, buying from other countries far more than we produce, till our indebtedness became unsustainable.

By contrast China has been consuming far less than it produces, accumulating vast surpluses.

So as we work down our debts, the hope of the government has been that the Chinese could be persuaded to invest some of their vast surpluses in our infrastructure, in a way that would ease the pain of our economic slowdown and would yield a decent return to China over the long term.

That's why the Chancellor of the Exchequer was today so delighted that China's sovereign wealth fund, China Investment Corporation, which controls more than £250bn - has bought a stake of almost 9% in London's water and sewage business, Thames Water.

It is a significant moment, in that the deal is CIC's first investment of any sort in the UK.

But that significance should not be overstated. China is buying a small stake in a long established stable business, currently controlled by an Australian investment firm, Macquarie, rather than taking a risk on improving the fabric of the UK.

The transaction will only turn out to be important if it is the priming of a financial pump that then gushes a flow of Chinese money into British roads, rail, hospitals and the other things that our indebted government is struggling to afford.