Companies

China Harbour to take equity in projects

By Liu Jie (China Daily)
Updated: 2010-10-04 09:37

BEIJING - Infrastructure construction company China Harbour Engineering Co Ltd is aiming to take equity stakes in more projects to garner a greater say in their decision-making processes and obtain profits over the longer term, a top executive has said.

"We expect to have stakes in one third of our projects by 2015, compared with the less than 5 percent currently," said Sun Ziyu, chairman and president of State-owned China Harbour. "We are striving to act not only as a contractor but also as an investor in order to earn profits as well as operational returns."

The company is engaged in basic infrastructure construction, involving marine engineering, dredging and reclamation, roads and bridges, railways, airports and building of industrial plants both domestically and overseas.

"We used to focus on engineering construction, now we are striving to provide complete solutions to our clients covering everything from feasibility studies to finance, from construction to maintenance and operation," said Sun, who started off as an engineer at China Harbour.

This kind of a business model is likely to help the contractor get deeply involved in its overseas projects, provide customized services from a long-term perspective as well as get sustainable profits instead of just the one-time contracting fee, experts said.

Such a model can also be applied in infrastructure construction and economic development projects, Sun said.

China Harbour also hopes to set up some overseas manufacturing bases, facilitating Chinese enterprises' global forays, he said.

Citing African countries such as Morocco and Algeria as examples, Sun said: "If we win construction bids for economic development zones and can be equity investors of projects in this region, we can invite Chinese exporters to set up manufacturing facilities in these nations, which are close to European countries, thus helping them reduce logistics costs and creating job opportunities for the local people."

China Harbour's new strategy is based on its existing advantages in constructing international engineering projects, its global business network, talented management team as well as strong financial backing from Chinese banks.

The company is now the major international operating division of China Communications Construction Company Ltd, which was ranked 13th among 225 top international contractors and 224th among the world's top 500 companies this year. It is also the largest foreign contractor in China with contracting turnover of $33.465 billion last year.

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China Harbour now has 31 overseas branches and offices with business activities covering more than 70 countries and regions. The company currently employs more than 6,000 domestic and international staff to undertake $9.5 billion worth of projects worldwide.

Due to the global financial crisis, many nations have adopted stimulus policies and put money into infrastructure and basic facilities building, which have provided opportunities for contractors. Chinese banks, such as Industrial and Commercial Bank of China and China Construction Bank, are also expanding overseas to cash in on the prosperous infrastructure construction market.

"Our cooperation with Chinese banks on overseas expansion are win-win to both of us and greatly help reduce risks, given China Harbour's rich international market experiences and Chinese banks' financing capability," said Sun, adding that the company is open to banking institutions when implementing its equity investment strategy.

During the 11th Five-Year Plan period (2006-2010), China Harbour's turnover and net profit surged by 50 percent and 100 percent year-on-year. Sun said the growths are expected to be 50 percent and 30 percent over the next five years.

China Harbour's competitors include powerful foreign contractors from South Korea and Japan and domestic players like China Railway Construction Corporation Ltd and Shanghai Construction Group.

Zhang Yansheng, director of the Foreign Economics Research Institute, which is affiliated to the National Development and Reform Commission, said China is the world's most competitive contracting nation, and that severe competition among the Chinese players may ultimately hinder the development of all contractors. Among the world's top 225 contractors, 51 are Chinese companies.

The turnover of China's foreign contracting projects touched $42.67 billion in the first seven months of this year, up 9.4 percent year-on-year; and the value of newly signed contracts was $60.54 billion, down 20.2 percent year-on-year, according to the Ministry of Commerce.

"Price war and blind overseas expansion of some companies without professional construction capability and international market experience are likely to deal a blow to their own businesses and destroy Chinese contractors' reputation in the world," Sun said.