Chinese construction companies see new opportunities in the European market, which is substantially different from Asia and Africa.
China joined the European Bank for Reconstruction and Development (EBRD) this month. The move will open doors for the China Development Bank to co-finance construction projects and also give Chinese contractors access to the continent, analysts said.
EBRD membership would definitely help China assist Chinese companies in Europe, according to Graham D. Robinson, head of London based consulting firm, Global Construction Perspectives. “Some of China’s major investments are in strategic assets like nuclear plants, water and port projects. Such projects help in building influence,” he said.
It is not just about helping Chinese construction companies but also a means to find export markets for equipment, steel and cement companies in China, he said.
Chinese companies will try to buy up both small and big construction companies in Europe in order to acquire technical and management expertise and simultaneously establish their own base on the continent, Robinson said.
Past weeks has seen a Chinese company joining EDF of France to bid for construction of a $9.18-billion Hinkley Point nuclear project in southwestern England. However, there are reports that EDF may be delaying a final decision to participate in the venture owing to financial challenges.
The shipping and port giant, China Cosco Holdings Co., appears set to pick up majority 67% shares Greece’s main port of Piraeus, as it was the only bidder in the field in mid-January.
The company has offered $402 million for the shares, and promised to invest a similar amount for further infrastructure development to support the port. But the Hellenic Republic Asset Development Fund, which handles state asset sales, had asked for an improved cash offer.
China’s stupendous One Belt, One Road program, which aims to build connectivity infrastructure across at least 25 countries, has been welcomed by European leaders including British Prime Minister David Cameron and German Chancellor Angela Merkel, who see it as an opportunity for construction companies in their respective countries besides getting their own infrastructure built at low costs.
Those who give high importance to China’s capability to spread its wings also think that Chinese companies would take on construction companies from North America, which are well entrenched in Europe.
Challenges for China
But the simple fact is that the One Belt, One Road program has not taken off in as big a way as China had expected. Chinese companies are still focusing on investing and bidding, but they have not done much by way of building connectivity infrastructure in Europe.
“OBOR is a political vision that still lacks projects," said Joerg Wuttke, chairman of the EU Chamber in China. “Signed deals so far seem to be business as usual that can attribute to OBOR.”
But China will have to go through a steep learning graph before it can make itself felt in Europe, Robinson said. Some of China’s intrinsic advantages like low costs, and use of labor that are both cheap and speak the same language may not be applicable in Europe.
European labor laws will make it impossible for China’s construction companies to fly in Chinese labor in big numbers. They have used Chinese labor with their peculiar skills, and ability to grasp designs and instructions written in Chinese language while implementing projects in different parts of Africa and Asia. They will be forced to use local labor in Europe.
There are a range of environment, construction and safety standards that must be strictly followed in Europe, imposing added costs. Chinese companies did not face this in Africa and parts of Asia. Robinson said.
Though political leaders have welcomed China’s One Belt, One Road plan, most European governments have not yet decided the extent of Chinese involvement they want.
Though countries like U.K. and Greece are eager for Chinese investments in construction, some others like France are reluctant, saidMathieu Duchatel, Deputy Director of the Asia and China Program at the European Council of Foreign Relations.
“Europeans are discussing on whether the One Belt, One Road program would be a reality in Europe in a five-year time frame,” Duchatel said, adding “They are watching at the implementation in Pakistan, which is really the only country where major OBOR projects are coming up. There are some serious problems with the Pakistan program.”
China has committed itself to building a 2,400-km-long economic corridor connecting its border city of Kashgar to Gwadar port in Pakistan, as well as several energy projects, at a total cost of $46 billion. Construction has already begun.
But the project is facing political challenges. Some of Pakistan’s provinces complain that most of the benefits from the project go to only one Punjabi province, while the rest of the country gets short shrift. Besides, the corridor passes through some of the country’s terrorist strongholds.
“There are serious security issues. There is a question about whether the Baluchistan area of Pakistan will be safe for Chinese investors,” Duchatel said.
European analysts also doubt China’s ability to finance major projects in Europe when the Middle Kingdom faces an economic slowdown at home.
"The most urgent issue here is the financial volatility and economic weakness in various emerging market economies," European Central Bank policymaker Ewald Nowotny recently told a conference in Budapest. "Recent developments in China since last year — the world's largest economy in terms of GDP based on purchasing power parity — are of particular concern."