China enters Europe through Poland

The Chinese company Covec, currently constructing Polish motorways, might not be distorting the market, as its competitors claim

Čínská firma Covec buduje v Polsku dva úseky dálnici A2. | na serveru Lidovky.cz | aktuální zprávy Čínská firma Covec buduje v Polsku dva úseky dálnici A2. | foto: © Aureliusz PedziwolČeská pozice
Čínská firma Covec buduje v Polsku dva úseky dálnici A2.

Polish firms have expressed concern over the low prices that China-based construction firm Covec offered in its winning bid to build sections of a motorway. But not everyone sees the prices as being so far out of line, and some sources even say the Chinese bid may bring the market back to normality. For its part, the European Commission can find no cause for action under the current guidelines.

Many people involved in the deal see it as a first big step. “I believe that this road will symbolize the great friendship between Poland and China,” Fang Yuanming, president of the China Overseas Engineering Group (Covec), said a few months ago during a ceremony in the village of Nowa Wieś at the edge of the Bolimow Primeval Forest.

 This is where the Chinese company began building one of the two sections of Poland’s A2 motorway following its victory in the tender for them a year ago. The firm hopes that this road will open the gates to the entire European Union market.

 “Thus the Chinese have come into their own. They have got their feet in the door, and now they are on our market. We won’t get them out of here,” said one of Covec’s competitors in an interview with the Warsaw edition of the daily Gazeta Wyborcza. ‘They have got their feet in the door, and now they are on our market’

Other competitors embarked on action earlier.

“The bid submitted by the consortium of Chinese state enterprises contains a surprisingly low price given the subject of the tender. This can be deemed unfair competition,” Wojciech Malusi, chairman of the Polish Economic Chamber of Road-Building (OIGD), and Krystyna Łazarz, OIGD president, wrote on Nov. 16, 2009, in a letter to José Manuel Barroso, the president of the European Commission (EC). In their opinion, the price offered by Covec in its bid is “at least Zł 600 million (about €150 million) lower than it should be.”

Covec’s competitors express the same opinion. According to Mostostal, one of the companies defeated in the tender, the costs for construction of one kilometer of the motorway amount to €10 million. The Chinese company intends to build the road at two-thirds of this price.

As Malusi and Łazarz stated in the letter to Barroso, this is why it can be assumed that the Chinese company counts in advance with losses on the project. “The expected losses during the implementation of the contract will be covered by the government of the People’s Republic of China,” they pointed out.

In this connection, they called upon Barroso to look into the problem of state intervention in the operations of the Chinese companies selected for the construction of the Polish motorway. They even suggested that it was necessary to launch anti-dumping measures so that companies from non-EU states are additionally taxed, as is the case of additional taxation on some of the products imported from these countries. 

This April, road builders from other EU member states supported their Polish colleagues. The European Construction Industry Federation (FIEC) even lodged a complaint not only with the president of the European Commission but also with the European Investment Bank (EIB), which should support the project with a loan amounting to €500 million. “No private company is able to compete with the People’s Republic of China,” said Ulrich Paetzold, director general of the FIEC, in an interview for the German daily Frankfurter Allgemeine Zeitung.

The EC reply

The Polish road builders failed with their complaint. “There is no legal regulation pertaining to the subject inviting a tender that would prescribe that it cannot allow companies from third states to participate in a tender, including Chinese companies joining tenders from China,” Ewa Synowiec, director of the EC’s representation in Poland, said on behalf of the EC president.

The decision concerning tender participants is taken by the inviter, who is entitled to reject a bid if the bidder is not able to prove that state support justifies the low price and it is provided to it pursuant to the law. Nevertheless, it is valid that the principles pertaining to public assistance within the EU only apply to its member states and do not relate to subventions guaranteed by other countries. ‘There are no multilateral agreements that would stipulate fines for subsidies being granted in the area of service’

The dumping allegations also were rejected. “At the present time, there are no multilateral agreements that would stipulate fines for subsidies being granted in the area of services, and that would be comparable with the regulations of the World Trade Organization, such as the Agreement on Subsidies and Countervailing Measures and the Anti-Dumping Agreement. These only pertain to trade in goods. Therefore, it is not possible to apply the valid EU law on trade protection to defend against subsidies in construction services guaranteed by third states,” she said.

In the end, EC representative Synowiec pointed out that equal access to the public procurement market is the key element of the EU policy pertaining to trade. “The European Commission, possessing the EU negotiation mandate in the area of trade, is fully committed to opening the public procurement market to third states in accordance with the World Trade Organization’s Agreement on Government Procurement. We are doing our utmost to ensure better access to the most promisingly developing global markets, such as China.”

In brief, it is not possible to expect that the European market would close to competition from such countries as China, since this in turn could result in the closing of the Chinese market to European companies, which would have disastrous consequences for many of them. Yet the Chinese from Covec can be certain about one thing. Everyone will be closely observing every step they make, and the respective authorities will check their investment down to the finest detail. They will undoubtedly make full use of every stumble on the part of Covec so as to hinder the Chinese concern’s path to Europe. Things aren’t going to be easy for them.

All the bids were low

Not everyone thinks that Covec is applying sinister methods. During the celebrations in the village of Nowa Wieś, Polish Minister of Transport Cezary Grabarczyk pointed out that cooperation between Poland and China does not appeal to some. “I hope that you will convince them by good quality of work and meeting the construction’s deadline,” he said.

The Chinese company has also been defended by the client — the General Directorate of National Roads and Motorways (GDDKiA). “All bids were approximately 30 percent cheaper than the budget, and the Chinese offer didn’t significantly differ from those of the competitors,” GDDKiA spokesman Marcin Hadaj told journalists.

Yet the price set by the Chinese did not differ from the budget by 30 percent but by 52 percent. “We’re not greedy,” said Jerzy Frenkiel, president of Decoma, the company that is to build the A2 motorway in a consortium with Covec.

A Swedish firm was even more modest than the Chinese. Skanska won the tender for the construction of one of the sections of the S8 high-speed road with a bid 53 percent lower than the budget estimated by GDDKiA. “But what if the Chinese aren’t distorting the market but just introducing normality to it?” Newsweek Polska asked.

Another attempt

For the time being, Covec is seeking other gateways to Europe in Poland. Although the Chinese have failed in the tender for the construction of the second line of the Warsaw metro, since an Italian-Turkish-Polish consortium submitted a cheaper bid, for two years they have been building the Gromada Hotel in Krakow. And they have been gaining recognition.

“I’ve never previously had such disciplined and diligent workers who always do what they are told,” Mariusz Saletra, the site manager and only Pole in the team, said in an interview with the daily Dziennik Polski.

The Chinese have been striving to enter other sectors too. In November, they presented their skills in constructing super-high-speed railway lines in Warsaw. The Polish government plans to build a TGV equivalent by 2020 – Line Y, which will connect Warsaw with Wrocław and Poznań,and near Łódź it will branch out in a “Y” shape. On the line, with the total length of 450 kilometers, trains are scheduled to run at the speed of 350 kilometers an hour. “When this year I congratulated the Chinese minister on the construction in China of 3,000 kilometers of super-high-speed railway lines, he replied that they have already completed 7,000 kilometers. In China, constructions proceed faster than the information reaches us,” Polish Minister of Transport Grabarczyk said.

Everything indicates that a similar situation with Chinese companies will occur throughout Europe. In the twinkling of an eye, they will be everywhere. Just like the omnipresent Chinese goods we are surrounded by today. However much you may try, you cannot avoid buying them.