international market. Accordingly, Chinese Chinese Accordingly, market. international in the participants competitive become to aspringboard with contractors construction Chinese providing world, in the market construction largest the develop China to allowed has expansion economic Rapid contractors. European and governments, European EU, for the consequences and political economic possible and the market European in the of entrance mode companies’ Chinese into an insight provide and cases such first the present and , Poland, in Projects market. EU’s construction the entered and have effectively countries European in several tenders public won have companies construction Chinese in international contracts of 12.3 percent in of 12.3 percent contracts in international rate annual growth an average achieving players, influential have become contractors to set standards. set to ability and its autonomy EU’s for strategic the relevance and their date, to states in EU-member activities construction of Chinese record -track limited –still the discusses Brief Policy This contractors. construction state-owned and Chinese countries host European between relationship the on effects long-term potential has infrastructure building of transportation EU. The for the implications strategic have important would This Union. European in the also players major become will they before of time amatter seems It countries. in China and in developing mainly active contractors, largest world’s the among are companies Chinese transport infrastructure in the European Union the in infrastructure transport Chinese companies and construction in Europe? Building the ‘Belt and Road’ 2020 APRIL 2 1 * 1). (Table Chinese are of revenue in terms contractors ten top the worldwide. companies construction of top percent 25 to equates which contractors, 2019 Chinese 57 lists for index contractors global 225 annual top decade. last the toplists/2019-Top-250-Global-Contractors-1 News-Record 2017, 1599. p. International Journal of Project Management Experience’, Contractors’ Chinese Performance: Project International on Standards Technical comments. insightful and their for the information Rem Korteweg they provided ‘ENR 2019 Top 250 Global Contractors’, Contractors’, 2019 Global Top‘ENR 250 of Impact Tang, ‘The Wenzhe and Lei Zhen and Wessel van Stef to grateful are authors The , August 2019, , August 1

Engineering News-Record 2 Moreover, seven of seven Moreover, https://www.enr.com/ Engineering Engineering , vol. 35, 35, , vol. . ’s ’s

Mirela Petkova and Frans-Paul van der Putten* Policy Brief Clingendael Policy Brief

Table 1 Engineering News-Record, ‘Top 250 Global Contractors’, rank 1–10, 2019a

Companies are ranked according to construction revenue generated in 2018 in millions of US$. Figures include prime contracts, shares of joint ventures, and subcontractors, when a firm’s involvement is similar to that of a general contractor.

Rank Firm 2018 total Projects in the revenu EU (for Chinese (US$ million) firms) 1 China State Construction Eng’g Corp. Ltd., Beijing, China 170,435.3 2 China Railway Group Ltd., Beijing, China 140,090.0 Hungarian part of the – railway (Hungary); A2 highway (Poland) 3 China Railway Construction Corp. Ltd., Beijing, China 111,656.0 4 China Communications Constr. Group Ltd., Beijing, China 83,278.3 Pelješac Bridge (Croatia) 5 Power Construction Corp. of China, Beijing, China 52,982.8 6 Vinci, Rueil-Malmaison, France 52,139.0 7 Grupo ACS, Madrid, Spain 44,188.2 8 China Metallurgical Group Corp., Beijing, China 37,238.9 9 Shanghai Construction Group, Shanghai, China 34,247.9 10 Bouygues SA, Paris, France 32,023.0

a ‘ENR 2019 Top 250 Global Contractors’, Engineering News-Record, August 2019, https://www.enr.com/ toplists/2019-Top-250-Global-Contractors-1.

