How China's businesses can secure project bids

Lawyers with knowledge of major deals told China Law & Practice that Chinese companies are frequently let down by failure to meet delivery deadlines and a reluctance to take on foreign partners.

“On some occasions the bids can be badly put together,'' said Tom Luckock of Norton Rose Fulbright. “They can be interpreted as signaling a lack of commitment to the project, and so they often do not make the shortlist.''

While Chinese-led projects are well established in regions such as Africa and South America, China's companies have found it difficult to break through barriers in developed markets. Competition in the US and Europe is far more fierce, with the world's leading names jostling for multi-billion dollar contracts and dulling the pricing edge of mainland bidders. Also, state-owned firms prefer to be the sole controller and driver of projects rather than have partnerships.

The technical know-how of some companies has also been questioned, while lengthy and complex outbound approval processes are seen to increase execution risks. In an effort to address the time issue, The National Development and Reform Commission (NDRC) promulgated the Measures for the Administration of Approval and Filing of Outbound Investment Projects (境外投资项目核准和备案管理办法) (Measures) on April 10, replacing approval requirements with a simplified filing procedure for investments under US$1 billion.

“This is good for smaller projects like some renewables projects, but major infrastructure work such as for ports, desalination plants and transmission assets all go over that threshold,” said Luckock.

Also, the Measures state that projects involving “sensitive countries, regions or sectors” are subject to approval and the NDRC's discretion. Such sectors include the operation of telecommunication infrastructure, development and use of cross-border water resources, large-scale land development, power transmission grids and networks. This may impede certain large-scale overseas energy and infrastructure projects.

A recent success in the UK was driven by political support. Chinese companies will be able to operate a Chinese-designed nuclear power station and construct and run railway lines in the UK, The Guardian reported on June 17. This was part of a £14 billion set of trade deals signed during a visit by Premier Li Keqiang. In the US, on the other hand, Fox News on June 10 cited a media report as saying that the California government will have to spend millions of dollars to fix the San Francisco-Oakland Bay Bridge after what it said were inadequate repairs carried out by a Shanghai-based company lacking in experience.

“One of the Chinese companies' major disadvantages still lies in certain areas of technology,” said Shepard Liu of Milbank Tweed Hadley & McCloy. “Competitive high-tech infrastructure projects require sophisticated equipment which passes Western standards,” he added. For instance, Chinese companies often face off with South Korean competitors, which offer advanced technology and are more experienced in carrying out global contracts.

M&A: a different story

PRC companies have had more luck in acquisitions. China Three Gorges Corporation, advised by Skadden Arps Slate Meagher & Flom, became the largest shareholder of wind power company Energias de Portugal this year for US$3.5 billion, marking the biggest-ever Chinese investment into Europe. Minter Ellison and King & Wood Mallesons acted on China Merchants Group and Hastings Funds Management's US$1.6 billion investment into the port of Newcastle in Australia. State Grid has also acquired stakes in numerous mining companies abroad.

There is often a perception that the risk of completion for a Chinese company is lower. Counterparties can get comfortable when they see well-known international legal advisors are on board a major project. Another issue faced by PRC companies is understanding the local environment, and having the right advisors on the ground can help them get over this hump. This is not only important from a credibility perspective, but also for actually getting the deal done.


By Katherine Jo