china’s construction business: built on sand … · china’s construction business: built on...

CHINA’s CONSTRUCTION BUSINESS: BUILT ON SAND OR ROCK?

Presentation f

BUILT ON SAND OR ROCK?

for

AUSTRIA CONNECT – 2009 in ChinaSeptember 19, 2009Mission Hills Resort - Shenzhen

Joachim PrigolDr. George LiuAlpine Mayreder Construction Co. Ltd.

Or on Mud …………………???

June 27, 2009Minhang District

ShanghaiS a g a

Think guessThink, guesshow it can happen …??

2

Outline of Presentation

1. Overview of the construction industry in China

2. Foreign Invested Construction Enterprises (FICEs): opportunities, challenges and entry strategies in China

3. Local Practice of Alpine Mayreder Construction Co., Ltd. (AMCC)

3

Overview of the Construction Industry in China

1. World’s 3rd largest construction market in 2007 with over Euro 520 billion after the US and Japan

Chinese Position in the World’s Construction Market

Co ntr Si e of onstr tion market

2. Top construction markets from emerging economies in 2007

billion , after the US and Japan

Country Size of construction market China Euro 524 billion

Russia Euro 73 billion

India Euro 70 billionIndia Euro 70 billion

3. Ranking of Attractiveness of Construction Markets by Country (Research 2000)

Rank Country Fastest Growing

Most Profitable

Most Open Combined Score

1 China 416 88 47 5512 U.S. 6 29 95 1303 Japan 1 60 3 643 Japan 1 60 3 644 UK 0 5 58 635 Germany 16 27 15 58

4


Historical Comparison of China Construction Output

820.0 800.0

1000.0

llion

Eur

o)

354.4 400.0

600.0

on V

alue

(Bil

6.9 13.8 59.4

128.2

0.0

200.0

1985 1990 1995 2000 2005 2010eCon

stru

ctio

2000 2005 i th 20%

1985 1990 1995 2000 2005 2010e

5

2000 – 2005: increase every year more than 20%2005 – 2010: increase forecast with a factor of 2.3 times


Construction Output by Trade Sectors:

Sector Output (Euro Bil.) %

Building Works 314.5 60.1

Civil Engineering Works 139.4 26.6Civil Engineering Works 139.4 26.6

Other Works 69.7 13.3

Total Construction Output 523 5Total Construction Output 523.5

Building Works:

- New target for Chinese population is to have own flats- Housing market is as well speculation market, lot of flats, houses are empty but all sold- Housing market can be used as money laundry

6


– Stimulated by the strong economic growth and rapid urbanization• More than 50% population will be in urban centers by 2020• More than 50% population will be in urban centers by 2020• More than 160 cities with population over one million • Yearly building construction of 2 billion square meters • Increased in local investment on properties own flats• Increased in local investment on properties – own flats

Possibility to buy properties in cash

– Contribution to the economic growth• 4th largest industry in China over last five years• Currently 8% of GDP• Over 20% annual growth for the past 10 years• Over 20% annual growth for the past 10 years

7


– Benefited from government-funded infrastructure projects, such as: • RMB 4 trillion government fund package for infrastructure

investment• West-to-East Gas Supply and South-to-North Water Supply Projects• Beijing-Shanghai Express Rail Line, and several other express rail

lilines• Olympic 2008 & Asian Games 2010 • World Expo 2010

– Impact of WTO on China Construction Industry• Increasingly transparent environment• Legal system for construction implemented, still room for g y p

improvement• Regulations for FICEs established

– Increasing efforts and significant improvement on safety, quality andIncreasing efforts and significant improvement on safety, quality and environmental protection

8


%

Contribution from Construction Activities to Chinese GDP

8

9

8

9

10

%

4 6

6.67

5

6

7

8

4.24.6

2

3

4

5

0

1

2

1980 1990 2000 2003 2006 2010e1980 1990 2000 2003 2006 2010e

9


Split of the RMB 4 Trillion Package

10.00% 9.25%25.00%

37.50%

3 75%5.25%

9.25%

3.75%

Low-income subsidized housing schemeCivil & infrastructure works for rural areasConstruction of major infrastructure works and upgrading of city power networkConstruction of major infrastructure works and upgrading of city power network Health and enducation Energy saving, emission reduction and eco-environment projectsInnovation and improvement of industry organizational structureReconstruction in Sichuan after 5.12 earthquake

10

q


Major International, Local Players:

S/N Company 2007 Revenue (Euro Bil.)