The large size, fast rate of expansion, and power plants. These contractors include potential for further growth of Chinese not only conventional construction firms construction contractors suggest that but also suppliers of advanced technology. these companies will continue to increase As such, makers of high-speed trains and their role at the international level. In related rail equipment, as well as information recent decades, the main foreign markets and communication technology (ICT) for these enterprises have been Asia firms and energy companies that facilitate and Africa, but as they continue to gain automated and/or electric road traffic experience and increase in size, Chinese are also of increasing relevance as their contractors are likely to consider expanding competitiveness grows. Many, but certainly into the European Union’s construction not all, Chinese infrastructure contractors market.3 In fact, under China’s Belt and are state-owned. From a BRI perspective, the Road Initiative (BRI), Chinese companies EU infrastructure sector is a major yet largely are stimulated to do just that. Many of not-accessed market for Chinese commercial the financially largest projects to date expansion, especially in the construction and involve contractors for the construction maintenance of technologically advanced of transport, communication, and energy infrastructure. infrastructure, such as ports, airports, roads, railroads, mobile phone networks, and A major role for infrastructure contractors from China in the EU would have important implications. Their European counterparts could potentially find it hard to compete 3 ‘How Chinese Contractors are Winning EU Infrastructure Projects’, Silk Road Briefing, with Chinese firms that are often larger in 23 July 2019, https://www.silkroadbriefing.com/ size and thus enjoy economies of scale, news/2019/07/23/chinese-contractors-winning- whose home market is to a large extent eu-infrastructure-projects/. closed to foreign companies, and that can

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take on a greater level of risk because of the with construction projects of national Chinese state’s backing. Moreover, European significance in China. CCCC has completed governments would face the question of projects such as the longest bridge in the whether and to what extent the building world, the highest bridge in the world, and and/‌or maintenance of infrastructure in their the world’s longest high-speed railway ever countries by Chinese contractors would constructed in a single phase. Meanwhile, create strategic dependence or otherwise the CRBC has constructed the Shanghai– impact their national security. In the EU Nanjing Expressway, the busiest expressway telecommunications sector, where Chinese in China; and the Beijing–Zhuhai Expressway suppliers of mobile phone equipment play a connecting north and south China, with 50 significant role, European governments are lanes at certain toll points. This domestic already confronted with the question of how experience enabled contractors to go global, to deal with these suppliers in creating new long before the announcement of the Belt 5G networks. and Road Initiative, which is often portrayed as the driver behind the internationalisation This Clingendael Policy Brief is focused of Chinese construction companies. For specifically on transport infrastructure example, CRBC was one of the first four (rather than communication or energy) in enterprises to venture abroad in 1979, the European Union. It is in this core BRI developing a path that was later followed by sector that it is particularly notable that while other construction contractors. CRBC has Chinese contractors are conspicuous in been constructing projects in Africa more Asia, Africa, and the Western Balkans, they consistently since the early 2000s, when are largely absent from the EU. This Policy there was not yet a BRI narrative to provide Brief aims to provide an insight into the guidance. role of Chinese construction contractors as actual and potential actors in EU transport The main relevance of the BRI is not that it infrastructure, by examining their past and has become a game-changer for Chinese current projects. Two specific questions foreign construction activities, but that it has are: 1) what can be said about these firms’ broadened Chinese efforts from Asian and potential to become significant actors in African markets to include Europe. Chinese the EU; and 2) what would be the strategic construction contractors that are active significance for the EU and its member states in Europe, such as CRBC and CCCC, have of large-scale Chinese involvement in the positioned themselves as BRI participants, EU’s transport infrastructure? constructors, and contributors, naming the BRI as an opportunity to expand and increase their global competitiveness.45 While The role of contractors in China’s Chinese contractors are involved in only a economic development and the few European projects, Chinese companies have also been investing in existing Belt and Road Initiative infrastructure. Of the top ten European ports by container volume, Chinese companies Pursuing infrastructure development has have stakes in five: Le Havre (China consistently been a focal point of Chinese Merchants Group); Antwerp (COSCO); economic development policies, as Rotterdam (COSCO and China Merchants encapsulated in the Five-Year Plans. China’s Group); Valencia (COSCO); and Piraeus competitive domestic setting has laid the groundwork for the internationalisation of construction firms. Besides that, the Chinese mainland market has generated sophisticated demands for Chinese contractors. Two of the 4 ‘CCCC Included in “Belt & Road” Index’, China Communications Construction Company, state-owned giants that have been involved 13 April 2018, http://en.ccccltd.cn/newscentre/ in European construction projects – China companynews/201804/t20180427_55370.html. Communications Construction Company 5 ‘About Us’, China Road and Bridge Corporation (CCCC) and China Road and Bridge Main Branch , https://crbc-croatia.com/en/ Corporation (CRBC) – have experience about-us-2/.

