United Kingdom
Time to build links in the East? - Richard Kelly
In just three years’ time, the Chinese construction market will almost certainly have become the second-largest in the world after that of the US. With annual spending expected to reach £393bn in 2013, it is a tempting target for foreign companies keen to capitalise on opportunities in one of the world’s most promising growth hot-spots. Yet BDO’s 2009 G20 Construction Heatmap ranks China only the fourth-most attractive inbound construction market worldwide, trailing those of the US, Britain and Canada because of its greater tax and business operation complexity.
This special report, designed to complement our G20 Heatmap, is intended to shed much-needed light on the nature of those issues, and how they can be overcome.
What we found is that there are major opportunities in a number of sectors where inbound companies would be welcomed. Western companies do not need thousands of staff to capitalise on Chinese opportunities – the manpower can be provided by Chinese partners. But companies with ideas and innovative intellectual property in the construction field, and those with vanguard expertise in building design, construction techniques and procurement of complex projects, can and should be taking advantage of Chinese opportunities.
The Chinese government specifically encourages collaboration by foreign companies in a raft of sub-sectors. Encouraged projects include construction of energy sources and transport; projects that use new or advanced technology, especially to save energy or control environmental pollution; and projects that help develop manpower and resources in central and western China. Armed with this knowledge, inbound investors can sharpen their focus. They should also note that foreign companies with expertise are welcomed to facilitate the explosive growth of air travel and healthcare: joint ventures are allowed for operating Chinese airports, provided they are Chinese controlled, and foreigners can hold up to 70 per cent of the equity of medical institutions.
As Peter Budd, a director at engineering and design consultants Arup remarks after more than 30 years of experience in China, to be successful there today, you really have to be a niche provider with special skill-sets. Foreign companies with cutting-edge knowledge and technology in tunnelling, oil and gas, control systems or rail technology may well find exciting opportunities.
For those with a niche focus, the hurdles of business operation and tax may not be quite as high as they seem. As our analysis shows, an understanding of the regulatory and tax environment, combined with good advice, can open the door to cost-effective collaboration with Chinese partners. Finally, it is worth noting that partnerships of this kind can lead to greater opportunities still. The Chinese construction industry has reached a level of maturity where it, too, is becoming an inbound investor in global construction markets. The opportunities of win-win partnerships with Chinese industry leaders are not confined to the Chinese market, but increasingly open the door to fast-growth construction markets world-wide. That is something no international construction firm with global ambitions can afford to ignore.