African competition heats up
As China encourages more enterprises to go abroad, project contractors in Africa find themselves competing not just against their Western counterparts but also their fellow Chinese. Li Jiabao reports from Nairobi, Kenya.
"I can't sit without a project for five years, even though we are a State-owned enterprise," Wang Xiaoming said in his office in Nairobi.
Wang is the chief financial officer of the East African branch of China Overseas Engineering Group Co Ltd, a subsidiary of China Railway Group Ltd, which entered Kenya in 1984. Business originally focused on foreign aid and residential construction. It expanded to large infrastructure construction projects in 2007, with a model of tendering for projects and subcontracting them to construction companies.
Gong Changyin, deputy regional manager of East Africa branch of Sinohydro Corp Ltd, said that Africa is a large and promising market.
"As long as African countries are determined to develop, they need to build infrastructure such as roads, railways and ports. We had very few competitors when getting into the Kenyan market in 1997, but now companies from Turkey, India and Western countries all are our competitors," he said.
In addition, competition among Chinese companies is becoming fierce as companies from different provinces, including Jiangsu, Fujian and Sichuan, are eyeing the market, following the lead of State-owned enterprises, Gong said. This has influenced Chinese project contracts in Kenya as the provincial ones are flexible in management and mechanism, he said.
Wang added that more than 90 Chinese project contracting or construction companies are registered in Kenya, a market with a limited size but a key springboard to tapping business opportunities in neighboring countries. And a typical construction project can easily attract more than 10 Chinese bidders, with seven or eight still qualified after the first round of reviews.
"Chinese companies are seeing cutthroat competition. Some offer prices that are unable to support the project, as they seek to seize the market with a short-term loss," Wang said.
"Prices and costs are the top concern of Kenyan employers, followed by factors like design," Gong said. "Having lower prices than our Western peers was our traditional advantage as we import equipment and employ managers from China. But the renminbi appreciation and rising prices of equipment and materials at home have been eroding the advantage, and our bidding prices are almost the same as Western companies."
Hiring local employees, which has doubled since 2007, also erodes profits, and more efforts must be made to control costs and enhance efficiency, Gong said.
Amid shrinking profits and fierce competition, Chinese contractors, which cannot win projects from the Kenyan government, extended their reach to regional construction projects, which threaten local businesses.
"Local companies started to unite to make trouble for us and demand preferential treatment for local businesses," Wang said. "Meanwhile, the cost of a work visa for a Chinese employee has increased, and the number of work visas has been further tightened."
Chinese companies are acting to address these new concerns.
Li Qiang, general manager of the Kenya office of China Road and Bridge Corp, or CRBC, said: "An association of Chinese construction companies in Kenya has been set up with the purpose of maintaining the overall image of Chinese companies and ensuring project quality."