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(COSCO).6 Moreover, the container terminals European competitors. COVEC claimed in two EU ports – Piraeus in Greece and that its low price was achieved through a Zeebrugge in Belgium – are majority-owned combination of cheaper labour, equipment, by the Chinese state-owned enterprise and materials brought from China, together COSCO. China’s interest in port infrastructure with the company’s own funds. Despite the is not unique to Europe, as there are at least low price suggesting a high possibility of 46 port projects in sub-Saharan Africa with Chinese state aid involvement for COVEC, significant Chinese involvement in funding, the bid was accepted following a financial building, or operating. Chinese entities and economic potential review by the Polish have been involved in construction projects General Directorate for National Roads and at 41 of these 46 ports, demonstrating Motorways (GDDKiA).9 China’s robust capacities and aspirations to participate in construction projects globally.7 Not long afterwards, at the beginning of June 2011, after having completed approximately 20 percent of the planned work, COVEC Transport infrastructure projects faced a shortage of financial resources. in the European Union While some 500 Chinese labourers were brought in, under EU law COVEC had to hire a high proportion of its labour force from 1. The A2 motorway between within the EU as well. As a result, COVEC Warsaw and Lodz, Poland employed Polish subcontractors. At the In 2009, China Overseas Engineering same time, the price of fuel and asphalt rose, Group (COVEC) became the first Chinese leading to additional costs. Repeating the contractor to win a public tender for the practices that COVEC had so far employed construction of transport infrastructure in a in non-EU projects – namely importing European Union member state. COVEC is a materials and equipment from China – also subsidiary of China Railway Group Limited proved challenging, as those had to be (CREC), the second biggest constructor certified by the EU. COVEC filed for the globally, and has a mixed record in terms contract to be renegotiated by requesting of its past projects. These range from a additional funding, based on rising prices bridge in Kenya that collapsed shortly in raw materials and fuel, high labour, before being opened for public use in 2017 transportation, and visa costs. However, to the successful completion of a highly GDDKiA, claiming inconsistency with the complex hydraulic project in Nepal in 2019. provisions of the contract and EU law, The company’s bid for two sections of the refused.10 This led to COVEC’s withdrawal A2 motorway connecting Warsaw and Lodz in Poland, with a total length of 49 kilometres, was US$ 447 million.8 This was less than 50 percent of the US$ 1 billion 9 ‘Due Diligence of General Directorate for National Roads and Motorways in Verifying that the Polish government had anticipated, Bids of Consortium, whose Leader is COVEC’, and far less than the price offered by GDDKiA, 10 June 2011, https://www.gddkia.gov.pl/ en/a/9470/due-diligence-of-general-directorate- for-national-roads-and-motorways-in-verifying- bids-of-consortium-whose-leader-is-covec. 6 ‘Terminals’, COSCO Shipping Ports Limited, 10 ‘Announcement on the Position of General https://ports.coscoshipping.com/en/Businesses/ Directorate for National Roads and Motorways Portfolio/#OverseasTerminals. to the Proposal of the Chinese Consortium in 7 ‘Assessing the Risks of Chinese Investments in Changing the Scope of Physical and Financial Sub-Saharan African Ports’, Center for Strategic Conditions on the Construction of A2’, GDDKiA, and International Studies, 4 June 2019, 14 June 2011, https://www.gddkia.gov.pl/ https://www.csis.org/analysis/assessing-risks- en/a/9486/announcement-on-the-position-of- chinese-investments-sub-saharan-african-ports. general-directorate-for-national-roads-and- 8 Paulina Kanarek, ‘Perspectives for Development of motorways-to-the-proposal-of-the-chinese- China–EU Relations in the Infrastructure Investment consortium-in-changing-the-scope-of-physical- Sector: A Case Study of COVEC’s Investment in and-financial-conditions-on-the-construction- Poland’, Journal of Political Risk, vol. 5, August 2017. of-a2.

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from the project. GDDKiA subsequently for high-value contracts.12 The EU did not awarded the contract to European take any action against the project, but companies. It remains unclear whether instead followed standard practice for major COVEC paid a settlement to GDDKiA, as projects and started assessing the railway’s the specifics of the dispute have been kept compliance with EU legislation. No evaluation confidential by the two parties. was made public.

