China Syndrome

14 February 2007 (Last Updated February 14th, 2007 18:30)

Two Chinese contractors have entered the list of the ten biggest construction firms in the world for the first time. Graham Anderson examines the news that dominated Euroconstruct's December 2006 conference.

China Syndrome
Two Chinese contractors entered the list of the ten biggest construction firms in the world for the first time.

The news that two Chinese building contractors have made it into the top ten construction firms in the world has underlined the rapidly changing nature of the global construction industry and explained why the growth of the Asian markets, and
particularly that of China, dominated discussions at December's Euroconstruct conference in Munich.

The Chinese firms China Railway Engineering and China Railway Construction were listed in 8th and 10th places respectively by Swiss consultant and speaker Adrian Knoepfli.

THE CHINESE INFLUENCE

Knoepfli compared the list of the top construction companies worldwide in 1998, with that in 2005 (see table, bottom right). He used the data to illustrate both the influence of the Chinese and the growing globalisation and consolidation at the top end
of the industry among the firms responsible for project managing the very biggest international projects.

Top of the pile today is French outfit Vinci, created by the merger of rivals Vivendi-owned SGE and Suez Lyonnaise subsidiary GTM in 2000. Vinci's creation means that the other French giant, Bouygues, slipped from first to second place even though its
construction turnover (it is also a big player in the French telecoms market) doubled.

Other notable changes were the arrival of Spanish firm ACS, which took over rival Dragados in 2002, and German giant Hochtief.

In fourth place with a turnover of $17bn (£9bn), Hochtief was described by Mr Knoepfli as 'the most international construction company in the world', although to some extent the firm was forced into that position by the long recession in
Germany.

Despite the trend towards consolidation among the major players and the major projects, the industry remains highly fragmented. "In Europe, more than 97% of the firms have fewer than 97 employees," added Knoepfli.

PUT ASIDE POLITICS

The focus on China was underlined by keynote speaker Dr Norbert Walter, chief economist at Deutsche Bank, who argued that the West should take a much more positive attitude towards Beijing's politicians – and not let political concerns obstruct
good working relations.

"I am a convert," said Dr Walter. "I have been analysing China since the late 1970s and always believed that it would collapse – that if people received education, they would not accept political coercion. But I was wrong. Today it is still not
a market economy, and the political system is not a centralised system. The leadership is tolerant and competent.

The US believes that they are entitled to burn 25% of the world's fossil fuels," said Dr Walter. "The Europeans believe that in a time of global warming they should close down nuclear power plants," he added.

"China is a growing influence in today's construction industry."

"This is the type of stupidity that the US
and the Germans are capable of."

In contrast, he argued that the Chinese are quite willing and able to confront environmental issues. "I have been impressed with the quality of strategic thinking displayed by the Chinese government," said Dr Walter. "The Chinese government is more
intelligent and more aware than many of the elected governments in the West."

AFRICAN EXPANSION

As the rest of the world focuses on Asia, so Chinese construction companies are focusing on Africa, where their activities are expanding rapidly. The Chinese are involved in thousands of construction projects – such as a new railway line from
Lagos to Abuja in Nigeria and a nuclear power plant in Egypt.

Deutsche Bank's chief economist agreed with the Chinese strategy. "Africa is now on the radar screen," he said. "It has delivered 5% average annual growth for the past five years, which is no small number."

Dr Walter did not ignore other countries growing in stature in the global construction industry. "We must remember that dynamic markets are not only found in BRIC (Brazil, Russia, India, China) countries."

Deutsche Bank's chief economist concluded with a direct observation: "If the US or Europe were investing in the African continent in the way the Chinese are doing then the world would be a better place."