By Bernard Hickey
China's biggest state owned construction group has formed a joint venture with Dunedin-based project manager Arrow International to bid for projects in the commercial rebuild of Christchurch.
About NZ$14 billion worth of commercial construction work is forecast in Canterbury over the next decade, fueling fears of construction cost inflation and a push by some to import materials from cheaper overseas manufacturers and to increase competition for the dominant player in Christchurch -- Fletcher Building.
China State Construction Engineering Corporation (CSCEC) has annual construction turnover of over NZ$100 billion, including NZ$15 billion in 30 countries outside of China. It built Beijing's CCTV Centre and Shanghai's World Trade Centre. Arrow was the project manager behind the building of the Forsyth Barr Stadium in Dunedin and manages NZ$250 million a year in construction and demolition projects. It managed the demolition of the PwC building in Christchurch and has 310 staff.
CSCEC and Arrow announced early on Wednesday that discussions about a joint venture began six months ago in Christchurch and a Memorandum of Understanding was signed in Shanghai.
"The partnership between Arrow International and CSCEC will not only offer some of the world’s best design and construction expertise to the Christchurch rebuild, it will also provide access to a highly cost effective supply chain," said Arrow CEO Hugh Morrison.
CSCEC owns steel mills and is China's biggest home builder. China sold 40% of its shares in CSCEC in a stock market float in Hong Kong in 2009, which was the biggest in the world that year. Here is a useful backgrounder from The Economist on the global activities of China's state construction companies.
“Escalation in construction costs is already exceeding 10% per annum in the residential market, as a direct result of resource shortages. This is likely to spill over to the commercial sector. It is critical that access to alternate resources are opened up to deliver genuine cost savings," said Morrison.
“The ability to take some of the pressure off the local supply chain will be of enormous benefit, particularly to Christchurch as the recovery process ramps up. Access to an international supply chain also enhances the ability to complete projects on, if not ahead of, time," he said.
Chinese labour?
Morrison later told Interest.co.nz the joint venture was a true 50-50 joint venture which would jointly invest in project bidding costs and include members from both companies in project bidding, design and building. These investment costs could run to 1% of the value of the building.
The joint venture was interested in bidding for the top four 'anchor' projects in Christchurch, including the NZ$200 million Metro sports centre, the NZ$500 million stadium, the NZ$100 million bus terminal and retail centre, and the NZ$300 million Justice Precinct, he said. The first two projects up for grabs are the Metro sports centre, which is being tendered by the Central Christchurch Development Unit, and the Justice Precinct, which will be tendered by the Minstry of Justice.
Morrison said the joint venture believed the sports stadium could be built for closer to NZ$250 million than the NZ$500 million talked about by others.
The joint venture planned to find savings from CSCEC's building materials supply chains in China and had already found dramatic savings in one tender, he said. CSCEC had access to windows, electrical equipment, steel framing, building cladding and plumbing equipment.
It currently had no plans to bring in short term Chinese workers to work on the projects because there were currently not major labour shortages, Morrison said.
But he said if labour shortages in Christchurch became a problem then the joint venture would have to look at alternative sources, including China.
"It's not intended at this stage that we will need to have Chinese workers," he said.
The Arrow-CSCEC joint venture will add a strong third competitor to Fletcher Building and Hawkins, althought there remains the prospect that one or two of the large Australian construction companies could enter the market, including LendLease, Brookfield Multiplex or Leightons.
(Updated with comments from interview with Arrow CEO)
14 Comments
I foresee that someone will jump out, argue about poor quality of buildings, and perhaps come up with a list of examples gathered from Internet. This kind of worry is absolutely warranted and should be well considered. But, please also look back on the CTV building collapsed during Chch earthquake.
Rational arguments are needed not hatred accusations.
Escalation in construction costs is already exceeding 10% per annum in the residential market, as a direct result of resource shortages. This is likely to spill over to the commercial sector. It is critical that access to alternate resources are opened up to deliver genuine cost savings," said Morrison.
.........................
does that contradict a lot of the spin re cost of building materials? People seem to be looking at resource costs in the rear vision mirror but energy is more expensive (for instance).
This seems to have been foreseen:
Christchurch could rival Auckland in ethnic diversity as it attracts high numbers of migrants needed for the post-quake rebuild, says Massey University sociologist Professor Paul Spoonley.