It seems that the failure of the Polish highway The EU’s scrutiny had no consequences, project was not a matter of lack of technical but unforeseen circumstances, namely expertise, but of underestimating the costs of a 10 percent increase in the price of the doing business in Poland and an insufficient project, prompted Hungary to start a knowledge of EU law. In its attempt to gain new tender procedure. Both of the two access to the Polish public procurement companies that submitted a bid were joint market, COVEC assumed that it would be Hungarian–Chinese ventures.13 It seems able to renegotiate the contract if necessary. there was no competitive financing available However, the company failed to adapt from European sources for this project. This sufficiently to the EU’s legal framework. raises the question of whether European Directives regulating public procurement financial institutions regarded the project allow contract renegotiation under certain as unprofitable or too risky, and whether conditions, such as if the modifications have there were also reasons other than lack of been provided in the initial procurement financing to prevent European companies clauses or there have been unforeseen from bidding. The construction contract circumstances.11 In any case, the increase was won by CRE Consortium, the ownership in price cannot be higher than 50 percent of of which is 50 percent Hungarian and the value of the original contract. COVEC’s 50 percent Chinese, with the Chinese second proposal stood at US$ 786 million, owners being representatives of Chinese or 76 percent higher than the original bid, state railway companies: China Tiejiuju making the new proposal unfeasible under Engineering & Construction; and China EU law. Railway Electrification Engineering Group.14 These two companies are subsidiaries of 2. The Hungarian section of the China Railway Group Limited (CREC), the Belgrade–Budapest railway same parent company of the subsidiary that The construction of the US$ 3 billion won the bid for the Polish highway. China Belgrade–Budapest railway was agreed Export–Import (Exim) Bank is providing between China, , and Hungary in 2013. 85 percent of the project’s financing as a The three countries signed a memorandum loan, while the Hungarian government is of understanding during a meeting of the responsible for the remaining 15 percent. 16+1 grouping (the sixteen Central and Eastern European countries plus China, now 17+1). The closed nature of the agreement between Hungary and China sparked 12 ‘Directive 2014/35 of the European Parliament outrage in Brussels, as according to EU and of the Council on Procurement by Entities Directive 2014/25, competitive dialogue Operating in the Water, Energy, Transport and and open-tender processes are required Postal Services Sectors and Repealing Directive 2004/17’, Official Journal, 26 February 2014, https://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri=CELEX:32014L0025&from=EN. 13 ‘Two JVs Compete for Hungarian Section on Budapest–Belgrade Line’, Railway Pro, 18 June 2018, https://www.railwaypro.com/wp/two-jvs-compete- 11 ‘Directive 2014/24 of the European Parliament for-hungarian-section-on-budapest-belgrade-line/. and of the Council on Public Procurement and 14 ‘Hungarian–Chinese Group to Build Budapest– Repealing Directive 2004/18’, Official Journal, Belgrade Rail Line’, Railway Technology, 14 June 26 February 2014, https://eur-lex.europa.eu/legal- 2019, https://www.railway-technology.com/news/ content/EN/TXT/PDF/?uri=CELEX:02014L0024- hungarian-chinese-group-to-build-budapest- 20160101&from=EN. belgrade-rail-line/.

