When China’s premier Zhu Rongji toured the United States last month to boost his country’s World Trade Organisation membership bid, construction was top of the agenda. Huge opportunities exist for American commerce, Rongji told businessmen, because of an ‘unprecedented infrastructure boom’.
Big opportunities exist for other Western firms too, British among them. And with a large, long-established position in Hong Kong - now part of China - British consultancy is very well placed.
There is also a need for contracting skills, plant and equipment. In Chicago, for example, Rongji had a special meeting with Caterpillar’s chief executive Glen Barton. The firm has supplied the Three Gorges dam and has production facilities in China. Others like Rotec, Potain, Terex trucks and Cifa concrete plants are there too.
China’s boom is deliberately engineered, on a vast scale and in complete contrast to the slump blighting the rest of Asia, which, if the latest gloomy Japanese figures are believed, is set to continue. China’s government has adopted a so-called ‘socialist Keynsianism,’ spending state money to power the economy. This has worked well on a small scale for countries like Singapore in the past.
In China the scale is vast, with spending in the tens or even hundreds of billions. Estimates abound, but £120bn each year for the next ten years is not an unreasonable assessment. Infrastructure growth is expected to be 15%-20% each year. Roads spending is already at record levels and is scheduled to grow by another 15% this year.
‘China has five year plans like many other regimes,’ says Ron Rakusen, chairman of Scott Wilson (Hong Kong) in a report on overseas workload produced at the end of last year. ‘The difference (with the Chinese market) is one of scale.’
The country is enormous, he points out, with 1.24bn people in an area covering 9.6Mkm2. Of the 23 provinces, five autonomous regions and four independent municipalities, several have populations bigger than the UK.
Rakusen adds that the drive for spending comes not simply from anti- financial crisis measures but also from China’s urgently felt need to ‘leapfrog from a low threshold of development into the modern state.’
Adding to the mix are anti-disaster measures. Last year’s devastating floods in the middle Yangtse valley cost perhaps £12bn-£18bn, and an immediate programme of reconstruction has started. For Rakusen the battle against the flood ‘demonstrated a sense of dynamism and unity of purpose’ which will keep the wheel turning.
But none of this alone would necessarily mean work for outsiders. China has good capabilities of its own, especially in design and theoretical engineering. ‘Don’t forget that the engineer is highly valued in Chinese society, more than doctors and way above lawyers and accountants,’ adds Richard Harris from Buro Happold, which has a major building project pending in Shanghai.
But there are three main reasons to use foreign firms, says Edmund Leung, chairman of Hyder Consulting in Hong Kong. First, the World Trade Organisation demands a visible openness to world trade. Secondly, many of the projects are funded by outside organisations such as the World Bank or the Asian Development Bank which also demand international bidding.
Thirdly, he points out, there is pressure to bring projects up to international standards. China itself is pushing in particular to improve quality, project management, and safety. The change in attitude is due to recent accidents and because China is growing. Previously resources for construction were thinly stretched; safety and quality were sacrificed for quantity.
The result is that changes now need to be pushed at site level where attitudes are more entrenched and skill levels low. Honed Western supervision work, quality assurance systems and project management skills have become key factors. For example, several Hong Kong firms confirmed this week that they are in consultation with the Three Gorges dam managers over supervision work.
‘Front-end skills, feasibility studies and high technology design are areas where more expensive outside firms can offer something,’ says Leung. He recommends working in joint venture as much as possible.
Outside private investment also drives the push for quality. Taiwanese, Japanese, Hong Kong or Singapore clients will often bring in their own consultants for inward investment schemes.
Many consultants like Halcrow, Scott Wilson and Hyder have focused on roads, which have become a priority for the Chinese, although railway work is also growing. Anthony Wong of Halcrow China says his firm is just negotiating a third main highway supervision scheme. It already has two substantial projects on the go, one outside Chongqing in the centre of China and another which has just begun in Ginshu Province in the north west. He is currently in the UK training a team of 16 engineers from Ginshu.
Wong says supervision contracts are important, but points out that assessment studies on existing toll roads are becoming the growth area. ‘China is releasing capital for further development by leasing 30 year road concessions,’ says Wong. ‘These are attractive to outside investors, but they want accurate forecasts done.’
Halcrow sees China as a growth area, and like most UK consultants operates mainly out of Hong Kong. Some, like WS Atkins which has made big strides in Hong Kong recently, have chosen to register in China and set up offices in places like Shenzhen and Kunming, although they keep in close contact with the Hong Kong firm. Others think it best to stick to operating out of Hong Kong because, as Leung explains: ‘It is expensive to maintain expatriates inside China.’
Others, including High Point Rendel and US-owned Binnie, Black and Veatch, have spread their aim beyond the transport sectors and are now looking for water, sewerage and other broader infrastructure works. Most of these projects are still funded by overseas concession investment. But recession in Asia means these funds are increasingly concentrated on infrastructure projects rather than the construction of offices and high-tech structures.