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Chinese Contractors a Small But Growing Presence in U.S.

Mon April 21, 2008 - National Edition
Giles Lambertson

The People’s Republic of China is too large for the U.S. construction industry to ignore. The huge Asian power is consuming half of the world’s cement production and driving up the price of steel and copper with its massive building programs.

Yet what is happening here at home might be even more relevant: Chinese construction companies are a growing presence on the American construction scene. Should U.S. contractors be alarmed about bidding against companies whose home offices are in mainland China? Apparently not, according to some builder association and federal agency executives.

“We are not concerned about them operating in our competitive market,” said Perry Fowler, associate director for federal and heavy construction for Associated General Contractors. “And it is unlikely they would be bringing any masses of people over with them.”

Of greater importance to association members, he added, is the reciprocal ability of American contractors to bid on jobs in China.

Chinese contractors are not winning a large share of contracts in the U.S. China International Contractors Association reported in 2005 that 40 Chinese companies together had gained less than 1 percent of the U.S. market share. That percentage is not believed to have changed much in the last two years.

So the impact of Chinese activity on America’s trillion-dollar-plus construction market is minimal. Still, no national agency or association is closely monitoring the activity of contractors from China, so a definitive analysis of the situation is missing.

“We don’t track those numbers,” said Matt Englehart, the Commerce Department’s deputy director of public affairs for international trade. In fact, he said, the department relies on media for much of its information about foreign companies in the U.S.

Also unable to statistically document the situation is the American Road & Transportation Builders Association. Jeffrey L. Solsby, the association’s director of public affairs, said, “The data we track does not break down contracts let by either state ownership or national headquarters location. Our data simply can’t be used to quantify the volume or number of contracts let to either Chinese companies or Chinese state-owned companies.”

And Fowler of the AGC can only say he has “heard of some isolated instances (of Chinese companies winning contracts).

“I think the main concern is that they follow the same rules and regulations over here — the same labor requirements as everyone else. In terms of the federal market, it is unlikely any agencies would be hiring Chinese firms to do that work.”

His last assertion accords with political reality. The People’s Republic of China, for all its emerging economic and trade clout, is not an ally of the United States in most international wrangles. Hence, Chinese companies are suspect when it comes to construction projects where national security is a factor.

Modern day tension between the two countries extends back to the partitioning of Korea into North and South following the bloody conflict in which American troops were pitted directly against Chinese troops. The post-World War II transformation of China into a communist nation led to numerous Cold War confrontations, from the jungles of Southeast Asia to the East River hallways of the United Nations building in New York City.

While these continuing political confrontations generate heat, in the economic realm relations between East and West have grown more temperate. During the last three decades, Chinese authorities were driven by necessity to liberalize their state-planned economy; today, a modified market system has firmly taken root and the standard of living in China has risen dramatically.

China’s gross domestic product has grown almost 10 percent a year since 1979 and China is beginning to gain on the United States in the race for the title of World’s Largest Economy. The seemingly insatiable demand for heavy construction throughout China is a consequence of those reforms. Another consequence is the outward expansion of the growing Chinese construction industry, first into Asian, Middle Eastern and African markets and then into the United States.

Chinese companies are working across America today. Reported projects in the United States in the last few years, and the firms doing the work, include the following:

• Construction of a Marriott hotel in New York City by China State Construction Engineering Corp. in 2003;

• Construction of a heavy rolling mill by China Metallurigical Construction Corp. in 2004;

• Fabrication of steel components for a new suspension bridge over San Francisco Bay by Shanghai Zhenhua Port Machinery Corp. in 2006

• Construction of a railway station for the new Yankee Stadium in New York City by China State Construction Engineering Corp. in 2007.

A January issue of International Construction Review concluded that these and other projects are evidence the Chinese industry has matured into a formidable bidder for projects in the West.

“The fact is, after two decades of participating in the global market, Chinese contractors have increased their technology, management, design and financing capabilities,” the article concluded.

Industry observers in China have freely acknowledged that questionable and outdated business practices have injured the reputation of mainland contractors. Two years ago in the publication China Daily, the China International Contractors Association bemoaned the industry’s “bad practices” and “financing problems.” Concluded the association: “Apart from a few specialized companies, most domestic contractors are weak in perambulation [inspection], consultancy and management compared with their overseas rivals.”

Perry Fowler of the AGC succinctly summarized this view: “There is some question about the quality of their work.”

Fowler also has reservations about the structure of many Chinese firms, with the Chinese government owning some companies outright and partnering with others. “They say their construction industry is privatized, but they are set up with the government. All things considered, they are operating like a private company, but government underwrites the whole operation. It is hard to tell where the government starts and stops over there.”

According to 2007 data compiled by Engineering News-Record and a Shanghai industry publication, the largest construction contractor in China is China Railway Group Limited. The company is part of a government conglomerate, though it did offer an initial public stock offering last fall on the Hong Kong stock market. The 2007 rankings are based on construction contracting-specific revenue and, in the case of China Railway, domestic revenue was said to be more than $20 billion.

These clearly are not small companies and, as they grow more sophisticated in their management of international projects, they cannot be expected to remain small players on the American market. James Fowler (no relation to Perry Fowler), a Chinese trade specialist at the Department of Commerce, sees Chinese contractors’ involvement in the American market as a plus.

“I think the United States generally wants to keep our markets open to foreign investment and companies,” Fowler said. “We practice what we preach about the free market system.”

WTO Membership Brought Pros, Cons

Both the AGC executive and the Commerce Department specialist declared that the future of Chinese contractors in this country is tied to China’s compliance with World Trade Organization rules. The Asian giant was admitted to the international trade system in 2001 and negotiations continue. In the end, China must open its vast economy to foreign investors and companies. If China ultimately fails to do so, the United States has the legal right to refuse bidding by Chinese companies on projects on American soil.

“The situation in China is rather complex,” the Commerce Department’s Fowler said. “It is very complicated.” Part of the complications stem from the fact that U.S. companies are licensed to operate by individual states whereas Beijing’s central government regulates all foreign firms applying to do business in China.

“We don’t have a unified system in the United States. We are trying to bring some kind of harmony to a very different system,” Fowler explained. “Over time there will be more openness to U.S. companies. We are trying to regulate the business sector so that U.S. companies can operate according to recognized international practices.”

Fowler said the irony of the situation is that “previous to China’s WTO membership it was very easy for foreign firms to operate in China on a project-to-project basis. After WTO, they gave us what we asked for (i.e., a streamlined licensing system), and now our companies have to invest and capitalize before they can bid on projects there.

“I don’t know if we are better off. You have to be careful what you ask for.”

The most obvious obstacle to Chinese and Americans doing business in the other’s realm is, of course, language. Simultaneous translation services can breach that barrier, though sometimes important distinctions are lost in translation. Not as easily surmounted for Chinese contractors doing business in this country are the cultural differences they encounter.

Centralized decision-making is a long-standing Chinese business custom, for example, but the practice is unproductive when the home office is almost a world away and completely out of touch with what is happening day to day on the job site. Consequently, Chinese companies that have most successfully integrated themselves into the American construction scene are the ones that have learned to give relative operational autonomy to the executives here. CEG

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