As China encourages more enterprises to go abroad, project contractors in Africa find themselves competing not just against their Western counterparts but also their fellow Chinese. Li Jiabao reports from Nairobi, Kenya.

"I can't sit without a project for five years, even though we are a State-owned enterprise," Wang Xiaoming said in his office in Nairobi.

Wang is the chief financial officer of the East African branch of China Overseas Engineering Group Co Ltd, a subsidiary of China Railway Group Ltd, which entered Kenya in 1984. Business originally focused on foreign aid and residential construction. It expanded to large infrastructure construction projects in 2007, with a model of tendering for projects and subcontracting them to construction companies.

Gong Changyin, deputy regional manager of East Africa branch of Sinohydro Corp Ltd, said that Africa is a large and promising market.

"As long as African countries are determined to develop, they need to build infrastructure such as roads, railways and ports. We had very few competitors when getting into the Kenyan market in 1997, but now companies from Turkey, India and Western countries all are our competitors," he said.

In addition, competition among Chinese companies is becoming fierce as companies from different provinces, including Jiangsu, Fujian and Sichuan, are eyeing the market, following the lead of State-owned enterprises, Gong said. This has influenced Chinese project contracts in Kenya as the provincial ones are flexible in management and mechanism, he said.

Wang added that more than 90 Chinese project contracting or construction companies are registered in Kenya, a market with a limited size but a key springboard to tapping business opportunities in neighboring countries. And a typical construction project can easily attract more than 10 Chinese bidders, with seven or eight still qualified after the first round of reviews.

"Chinese companies are seeing cutthroat competition. Some offer prices that are unable to support the project, as they seek to seize the market with a short-term loss," Wang said.

"Prices and costs are the top concern of Kenyan employers, followed by factors like design," Gong said. "Having lower prices than our Western peers was our traditional advantage as we import equipment and employ managers from China. But the renminbi appreciation and rising prices of equipment and materials at home have been eroding the advantage, and our bidding prices are almost the same as Western companies."

Hiring local employees, which has doubled since 2007, also erodes profits, and more efforts must be made to control costs and enhance efficiency, Gong said.

Amid shrinking profits and fierce competition, Chinese contractors, which cannot win projects from the Kenyan government, extended their reach to regional construction projects, which threaten local businesses.

"Local companies started to unite to make trouble for us and demand preferential treatment for local businesses," Wang said. "Meanwhile, the cost of a work visa for a Chinese employee has increased, and the number of work visas has been further tightened."

Hard coordination

Chinese companies are acting to address these new concerns.

Li Qiang, general manager of the Kenya office of China Road and Bridge Corp, or CRBC, said: "An association of Chinese construction companies in Kenya has been set up with the purpose of maintaining the overall image of Chinese companies and ensuring project quality."

Gong, from Sinohydro, added that the economic and commercial counselor's office of the Chinese Embassy in Kenya scores the performance of Chinese companies and issues evaluation letters to the best performers before they are allowed to bid.

The mechanism does not work well, as the counselor's office does not have many projects to coordinate, said Liu Qichang, general manager of the East Africa branch of China Overseas Engineering Group.

"Instead, we hope the Chinese authorities, especially the constractors chambers, will establish criteria in view of the market size of the host country before Chinese companies go abroad," he said.

"Also, we expect our parent company, China Railway Group Ltd, to balance business orientation after seeing seven of its subsidiary companies doing similar business in Kenya."

However, CRBC Vice-President Sun Liqiang welcomes the competition from China's provincial players.

"Provincial companies may have an advantage in labor or costs, but our advantage covers the whole industrial chain from design to construction and equipment in addition to rich experience in overseas markets, which will help us win new and major projects," he said.

"We don't fear competition as we have defeated many companies from emerging economies."

Sun called for the government to give more support for companies going global, such as tax adjustments to avoid double taxation.

Chinese standard

"Compared with business of project contracting and construction, standard-setting in the global market is more important," Sun said. "Chinese standards in overseas project contracting and construction abroad are now gaining momentum, and it takes about five years to be accepted in Africa."

Gong, from Sinohydro, agreed, saying that the gap between Chinese and international standards are narrowing, and the trend is to use Chinese standards in projects.

In 2012, the turnover of China's contracted projects overseas amounted to $116.6 billion, up by 12.7 percent year-on-year, and the value of newly signed contracts was $156.53 billion, up 10 percent year-on-year.

Meanwhile, Africa has become the second-largest market for China's contracted projects overseas in 2011, according to the Ministry of Commerce.

African countries currently follow the standards of the United Kingdom and France, the continent's two former major colonial powers. Construction supervision firms are mainly European ones although China has the leading technology, Sun said.

"We must boost the internationalization of Chinese standards. It's a key move that will not only promote the exports of Chinese products and technology, but also advance the global reputation of Chinese design, consultancy and supervision. Moreover, it gives us more rights, or a bigger say, in project pricing and reduces project risk through engagement at the earliest stage," Sun said.

He expects more business opportunities to come from Africa's urbanization process and China's renminbi globalization.

"We looking forward to the renminbi globalization," Sun said. "The day when the renminbi is used for settlement will be a new day for Chinese companies in overseas markets as it will enable them to enter the industries of the host countries. ... We will not only build roads and power stations, but also operate them."

Sun added that China's projects in Africa, "in reality, help develop the continent, which lacks technology and management, instead of practising neocolonialism. Instead, projects from Western countries are often accompanied by political agendas."

Contact the writer at lijiabao@chinadaily.com.cn

(China Daily 03/05/2013 page13)