China's construction industry exports its expertise

Metallurgical Corporation of China is a major contractor for the Resorts World Sentosa project, including a Universal Studio theme park, in Singapore. Chinese construction companies' service exports are surging despite the global financial crisis. Si Tingting

The role of exports as the driver of China's economic growth is on the wane as the financial crisis drains external demands for manufactured goods.

However, China's construction industry has landed major contracts by learning how to export its expertise at a time when other countries are using stimulus plans to jumpstart their economies.

"As many countries have rolled out sizable economic stimulus plans, the majority of which go to infrastructure projects, these provide more opportunities for Chinese enterprises," said Yao Jian, a spokesman for the Ministry of Commerce.

Services revenues from overseas construction projects grew to $44.33 billion from January to August, up 34.7 percent from the same period last year, according to the ministry.

New contracts for overseas construction projects signed in the first eight months of 2009 totaled $82.2 billion, a 40.3 percent increase from the same period last year.

The surge in construction revenues from overseas is even more remarkable compared to a 22.2 percent drop in total exports during the first eight months of this year.

China Railway Construction, the world's sixth largest construction contractor, reported that the value of newly entered overseas contracts surged 98 percent in the first half, representing one-fifth of the total new contracts signed during the same period.

Infrastructure investment has fueled China's growth in the past several decades, and it also helped to create a massive construction industry in China.

This is an industry with a track record of building some of the world's larger dams, tunnels, airports, bridges and more challenging highways and railways, while also creating internationally recognized modern structures such as the "Bird's Nest" and CCTV headquarters.

As a result, Chinese contractors are increasingly able to successfully compete for higher-value contracts in foreign countries due to that experience, said Nicholas Mak, director for research and consulting at Knight Frank, a real estate management and consulting house.

Also, there is no longer the perception of second-rate quality that beset Chinese firms when they first made forays abroad, Mak added.

Last year, 51 Chinese project contractors were listed among the world's top 225 international contractors.

In addition to their expertise, Chinese project contractors can provide overseas projects access to long-term, low-interest loans from China's State-owned banks, which are currently sitting on the world's biggest currency reserve worth more than $2.1 trillion.

Those loans can become especially valuable at a time when many construction projects around the world are being put on hold because of the global credit crunch.

Strong support

Support from the highest authority in China also has helped land major deals abroad.

In February, Chinese President Hu Jintao joined Saudi Arabia's King Abdullah bin Abdul-Aziz to witness China Railway Construction sign a $1.78 billion contract to build the first phase of a special railway for Muslim pilgrims in Saudi Arabia.

Earlier this month, China State Construction Engineering Corp, the world's largest public construction contractor by market value, inked a $1.9 billion construction deal with Bahamas-based Baha Mar Resorts Inc during a visit by China's top legislator, Wu Bangguo, to the North American island.

"The biggest advantage for Chinese construction firms doing business abroad is that they are enjoying strong support from their home country," said Liu Bo, deputy general manager of China Jingye Engineering Corp Ltd.

China Jingye Engineering is a subsidiary of construction conglomerate Metallurgical Corporation of China (MCC), which is overseeing the construction of a Universal Studios theme park at Sentosa Island in Singapore.

Liu said many Chinese contractors who operate in overseas markets fail because they seek privatization and independence from their parent companies in China.

Many of China's top construction contractors have placed overseas expansion high on their agenda, since overseas constructions projects normally have a higher profit margin than domestic projects.

Liu said MCC intends to have 20 percent to 30 percent of its total contracts from overseas markets this year, a plan that is in line with China's strategy to encourage State-owned companies operating abroad.

Similar to the "oil for loans" strategy that China adopted to secure supplies of raw material and energy sources to fuel its fast-growing economy, Chinese contractors are sometimes commissioned to build infrastructure facilities for countries with rich natural resources.

The contract value of new projects in Asia and Africa hit $47.8 billion from January to May -- 90 percent of the total contract value of all China's international project contracting business during the same period, according to the China International Contractors Association (CICA).

The top three markets by contract value of new projects were Iran ($8 billion), India ($4 billion) and Saudi Arabia ($2.5 billion).

"Rich natural resources such as petroleum, metals and natural gas ensured payment in due time. Lots of customers in the Middle East and Africa use these resources as a means of payment," said CICA Director Diao Chunhe.

Growing the economy

Winning service contracts also can help boost exports of manufactured goods, as Chinese contractors tend to source most materials and equipment for overseas projects from China.

Accompanying the deal to build the Universal Studios park, MCC also won a deal to supply, fabricate and deliver 23,000 tons of structural steel for the project.

According to the Ministry of Commerce, every dollar of contracted work translates to an increase of $4.9 in GDP.

The success of Chinese contractors is not limited to emerging countries.

MCC is involved in Australian mining projects. A Chinese aircraft technology company recently secured a major contract for wind power projects in the United States. And China Construction of America won a bid to renovate the Hamilton Bridge in New York.

As for MCC's Liu, he also wants to establish a reputation for superior contract execution through the project to build the Universal Studios theme park in Singapore.

"I hope this will help the company impress our US counterparts who might one day choose to partner with us," Liu said.

(China Daily 09/28/2009 page12)