As the excitement over the World Cup ebbed in mid July, Latin American politicians got busy dealing with China’s President Xi Jinping, who dashed through Brazil, Argentina, Peru and Venezuela signing 150 projects worth a colossal $70 billion. The deals included construction of a metro rail in Brazil and several projects worth $7 billion in Argentina.
"We know that cooperation with China has not brought us debt, but greater development," Venezuelan President Nicolas Maduro said after shaking hands with the Chinese President over a bouquet of deals including a $700-million gold exploration project and others worth $4 billion in cash.
Xi’s Latin American success, which seemed to suggest that China was extending its African romance to other parts of the globe, came on top of a nasty surprise from Uganda, which invited only a Chinese contractor for an $8-billion rail project in May without giving U.S. companies an opportunity to bid.
These successes might seem surreal to western contractors, who regard Chinese construction services providers (CSPs) as backward entities lacking sophisticated project management and technological capabilities. What is more, the Chinese government consciously keeps them isolated from western companies with the use of legal barriers against collaboration.
Under China's regulations covering offshore construction projects requiring foreign investment, fully owned foreign companies are restricted to building only a few projects that are financed by international institutions, which have at least 50% foreign investments and projects that are “so technically demanding that Chinese CSPs will not able to undertake by themselves.”
Lobbying for a larger role, the European Chamber of Commerce in China, said in a position paper, “Many Chinese CSPs are in huge need for professional teams which possess international qualifications and are familiar with the best practices of international construction market. The lack of such international qualifications and expertise has, to some extent, acted as a barrier to prevent Chinese CSPs from competing for top-level international projects”.
It said collaboration with European firms will “facilitate Chinese CSPs to gain greater exposure to best international practices and improve their efficiency and competency in the international market.”
But it seems China’s state-owned construction companies are doing quite well without these advantages. Chinese firms like China Railway Construction Corp. have other qualities that U.S. or European companies cannot match.
“An important reason for the successes of Chinese companies is the fact that they often offer lower costs with the same good quality,” He Weiwen, a professor of economics at Beijing’s Renmin University, told ENR.
A crucial reason is that the Chinese President and Premier Li Keqiang put their own weight, and indeed the entire might of Communist China, behind project proposals. Thie result: a larger package that includes financing instead of mere construction capabilities.
“If the Chinese President says he will deliver, the leader of a foreign country would be sure it will be done. That is the advantage of a command-and-control system as in China,” Anil K.Gupta, professor of strategy and globalization at Maryland’s Smith Business School, who co-authored a recent book, “The Silk Road Rediscovered” on Indian and Chinese companies, told ENR. “If Xi gives the word, the China Development Bank will put up the money. Other state-run agencies will join together to make a project successful”.
“The U.S. President or the German Chancellor cannot get companies in their countries do their bidding,” Gupta said. Barack Obama could not direct GE and Westinghouse to abide by his government’s wishes after signing the nuclear deal with India, he said.
In fact, Chinese financing agencies are known to support barely bankable projects and offer relaxed terms to help state-owned contractors and equipment manufacturers gain leverage in foreign markets, sources said. Most construction firms are fully owned by the state. Construction is one rare business where China has not relaxed foreign investments.
A deal signed last May between Kenya Railways Corp. and China Road & Bridge Corp. for laying a 609.3-km section of track from the port of Mombassa to Nairobi exemplifies the Chinese approach to African infrastructure projects. According to coverage of the agreement in the magazine Ventures Africa, CR&BC agreed to provide 5,000 trained Chinese workers and the China Exim Bank and the Kenyan government will share costs in a 90:10 ratio.
Atanas Maina, managing director of KRC, said, “The contractor will bring in the workers and get additional ones locally. We have also commenced discussions to reduce timelines and ensure that the project is completed by 2017.”