By Bernard Hickey
China's biggest state owned construction group has formed a joint venture with Dunedin-based project manager Arrow International to bid for projects in the commercial rebuild of Christchurch.
About NZ$14 billion worth of commercial construction work is forecast in Canterbury over the next decade, fueling fears of construction cost inflation and a push by some to import materials from cheaper overseas manufacturers and to increase competition for the dominant player in Christchurch -- Fletcher Building.
China State Construction Engineering Corporation (CSCEC) has annual construction turnover of over NZ$100 billion, including NZ$15 billion in 30 countries outside of China. It built Beijing's CCTV Centre and Shanghai's World Trade Centre. Arrow was the project manager behind the building of the Forsyth Barr Stadium in Dunedin and manages NZ$250 million a year in construction and demolition projects. It managed the demolition of the PwC building in Christchurch and has 310 staff.
CSCEC and Arrow announced early on Wednesday that discussions about a joint venture began six months ago in Christchurch and a Memorandum of Understanding was signed in Shanghai.
"The partnership between Arrow International and CSCEC will not only offer some of the world’s best design and construction expertise to the Christchurch rebuild, it will also provide access to a highly cost effective supply chain," said Arrow CEO Hugh Morrison.
CSCEC owns steel mills and is China's biggest home builder. China sold 40% of its shares in CSCEC in a stock market float in Hong Kong in 2009, which was the biggest in the world that year. Here is a useful backgrounder from The Economist on the global activities of China's state construction companies.
“Escalation in construction costs is already exceeding 10% per annum in the residential market, as a direct result of resource shortages. This is likely to spill over to the commercial sector. It is critical that access to alternate resources are opened up to deliver genuine cost savings," said Morrison.
“The ability to take some of the pressure off the local supply chain will be of enormous benefit, particularly to Christchurch as the recovery process ramps up. Access to an international supply chain also enhances the ability to complete projects on, if not ahead of, time," he said.
Chinese labour?
Morrison later told Interest.co.nz the joint venture was a true 50-50 joint venture which would jointly invest in project bidding costs and include members from both companies in project bidding, design and building. These investment costs could run to 1% of the value of the building.
The joint venture was interested in bidding for the top four 'anchor' projects in Christchurch, including the NZ$200 million Metro sports centre, the NZ$500 million stadium, the NZ$100 million bus terminal and retail centre, and the NZ$300 million Justice Precinct, he said. The first two projects up for grabs are the Metro sports centre, which is being tendered by the Central Christchurch Development Unit, and the Justice Precinct, which will be tendered by the Minstry of Justice.
Morrison said the joint venture believed the sports stadium could be built for closer to NZ$250 million than the NZ$500 million talked about by others.
The joint venture planned to find savings from CSCEC's building materials supply chains in China and had already found dramatic savings in one tender, he said. CSCEC had access to windows, electrical equipment, steel framing, building cladding and plumbing equipment.
It currently had no plans to bring in short term Chinese workers to work on the projects because there were currently not major labour shortages, Morrison said.
But he said if labour shortages in Christchurch became a problem then the joint venture would have to look at alternative sources, including China.
"It's not intended at this stage that we will need to have Chinese workers," he said.
The Arrow-CSCEC joint venture will add a strong third competitor to Fletcher Building and Hawkins, althought there remains the prospect that one or two of the large Australian construction companies could enter the market, including LendLease, Brookfield Multiplex or Leightons.
(Updated with comments from interview with Arrow CEO)
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