Chinese contractors are becoming a dominant force

05 December 2018
Partnering with Chinese contractors could be one way forward for companies working in the region

While one of the bidders in Packages 4, 5 and 6 of the King Salman International Maritime Complex in Ras al-Khair was confident that the client was considering retendering the contracts “due to pricing issues”, it soon became clear that Chinese contractor Sepco had been selected for the $3.3bn contracts.

Chinese contractors or Chinese-led consortiums are also likely to implement two difficult and much-delayed schemes elsewhere - the Saudi Landbridge and Kuwait’s Silk City - with some help coming from the Chinese government or banks.

Going into 2019, Chinese firms appear relentless in pursuing new opportunities: they are bidding for the monorails contract in Egypt and will bid for Egypt’s first high-speed railway. They also intend to bid for each stage 2 package of UAE’s Etihad railway network, if they get prequalified.

These confirm three things: first, the region’s cost-efficiency drive tend to favour Chinese contractors, who have demonstrated the ability to under-price competitors when required. Second, competition will increasingly get tougher for non-Chinese contractors. Third, the Chinese government’s willingness to fund any scheme that can be linked, no matter how remotely, to its Belt and Road Initiative (BRI) ensures Chinese contractors’ dominance, particularly in the region’s infrastructure sector in the foreseeable future.

Indeed, with margins under intense pressure due to less predictable environment, it would be unwise for clients and competitors to ignore Chinese contractors, many of whom have managed to build respectable track records by implementing projects in their home market and abroad.

It now appears one of the best moves going forward is for firms to explore partnering with Chinese companies, where regulatory and corporate governance frameworks allow them to do so. One of the first global business leaders to adopt this strategy has been Joe Kaeser, CEO of German technology giant Siemens.

In June, Siemens signed an agreement with 10 Chinese engineering, procurement and construction (EPC) contractors across the power generation, transmission and mobility sectors to address opportunities in line with BRI.

Asked if he has considered potential repercussions partnerships with Chinese firms could have on its global brand or its partnerships with non-Chinese EPCs, Kaeser replied that clients are not stupid and that it is not always about the price. “Customers often look for the best offer, usually for long-term partnerships,” he said.

The second container terminal at Abu Dhabi’s Khalifa Port demonstrates this long-term partnership approach. The terminal is being developed and operated over 35 years by a joint venture of Abu Dhabi Ports and China’s Cosco Shipping Ports.  In addition, Shanghai Zhenhua Heavy Industries has been commissioned to install and operate over three dozen Siemens cranes at the terminal.

As things stand, there appears little to lose from following Kaeser’s lead. Such strategy could have a balancing effect on expertise, price and financing, increasing the likelihood of winning future projects. It could also provide firms an excellent insight on how their Chinese rivals operate and how they can compete with them better on the next deal.

 

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