2007 Int'l Revenue

(Euro Bil.)1 VINCI,Rueil-Malmaison, France 29.8 10.5

2 BOUYGUES,Paris, France 22.9 8.6

3 China Railway Group Ltd., Beijing, China 19.3 0.6

4 China Railway Construction Corp., Beijing, China 17.4 0.3

5 HOCHTIEF AG,Essen, Germany 17.0 15.2

6 GRUPO ACS,Madrid, Spain 16.6 2.6

7 China State Construction Eng. Corp., Beijing, China 15.4 2.3

8 China Communications Constr. Group., Beijing, China 14.3 3.0

9 FCC, Madrid, Spain 13.6 4.9

10 Skanska, AG, Solua, Sweden 13.2 10.0

11 Bechtel, San Francisco, USA 12.6 8.4

12 China Metallurgical Group Corp., Beijing, China 12.1 0.4

The above top five local contractors have Euro 78.5 Bil. (15%) market share of the Chinese construction industry of Euro 523.5 Bil. in 2007

11


International Activities of Chinese Construction Companies

- Chinese home market still very much growing

- Chinese construction companies not so much interested in international market

- CSCEC just listed in July at Shanghai Stock Exchange, with a share value of j y g g ,over 5 billion Euro signed a 1.2 billion Euro contract together with TishmanConstruction Group for a construction project in Atlantic City, USA with Revel Entertainment Group. CSCEC holds 51% share of the J.V. , construction time 2 yearsyears.

12


Position of FICEs in the Construction Market in China

FICEs are small in significant portion on Chinese constructionFICEs are small in significant portion on Chinese construction market, mainly for special know-how.

1995 2007% f FICE % f FICE% of FICEs % of FICEs

Nos. of EnterprisesTotal 24,133

2.6662,074

1.36FICEs 641 847

Total 59 4 523 5Construction Output (Euro Bil.)

Total 59.4

1.16

523.5

1.33FICEs 0.69 6.95

* FICEs also include the firms from HK, Macau and Taiwan* For local contractors, only those with construction licenses are counted.

13

Opportunities of FICEs in China

1. Growing Local Investments:

Infrastructure investment For examples: Planned infrastructure investments under the 11th Five-year Plan

(2006-2010)R d d (380 000k f d 24 000k f )• Roads and expressways (380,000km of new road; 24,000km of expressway)

• New rail lines (19,800 km), especially express rail lines• Numerous ports, navigation channels, hydropower plants

W t D l t S h (107 j i f t t j t )• Western Development Scheme (107 major infrastructure projects)

Keep-Booming Property Market:Hi h d lit b ildi t i th k t f FICE• High-end quality building sector is the market of FICEs

Opportunities for Prestige ProjectsI t ti l hit t d i• International architects, designers

