Lessons from China

Lessons from China: Driving sustainable change through megaproject delivery 

From the Great Wall of China to the Three Gorges Dam, few countries can rival China’s illustrious history of megaproject development. Over the past decade, China’s love affair with the megaproject has only become more passionate. Today, China’s pipeline and portfolio of megaprojects rivals any in the western world.

Yet, to many in the West, China’s megaproject market continues to be shrouded in mystery and – on the whole – not open to foreign participation. To learn more about the market from a China insider, I spoke with Victor Chuan Chen, a Professor of Engineering Management with the Business School of Sichuan University.

A focus on priority sectors

Victor has spent the past few years working with the World Bank to monitor the infrastructure market in China. What he has found is a massive and ever-growing market for transformational projects, particularly in the transportation and power sectors. “Of the almost 50 megaprojects that I’m tracking regularly for my research, almost two thirds are in the transport sector and most of the remainder are in the power sector,” noted Victor. “With the exception of one water project – the South-to-North Water Diversion Project – and one telecom project, the list really is dominated by two main sectors.”

As the country strives to maintain its rates of economic growth, poverty reduction and productivity, the central government is keenly focused on the transport and power sectors in particular. “Transport projects have played such a crucial role in promoting urbanization in China which has brought real benefits to millions of Chinese,” Victor noted. “The same can be said for the power sector which now stretches into some of the most remote parts of the country bringing with it an increased standard of living and massive productivity gains as businesses and households become electrified.”

A distinctly local game

While much work and investment is being put into the country, few opportunities exist for foreign players. “We have already got a number of very strong State Owned Enterprises in each of these sectors and they are all competing for projects, meaning that there seems to be very little room for foreign players to break into the transportation or power markets,” added Victor. “That being said, there have been a number of cases where foreign and local private companies have participated in water projects, but these are often smaller, more localized projects.”

Valuable lessons

So what lessons can foreign players and governments take from China’s extensive megaproject experience? Three main concepts stand out to Victor as viable models for foreign markets.

The first is that by focusing on infrastructure development, governments can help drive greater economic growth and stability. “In China, the government recognizes that if we want to develop our economy, we must develop more infrastructure projects and so the central and provincial governments have all made infrastructure development a key priority over the past few decades,” added Victor. “Nobody in China doubts the massive role that infrastructure has played in our progress to date.”

Victor’s second finding is that China has benefited from developing megaprojects at times where resource and labor costs were comparatively low. “Clearly, China’s cost advantages are going to shrink somewhat over the longer-term and prices for projects are only going to rise. I think the government has done an admirable job in getting many of these projects off the ground while the economics were still very favorable.”

Finally, Victor notes the ingenuity and innovation on the part of China’s construction and development companies. “On one hand, they have become very good at developing megaprojects using some very economical construction methods that could provide valuable opportunities to other developing countries,” noted Victor. “But in other areas, China’s innovation has led to amazing developments in areas such as high speed rail and water diversion that could stand as lessons to construction companies, engineering firms and project owners in both developing and mature markets.”

A central hand on the rudder

Of course, Victor also notes the role of central government in the sector. “China mainly remains a central planning system with regard to mega infrastructure developments,” he noted. “In terms of financing and project implementation, it really comes down to the level of control exerted by the central government.”

Ultimately, Victor suggests that much of China’s megaproject success stems from the importance the country places on these massive undertakings. “From the central government right down to rural villages, there seems to be a general understanding that megaprojects are key to improving our country, our economy and our standard of living. It is no wonder that China has a love affair with megaprojects,” he concludes.

By James Stewart, KPMG in the UK

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INSIGHT: Megaprojects

INSIGHT: Megaprojects
We sat down with some industry leaders in the sector - developers, project owners, to create an informative & practical view on megaproject delivery.

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