He says up to 40,000 migrants are predicted to arrive in Christchurch in the next 18 months based on estimates from Canterbury Employment and Skills. This could prompt a “sea change” in the way immigrants are perceived by the city, which is one of the country’s least ethnically diverse areas.
Dubbed the “earthquake effect” by the Asia New Zealand Foundation, people in Christchurch are said to feel more positive about migrants as a result of local immigrant communities playing a major role in helping with recovery after the February 2011 quake.
One thing he is clear about is that the demographic changes set to occur in Christchurch could transform the city infamous for its white supremacist National Front movement. While Christchurch does have **small ethnic enclaves***, ["Asianhead?"] hosting lantern festivals for Chinese New Year and Diwali festivals for the Indian community, the scale of the anticipated migrant influx is unparalleled in its history.
Bold young men drove sheep on to the vast grazing runs to found pastoral empires and land owning dynasties. Out of the wealth from the squatters’ wool clips, and from wheat when the tussock was ploughed, grew a city of scholarship, grace and dignity”
Professor Kenneth Cumberland Landmarks
P'raps one can foresee Margin Compression in the Fletcher Future?
After all, Reggie Middleton predicted precisely That for Apple - two years ago.....
It will be certainly more efficient at changing prices and behaviours than ComCom, who despite the Productivity Commish's Pronouncements on this very subject (the building materials duopoly), have sat on their hands for a decade now in this matter....
This just highlights how poor ,the governments response to the ChCh earthquakes has been.
W'ere coming up to three years since the first quake, with not a lot of progress, hundreds of young NZers could have been trained in this time,but it matters not , apparently business margins and re-election are more important.
FYI
Updated with comments from Arrow CEO Hugh Morrison, including the prospects for bringing in Chinese construction workers to build the anchor projects. He says there's no need yet, but it could be considered if labour shortages become a problem.
Chinese construction companies working overseas often bring in Chinese workers and use mostly Chinese building materials.
cheers
Bernard
Chinese Companies in Germany
I see it as a given that CSCEC will bring in Chinese labour and it won't stop there, judging from what happened at various projects in Europe, Africa and the Middle East.
A good example is the Hoesch project in Dortmund, Germany. Hoesch sold their whole factory (building and machines) to a Chinese company, which came to Dortmund for a couple years to take everything apart for shipping and rebuilding in China.
There is a whole story behind this regarding sales agreement, authorisation by city council, contracts for redevelopment of the area and so on.
Two make it short, the Chinese Company did not just brought in their own labour (down to cook, guards and cleaning personal), but also absolute everything the Chinese labour might need while in Germany. This included containers (there were about 8 per container until the city council reminded them on regulations they need to follow), fuel, spare parts, food, toilet paper (strange but true) and cigarettes (which lead to some complications with customs).
So, the Chinese build their complete autarkic China Town and only used water and air from Germany, they didn’t spent on cent in Germany (except for buying the building and the machinery) or hired local labour, subcontractors or other companies.
I know the same has happened for projects in Sudan, Algeria, Saudi Arabia and Italy.
I suggest being very carefully what contract you sign, because any loophole will be used and they will try to widen the loopholes.
Chinese have a very different mentality regarding these things; it is seen as smart if you manage to trick someone. And for them there is nothing wrong to use absolute everything to gain advantage (I’m not saying western companies don’t do this, but are more sensitive about these things).
And I’m not saying Chinese are bad people, but ethical/moral assumptions made based on western culture are just not applicable when you do business with a Chinese company.
A good example for this is a Chinese saying: “Find a master, learn and copy!” (very loose translation!). And this is reflected how Chinese have no problem with piracy, even if it may endanger the health and safety of others. Example: Stihl (producer of chainsaws), Chinese copy the products one to one, but only visual. And so well that it is really hard to tell the difference between original and copy. Problems is that critical parts which guaranty the safety of the user are of very low quality to save on cost. This has actually killed people in the forest industry. ….but to the Chinese is it just a necessary step for their business to grow until they can afford and have the know-how to build chainsaws who can compete in quality and quality. ..another example would be the milk powder scandal which most kiwis will know about.
And in case someone tries to put me into the xenophobic corner, my wife is Taiwanese and I have friends (back from university) who are Chinese.
Cheers,
KiwiKraut
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