14


EXPRESS RAIL LINES BY 2020

Jingyihuo Line

Zhongjiwu Line

Beijiang Second Line

Nanjiang Second Line

Baoxi Corridor

Lanqing Second Line

New Beijing South Station

Kuitun to Beitun Line

Linhe to Ceke Line

Taiyuan to Zhongwei Line

Hada Special Line

Jinqin Special Line

Shitai Special LineTaiyuan to Zhongwei Line

Xi’an to Pingliang Line

Lanzhou to Chongqing Line

Longchang to Huangtong Line

Jiaoji Special Line

Xi’an-Zhengzhou-Xuzhou Special Line

Jinghu High Line

Shanghai to Nantong lineShanghai to Zhenjiang LineHuzhou-Zhapu-Pudong Line

Qingzang Extension Line

Dali to Ruili Line

Yuxi to Mohan Line

Kunming to Hekou Line

p g

Huhanrong Fast Corridor

Jingguang Special Line

Ningbo-Fuzhou-Xiamen-Shenzhen Fast Corridor

Xi Li

15Maglev

Xiangpu Line

Wangan Second Line

Xianggui Second LineNew Guangzhou StationGuangzhu LineGuangshen 4th Line

Kunming-Zhanyi-Liupanshui Second Line

15


Opportunities for Prestige Projects for int. Architects

For examples:

Water Cube - PTW (Australian)

New CCTV Tower Beijing

OMA (D t h)OMA (Dutch)

16Bird’s Nest – Herzog de Meuron (Swiss) Grand Theatre – Paul Andreu (French)


2. Increasing Foreign Direct Investment:

Year

Annual

Nos. of New FIEs Foreign Capital Utilized(Euro billion)( )

2003 41081 37.42

2004 43664 42 402004 43664 42.40

2005 45433 29.85

2006 41485 48 582006 41485 48.58

2007 37888 57.80

2008 27514 64 61

17

2008 27514 64.61


Split of FDI in China by Trade Sector

Others 13 53%

Manufacturing

Lease and Commercial

Services 5.38%

Others 13.53%

54.66%

Wholesale & Retail Trade

Real Estate 22.86%

Retail Trade 3.58%

18


3. Improved Policy and Enhanced Market Access:

C f- Construction law was enforced in 1998 and revised in 2004

- Regulations for FICEs were established (Decree 113, 114, 116, 155)1 Decree 113‐ Regulations for Foreign Invested Construction Enterprises (FICEs)1. Decree 113 Regulations for Foreign Invested Construction Enterprises (FICEs)

2. Decree 114‐ Regulations for Foreign Invested Design Services Enterprises – Architecture and Engineering

3. Decree 116‐ Regulations for Foreign Invested Urban Planning Service Enterprises

4. Decree 155‐ Regulations for Foreign Invested Construction Services Enterprises (FICSEs)

- Quality, safety and environmental requirements are becoming more strictImplementation of Jianli Supervision Co on site but still problems see issued Document 27Implementation of Jianli, Supervision Co. on site, but still problems, see issued Document 27 by Central Committee of CPC and State Council.

19


Decree 113, replaced Decree 32 and was implemented in Dec. 2004 to follow WTO regulations regulates legislation and procedures for FICEsfollow WTO regulations, regulates legislation and procedures for FICEs working in ChinaConstruction company to be found in China

• Wholly Foreign-Owned Enterprise (WFOE):Only projects with more than 50 percent foreign investment involved can be performed.

• Sino-Foreign Equity Joint Venture (EJV):One party must have minimum 25 percent

• Project contract value max. 5 times of equity value

• Construction qualification to be achieved for Grade A, B and C.(see detailed requirements for Grade A and B in the following slides)

20


Required references in construction in P. R. China and overseas in last 5 years, 4 out of 6 kinds of project:

25-storey buildings;

Grade A of Building GC: Grade B of Building GC:

Above 12-storey buildings;y g ;

100-meter in height of a structure or a building;

30,000 sqm construction area for a single building;

At least 30 meters single span of a building;

Above 12 storey buildings;

50-meter in height of a structure or a building;

10,000 sqm construction area for a single building;

At least 21 meters single span of a building;At least 30 meters single span of a building;

100,000 sqm construction area of residential area or

construction complex;

RMB100 Mi f i l t t l

At least 21 meters single span of a building;

50,000 sqm construction area of residential area or

construction complex;

RMB30 Mio of a single contract valueRMB100 Mio. of a single contract value RMB30 Mio. of a single contract value

