Strange bedfellows in China

by Ed Weiss

Japan may hold the ultimate key to a general economic recovery for the countries of the Pacific Rim, but China has a more direct and immediate influence. Its continued financial stability provides both market and investment opportunities.

However, the recent economic slow-down from an official 8% to 7% annual growth has prompted the Beijing government to announce it will spend a massive $1.2 trillion on infrastructure projects over the next three years. Included are expressways, bridges, railways, power plants and water conservation projects.

On the surface this appears to offer a bonanza to international construction and engineering companies, many of which harbour unrealistic expectations about the amount of work available.

The reality is that Beijing will only allow international company participation in projects under strict rules. They must be wholly overseas owned; or they must involve loans from international financial institutions and therefore be open to international bids; or they should be joint-venture projects that are beyond the technical abilities of domestic companies.

Additionally, contracts are not always awarded on commercial grounds and can be arbitrarily cancelled for political reasons.

According to an Australian construction executive with long experience of doing business in China, joint ventures are most acceptable to Beijing. But local partners are avaricious, wanting technology, money and management capability, claiming that in exchange they offer entry to Chinese markets and valuable contacts.

Local executives usually work to their own agenda. They expect to profit personally from joint-venture activities apart from their corporate remuneration. The opportunities are everywhere, from a capital gain on selling land to the joint venture, to making a profit from supplying parts or equipment for the project. They also usually expect to be `rewarded’ for getting the many official licences and permits.

Such joint ventures can create strange bedfellows, with no guarantee of a common purpose. As one Chinese expression puts it: `Same bed, different dreams.’