Global infrastructure to China

Trends and opportunities

The market

Decades of unprecedented urbanisation and associated investment in infrastructure has fuelled China’s economic development and the growth of its engineering and construction sector – in particular its state-owned engineering procurement and construction (EPC) companies.

Domestically, China is on track to complete aggregate construction of 150,000 km of highways and 150,000 km of railways, of which 30,000km are for high-speed train lines, by the year 2020. (State Council: Development of China's Transport, December 2016). In addition, China leads the world in installed hydroelectric, coal-fired and photovoltaic power generation capacity (International Energy Agency: Renewables 2017 Report; National Development and Reform Commission: 5 year Plan for Electricity).

Beyond the scale and capability developed through delivery of domestic projects, Chinese government policy has provided additional impetus for Chinese EPCs to enter overseas markets. In 2013 President Xi Jinping first proposed the Belt and Road Initiative (BRI), which is often understood to represent China’s global vision and a high-level blueprint to further its economic and foreign policy goals. Practical implementation has included boosting international Chinese investment, engineering and construction activity in transport, energy and communications infrastructure. While Chinese outwards investment and lending, including under the BRI banner, has grown strongly over the last decade, recent Chinese regulatory tightening and changing economic conditions contributed to a decline in outbound capital flows in 2017.

By 2018, 69 Chinese companies were listed in the Engineering News Record (ENR) Top 250 International Contractors rankings (by international revenue) including three in the top 10: China Communication Construction Group, China State Construction Engineering Corporation, and Power Construction Corporation of China (Source: ENR’s 2018 Top 250 International Contractors, August 2018). According to the China International Contractors Association (CHINCA), Chinese member companies are active in 190 countries and regions.

To date, the majority of finance for Chinese-led overseas infrastructure and energy projects has been provided by China’s major policy banks, the China Development Bank (CDB) and the Export-Import Bank of China (China Exim bank), as well as from China’s state-owned bank sector, such as the Industrial and Commercial Bank of China (ICBC) and the China Construction Bank (CCB). Increasingly, Chinese EPCs are interested in providing finance as well as management and operations expertise, as part of a more vertically integrated approach. The China Export and Credit Insurance Corporation (Sinosure) is a Chinese state-funded policy insurer, which offers cover for political, commercial and credit risks where projects and transactions in overseas markets meet certain thresholds for Chinese content.

Private capital has played a limited role in financing Chinese-led infrastructure and energy projects in third markets, including those delivered under the BRI banner. In some cases, political, economic or project specific risks have inhibited the ability to attract private investment to specific projects, while at other times project finance has been arranged through state led agreements which have often prioritised state owned sources of capital and Chinese contractors.

In addition to third markets, Chinese companies are active in the Australian infrastructure sector. Australia is the second largest recipient country of accumulated Chinese investment, after the United States, with US$99 billion invested since 2008 (KPMG, University of Sydney, Demystifying Chinese Investment in Australia: June 2018). This includes significant investments in urban and resources infrastructure and energy. Examples include China Communication Construction Group’s acquisition of engineering contractor John Holland, China State Construction’s engagement with BBI Group for the Balla Balla iron ore project in the Pilbara, CRRC’s participation in the Evolution Rail consortium for the Sydney and Melbourne metro projects as well as China Investment Corporation’s (CIC) minority stake in the Port of Melbourne as part of the Lonsdale Consortium and joint acquisition of Australian rail freight and port operator Asciano Limited in a consortium led by Qube holdings.

Opportunities

According to a report by the Asian Development Bank (ADB), countries in ‘Developing Asia’ (45 ADB member countries) will need infrastructure investment totalling US$22.6 trillion through to 2030 (US$1.5 trillion per year) to maintain growth momentum. Based on this forecast, the funding gap for infrastructure projects is significant - the report suggests an average deficit of 5 per cent of GDP annually for a group of 25 Asian countries, excluding China. (ADB, Meeting Asia’s Infrastructure Needs, 2017).

The scale of the deficit requires international solutions. China, with many of the world’s largest engineering, construction and financial firms, and Australia, with a dynamic resources sector and as a recognised leader in innovative and sustainable infrastructure consulting and financing solutions, both have a role to play in alleviating regional infrastructure deficits.

Leading Australian engineering consulting companies are already collaborating with Chinese partners to deliver projects in Australia and third markets. As the trend towards higher quality and more fiscally, environmentally and socially sustainable infrastructure continues to gather pace, Australian companies are well placed to compete for contestable international opportunities in partnership with Chinese and other international EPCs – in particular where procurement processes are transparent and market based.

Key areas of potential collaboration include:

Engineering consulting and construction

  • Feasibility studies
  • Project design and engineering
  • Construction
  • Environmental and sustainability consulting
  • Standards

Infrastructure advisory, finance and equity

  • Investment banking
  • Funds management
  • Legal, financial and accounting expertise
  • Project finance

Marketing your products and services

Market entry

Developing third-market opportunities in the infrastructure sector through collaboration with Chinese companies can be complex and often requires long-term commitment. Foreign companies have engaged through their home market, in China or directly with projects in third markets, depending on the nature of the opportunity.

Webinar series

Austrade will be holding a series of webinars to explore third market infrastructure opportunities with Chinese companies.

For more information and to register, please follow this link.

Links and industry contacts

Government, business and trade resources for China:

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

  • develop international markets
  • win productive foreign direct investment
  • promote international education
  • strengthen Australia's tourism industry
  • seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.