* E er 3 ears q alification grade to be pro en rene ed* Every 3 years qualification grade to be proven, renewed

21


Personnel Qualification:


General Manager with more than 10 years experiencein construction management, or furnished with senior qualification;

g

General Manager with more than 8 years experiencein construction management, or furnished withsenior qualification;

g

q ;Chief engineer with more than 10 years experience inconstruction and technology management, and withsenior title in his/her profession;Chief Accountant is furnished with senior

q ;Chief engineer with more than 8 years experience inconstruction and technology management, and withsenior title in his/her profession; Chief Accountant is furnished with middle level

qualification;The company has no less than 300 technical andeconomic management staff with qualified certificate. Among these, there are at least 200 technical staff,

d N l th 10 h h i lifi ti

qualification;The company has no less than 150 technical andeconomic management staff with qualified certificate. Among these, there are at least 100 technical staff,

d N l th 2 h h i lifi tiand No less than 10 who has senior qualification; No less than 60 who has middle qualification;No less than 12 project managers with 1st classqualification

and No less than 2 who has senior qualification; No less than 20 who has middle qualification;No less than 12 project managers with 1st classqualification

22


Capital Requirement:


Registered capital: RMB 50 Mio.Net fixed assets: RMB 60 Mio.Hi h l i l 3

g

Registered capital: RMB 20 Mio.Net fixed assets: RMB 25 Mio.Hi h t l i l t 3Highest annual income last 3 years:

Above RMB 200 Mio.To be equipped with construction machinery and quality Inspection equipment which for the

Highest annual income last 3 years: Above RMB 80 Mio.

To be equipped with construction machinery

and quality Inspection equipment which for theconstruction work in our contract scope.

q yInspection equipment which for theconstruction work in our contract

scope.

23

Challenges of FICEs faced in China

1. Increasingly intense competition- Local contractor’s competitiveness is significantly improved- More foreign contractors enteredg

2. Difficulty in obtaining local construction license- Various decrees, international designers only for conceptual design

d d t il d d i l i ti ith l l DIapproved, detailed design only in cooperation with local DI.

3. Restrictions on WFOEs

4. Excluded from broad market - Local tenders not open, usage of tender offices, still high corruption

5. Limited international tenders

6. Risks of breaking contractsL l i ht bl t f t ti- Legal right problems, payment of retention money

24

Challenges of FICEs faced in ChinaCentral Committee of the Communist Party of China issued Document No.27 at 9th July 2009 which identifies the main problems with construction industry in China as follows:

- Money-for-power deals and commercial bribery, whereby some officials abuse their power to acquire personal gain.

S l l t t l d l d ill ll d- Some local governments operate approval and lease procedures illegally, and change the use categorization of land and increase the utilization rate of construction without approval.

- Some contractors illegally subcontract construction work.

- Some tendering agencies operate illegally.

- Some local governments waste taxpayers’ money by constructing lavish buildings.

- Some contractors violate safety and quality regulationsSome contractors violate safety and quality regulations.

- Some local governments requisition land illegally during the construction process.25

Entry Strategies for FICEs into China Market

What and Where:

F i F d d P j t• Foreign-Funded ProjectsIndustrial, commercial and institutional buildings; WB/ADB and other bilateral cooperation infrastructure projects, previously up to 1995

• Local investment projectsHigh-end (quality, technology and sophistication wise) for housing marketFinancing-related infrastructure projects, infrastructure projects requiring special know how

• First-tier and coastal citiesFirst tier and coastal citiesMajor cities and rich regions generate more construction demand (see next page)Coastal provinces generate 66% of construction output

26

• Environmental projects, Water Treatment and Waste Water Treatment projects


The following top 10 provinces/cities generated 66.3% of the total construction output in China in 2007.

S/N Province/City Construction Output (Euro Bil.)

