Cross-Border Infrastructure and Relations
Infrastructure serves as the backbone of business growth, as well-planned and well-maintained infrastructure not only facilitates the movement of goods and services but also promotes economic development and market expansion. As countries collaborate with China on various infrastructure projects, it is important to understand the challenges and opportunities and the impact of industrial projects on business growth.
This article includes insights from the dialogue with Bruno Lhopiteau, a French Entrepreneur in China, providing valuable perspectives on infrastructure development and relationships with Chinese investors.
How do foreign governments and institutions manage their relationships with Chinese investors and companies to benefit from these Chinese projects and balance potential challenges?
One potential challenge we help mitigate is related to sustainability and the perceived quality challenges. There are stories regarding the substandard quality of Chinese projects. However, a World Bank study conducted in 2016 effectively debunked this narrative, demonstrating that the quality of Chinese projects was on par with those undertaken by other non-Chinese firms, with no discernible disparities in quality other than that Chinese builders were less consistent. A key theme from the Belt and Road Forum emphasised high-quality, being green and sustainability.
Still, there are real challenges, such as documentation and spare parts. Chinese builders are accustomed to operating inside the Chinese ecosystem, with well-established suppliers and ways of working and certain styles of building. Consequently, they often tend to under-document their projects and modify the design as they progress. This brings big challenges for the plant operator in the target country where there is no Chinese ecosystem and the unavailability of Chinese suppliers, trained operators and engineers. For example, we worked with Indonesian power plants that had difficulties determining the necessary spare parts and locating the technical reference and the suppliers because it wasn't well documented. Furthermore, the procurement of spare parts poses significant operational problems, attributing potential operational issues to the perceived quality of Chinese projects. However, quality is not the problem, but rather the documentation and we help address those issues. It is imperative to enhance understanding and increase awareness among governments, ministries, infrastructure companies, and our Chinese friends. If governments are aware of this problem, the root cause of the perceived quality problem, it is plausible for them to implement specifications, technical guidelines or management guidelines within projects to mitigate such problems down the line.
How is infrastructure development, supported by China, driving business growth and market expansion for companies from various industries?
The development of infrastructure is driving growth for the ecosystem of Chinese suppliers. The substantial economic potential lies within the financial magnitude of these initiatives. For example, the Light Rail Transit project in Egypt, a multi-billion-euro project. Large capacity power plants can be multi-billion projects. It also creates opportunities for foreign firms, but we need to be able to get in. There are obvious opportunities for local companies as well in the target countries, such as mandatory local share, technology and know-how transfer, etc. Technology transfer is not something happening only between Europe and China, it also happens between China and Africa and other BRI countries.
As for other markets, say US and surely EU suppliers, companies have the potential to derive significant benefits. However, in order to capitalise on these benefits, they must effectively organise themselves. In most cases, I don’t think they try much and it is difficult because the market it characterised by intense competition, similar to the competitive landscape in China. As a French company, I often witness a prevalent sentiment that the Chinese are taking our business away, this is unfair, etc. Additionally, several unfounded assertions pertaining to debt traps, labour unrest, neo-colonial behaviour, etc. are commonly spoken. It is important to consider that these are very complex projects for any player to be involved in and each country brings specific challenges, as you know it is not always easy to work abroad!
I recently engaged in a discussion with a French official regarding the geopolitical dynamics surrounding Africa's shifting alliances, particularly in relation to China's increasing influence in the region. The term “Belt & Road” is considered a sensitive topic that is discouraged from being discussed openly. In actuality, it can be observed that French suppliers, at least in my field, have lost market share due to another phenomenon, not related to China. Maybe the same is true of other European companies, I am not sure. In the past, domestic corporations were primarily responsible for constructing infrastructure. However, this is no longer the case as a significant portion of these businesses were sold to Americans. This is apparent in the power market. French multinationals also demonstrate a preference for US suppliers. Our main competitor is a US firm. The majority of critical infrastructure in France operates in conjunction with US suppliers. When doing business abroad, those French companies tend to recommend the US competitor against us. Therefore, the loss of market presence in Africa has been observed on two fronts: firstly, a decline of absence of French infrastructure companies, and secondly, even when such companies are present, they don’t select French suppliers. So, why not work in China… I can say proudly that from China we have regained market shares that were previously lost to Americans and France can regain market share by working from China. This is true for my company at least, arguably just a small business and much more could be done. This is how politics impacts business. As entrepreneurs or SMEs, it is imperative that we actively advocate for our own interests and strive for success.
How can the Belt and Road Forum impact the China-Africa relations? What are the main outcomes of the event and the future outlook for China-Africa industrial projects?
The forum was very interesting. There were a lot of political talks and even a CEO meeting, but as a business, it was quite difficult to figure out how to get invited and who was invited. There has been much discourse surrounding high quality development, sustainable infrastructure and green development, all of which are a reality in China and have been for some time. China has made significant progress in the realm of environmental regulations, surpassing the majority of countries. Most countries, particularly those in Africa, are quite behind in terms of regulation and could learn a lot from China. Injecting these regulations somehow into infrastructure projects makes a lot of sense and can be highly beneficial. This is evident in Southeast Asia, which prompted our decision to enter Thailand, where new regulations are underway and our China experience is very useful. These are some of the outputs from the forum, but were already unfolding and so it came as no surprise. A French company has shared how some specialised Chinese EPC firms are making inroads in France to build cement plants in compliance with the new EU regulations, as they already have such know-how. Africa undoubtedly has huge potential. For my company this is where we are now wanting to invest in terms of new offices or acquisitions, in West Africa more specifically.
In summary, there is a positive outlook, despite the presence of competing initiatives. There have been discussions on the US and the EU's own iterations of the Belt and Road Initiative, which some argue are comparatively smaller and less ambitious in scale, yet still highly beneficial.