China on the road to building Czech highways

The EC is now assessing the alleged involvement of Chinese construction firms in price dumping. Transport Minister Vít Bárta seems unconcerned.

Poland will invest €40 billion into road works by 2012 — the Year of the Dragon | na serveru Lidovky.cz | aktuální zprávy Poland will invest €40 billion into road works by 2012 — the Year of the Dragon | foto: © ReutersČeská pozice
Poland will invest €40 billion into road works by 2012 — the Year of the Dragon

If it weren’t for the Chinese, hardly anyone would have known that Poland is building a new highway, which will run eastward from the German border to link up with the M1 highway in Belarus.

The Chinese firm Covec is to be involved in the construction of two sections of the highway. Its winning the tender has sparked mixed reactions. Opponents have voiced their complaints to the president of the European Commission. But this hasn’t discouraged Czech Minister of Transport Vít Bárta (Public Affairs, VV) from pursuing the involvement of Chinese companies in the construction of Czech highways.

Bárta has already met with Chinese Ambassador Yu Qingtai and agreed that the Chinese Embassy’s commercial counselor, and Jakub Hodinář, Czech deputy transport minister for foreign relations, would outline the different forms the future cooperation would take. But the Transport Ministry has, for the moment, not made its mind up on the specifics. Transport Minister Bárta has already discussed future cooperation with Chinese Ambassador Yu Qingtai.

The first “made-in-China” stretch, however, is still far in the future. The way the pilot project will be selected has not been decided yet, nor is it clear when the cooperation should start.

“The terms governing the selection of a specific section will ensue from future talks with the Chinese side,” said Tomáš Ervín Dombrovský from the press department of the Ministry of Transport (MD). “On the first meeting the transport minister and Chinese ambassador agreed on setting up a working group which will further deal with this issue,” he said, adding that the Chinese would be vying for the projects in an open contest.

“Another alternative would be the closing of an international agreement stipulating the specific terms of performance. Everything will depend on the results of future negotiations with the Chinese side and also on an analysis worked out by the MD,” Dombrovský said.

To the question when the first Chinese construction firms will appear in the Czech Republic, the spokesman said that the ministry’s position is the sooner the better. “It is impossible, however, to anticipate a specific date. We have only had our second introductory meeting,” Dombrovský said.

The Great Road of China

Chinese construction companies had already been mapping the Czech market at an earlier stage, according to sources. Alfréd Brunclík, former director of the Road and Highway Directorate, said there were already talks with the Chinese in the past. Up until now, however, no Chinese company has shown any interest in taking part in a highway construction tender. Even now the Chinese are cautious.

“They are waiting to see how the project in Poland works out. It is the Czech side, rather than the Chinese, who seem to be interested,” a well-informed source observed.

The drawing of Chinese building contractors to the Czech Republic has many critics. Minister of Industry and Trade Martin Kocourek (ODS) urges caution. He considers the terms governing the submission of offers by Chinese builders and the impact their activities could have on the Czech market of key importance.

“I’ll be watching the terms regarding the luring of possible foreign companies to infrastructure projects very carefully, and I will object to foreign firms taking work from domestic companies simply because they can rely on subsidies from foreign governments,” Kocourek said. Polish building contractors are also supported by the European Construction Industry Federation (FIEC), which likewise assumes Covec won due to dumping.

Covec’s activities in Poland have triggered similar controversies. Poland currently represents a market full of opportunities for companies involved in infrastructure construction since it will co-organize the 2012 UEFA European Football Championship. In relation to this, Polish politicians have already pledged to invest up to €40 billion into road construction works.

Covec is to build two sections of highway connecting Warsaw with Łódź. In the tender the Chinese consortium defeated leading Western competitors, such as the Polish engineering group PBG and Ireland’s SRB Civil Engineering.

The OIGD, a Polish lobby representing construction companies, is complaining to the European Commission about unfair competition. It argues that the Chinese only succeeded in the tender by offering prices that undercut expenses. In a letter written to EC President José Manuel Barroso, the organization claims the Chinese government is offering assistance to companies that try to get a foothold on foreign markets and calls for the adoption of anti-dumping measures by the EC directed against Covec.

“The Chinese offer was 48 percent below the estimated costs and 23 percent lower than the offer of the contender that ended second place,” the letter points out. The difference between the costs and the offered price is allegedly being made up by the Chinese government.

The Polish building contractors are also supported by the European Construction Industry Federation (FIEC), which likewise assumes Covec won due to dumping, alleging this to be clear proof of unfair competition. “We would also be able to offer lower prices if our companies would receive $500 million in state assistance,” says Ulrich Paetzold, general director of the FIEC. “Our companies simply are not able to compete against the People's Republic of China,” he adds.

What is Covec?

The China Overseas Engineering Group (Covec) is entirely owned by the China Railway Group (Crec). In all, 37 companies work under Crec. The group employs 270,000 people. Covec was established in 1991, is represented in 23 countries and has participated on 1,550 projects regarding the construction of highways, airports and harbors across 60 countries. In China the parent company has built more than 5,000 tunnels and bridges and has, among other things, also been involved in constructing a railway link across Tibet. Crec is the largest construction and civil engineering company in Asia and is run by the State Assets Commission.