% of Total Constr. Output

1 Jiangsu 71.90 13.7%

2 Zhejiang 71.50 13.7%

3 Shandong 33.73 6.4%

4 Guangdong 30.76 5.9%

5 Beijing 26.43 5.0%

6 Shanghai 25.89 4.9%

7 Henan 22.07 4.2%

8 Hubei 21.65 4.1%

9 Sichuan 21.64 4.1%

10 Liaoning 21.54 4.1%

27

Total 347.12 66.3%


How:

Entry Mode:• WFOE• WFOE • Equity JV• Joint cooperation with local DI for Architect, Engineering Companies

Acquisition Mode:• General contracting• D&B or EPC• PM, CM, EPCM, and other services contracts• BOT, PPP, and related

When and How Long:

• The earlier, the better • Have to plan for long term and local operation

28

• Have to plan for long term and local operation

Local Practice of Alpine in China

• 1980 Start of cooperation with CSCEC on international markets inMiddle East

• 1984 Start of cooperation with CSCEC in China

• 1985 Start of first project in China – Lufthansa Center Beijing

• 1985-2004 Operation on business license for single projects, Decree 32

• From 2004 Foundation of AMCC – Sino-foreign construction company, fully licensed with General Contracting Grade Bmore than 50 high standard projects so far completed

29

Local Practice of Alpine in China

Major Services provided for General Construction and Project Management

• Turnkey Construction Projects offered on lump sum basis

• Design and Build projects incorporating value engineering, efficient k-values for façade, windows, heat recovery for air-handling, sun shading systems newest insulation methodshading systems, newest insulation method

• Quality- and Time Management to international standards

• One stop service with proven track records for more than 24 yearsOne stop service with proven track records for more than 24 years

• Taking care and responsible for obtaining all permits- Planning permit- Construction permit

30

Construction permit- Occupancy permit

Commercial Buildings

Beijing Lufthansa Center & Kempinski Hotel German Embassy School, BeijingBeijing Lufthansa Center & Kempinski Hotel German Embassy School, Beijing

German Embassy, Beijing

31

Commercial Buildings

Austrian Pavilion, World Expo Shanghai

32

Industrial Buildings

Karl Mayer (Changzhou) New Production Project

Haefele Factory, Beijing33

Industrial Buildings

Sanofi-Aventis Pharmaceutical Plant, Beijing

ABB New Turbo System Factory, Chongqing

34

Infrastructure Projects

Ningbo-Shengzhou Expressway

Partly invested by Austrian company

Shanxi Wanjiazhai Yellow River Water Diversion Tunnel Project

25km TBM tunnel driving from one25km TBM tunnel driving from one side only

10km through coal mining area 35

Conclusions

• China construction market is becoming the largest construction market in the World

Th k t i b i i t ti li d• The market is becoming more internationalized

• Fast construction and related services opportunities are envisaged for FICEs

• Despite of the optimism, FICEs still face various difficulties with restrictions when they operate in China, and China is still a high‐risk market

• Chinese contractors are becoming more and more competitive in China and in the World

• FICEs should localize their operation for long term growth

• FICEs should cooperate with Local DIs and contractors for in EPC/D&B and large‐scale projects

• China is a good market for PM, CM, EPCM and other construction services

• Huge market, but difficult market -Difficult to get your share in the market and to survive only possible in certainDifficult to get your share in the market and to survive, only possible in certain niches

36

Or on Mud …………………???

June 27, 2009Minhang District

ShanghaiS a g a

Think guessThink, guesshow it can happen …??

37

Not on Mud, But ………..

Construction of none approved underground car‐

k

Disposal of excavated material from car‐park

Rising of Groundwater

parkcar‐park

level due to heavy rainfalls, flooding

Hydraulic failure 38

Th k !Thank you!

For any detailed questions and inquiries, please contact us directly:

Alpine Mayreder Construction Co. Ltd. Unit 1080, Sunflower TowerNo.37 Maizidian StreetBeijing 100125, P.R. ChinaTel.: 0086 10 85275116Email: [email protected]

china’s construction business: built on sand … · china’s construction business: built on...

Documents