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A similar level of financing is provided to Croatia offered a public tender that was Serbia, where 85 percent of the total project won by China Road and Bridge Corporation cost is sponsored by a loan from Exim Bank (CRBC), a subsidiary of CCCC, which and 15 percent is provided by the Serbian is responsible for the railway project in state. In both the agreements with Hungary Serbia. Its bid for the Pelješac Bridge was and Serbia, it is not disclosed whether the approximately EUR 280 million, or nearly countries are allowed to attract project EUR 72 million lower than that of the next financing from commercial banks, or whether competitor,16 which sparked complaints the loan is strictly from China’s Exim Bank. by competing bidders that European Anticipated dates for completing the sections companies cannot compete on costs with are 2025 for the Hungarian project and 2022 Chinese-subsidised companies. Austrian for the first Serbian section, of two in total, and Italian companies participating in the but it is uncertain whether this deadline public bid lodged an appeal to the EU will be met. As of April 2019, Serbia’s State Commission for Control of Public first section had only reached 5 percent Procurement Procedures on the suspicion physical realisation and 26 percent financial of state subsidies to CRBC and hence unfair realisation.15 Work on the second section competition, but the appeal was dismissed. will start in 2020 and should be concluded The Croatian government later stated that by 2023. However, whether this timeline can the process had progressed in accordance be implemented is questionable, considering with public procurement procedures of both that the time needed for section one was the EU and Croatia, and that no proof of five years and the length was almost three illegal subsidies from the Chinese state had times less; section two is approximately 100 been found.17 kilometres long. One significant difference with the Hungarian section is that in Serbia The majority of the workers on site are no domestic construction companies are Chinese citizens, further enhancing concerns participating, leaving the CCCC as the about price dumping by underpaying the sole construction provider. CCCC did not labour force. Sources such as the New York participate in the public bidding in Hungary, Times claim that it is not clear whether and it remains unclear why the Chinese did Croatian authorities know how much the not opt for a single Chinese contractor for Chinese workers are being paid, but this both sections of the Belgrade–Budapest has not been addressed by the Croatian railway. government.18

3. Pelješac Bridge, Croatia How the financing is used becomes even The construction of the Pelješac Bridge first more relevant as 85 percent of the project started in 2007 but was halted because of is financed by the EU’s Cohesion Fund, with financial considerations. The project is of great to significance to Croatia, the EU’s newest member state, as it will establish a 16 ‘Croatia Signs Contested Bridge Deal with Chinese link between the main part of the country Group’, Reuters, 23 April 2018, https://www. and the southern enclave around Dubrovnik, reuters.com/article/us-croatia-construction/ while avoiding the territory of Bosnia and croatia-signs-contested-bridge-deal-with- Herzegovina (which is not part of the EU). chinese-group-idUSKBN1HU17H; and ‘Chinese The bridge will have four lanes and be Firm To Build Croatia’s Pelješac Bridge’, Balkan 55 metres high and 2.4 kilometres long. Insight, 12 January 2018, https://balkaninsight. com/2018/01/12/chinese-company-to-build- croatian-peljesac-bridge-01-12-2018/. 17 ‘A Bridge Bid Too Good to be True’, Berlin Policy Journal, 5 September 2019, 15 ‘Modernisation and Reconstruction of https://berlinpolicyjournal.com/a-bridge-bid-too- Belgrade–Budapest Railway’, Serbian Ministry of good-to-be-true/. Construction, Transport and Infrastructure, 28 April, 18 ‘For China, a Bridge Over the Adriatic is a Road into 2019, https://www.mgsi.gov.rs/en/infrastrukturna- Europe’, New York Times, 11 October 2018, gradilista/modernisation-and-reconstruction- https://www.nytimes.com/2018/10/11/world/ belgrade-budapest-railway-sections. europe/china-croatia-bridge-adriatic-sea.html.

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the European Commission granting EUR 357 In the Western Balkans, where EU regula­ million euros to Croatia for the bridge. In this tions are not applicable as the countries are context, the fact that a non-EU company won not EU member states, Chinese actors have the public tender for a bridge largely funded won a number of tenders. Their approach by EU taxpayers’ money makes the matter includes establishing a presence in the highly sensitive.19 With all 148 permanent region, slowly expanding their network of pylons already driven into the seafloor, the partners in order to gain access to more first parts of the bridge above sea surface projects, addressing crucial local needs, and have emerged.20 The Pelješac Bridge providing loans. constitutes the most advanced construction project by a Chinese company in the EU so The only completed infrastructure project far and is expected to be finished by 2022. by a Chinese construction firm in the whole of Europe is the Pupin Bridge in Belgrade, Serbia (that is, outside the EU). Implications The project met a longstanding need of the city of Belgrade, as it is the city’s second Despite concerns about Chinese involvement bridge across the Danube river. The loan in the EU’s infrastructure sector, up to early was provided by the Export–Import Bank 2020 the three cases presented above are of China, with construction carried out by the sole major China-involved construction CRBC, the contractor that later won the bid projects in the EU that have gone beyond for the Pelješac Bridge in Croatia. Moreover, signing and reached the construction phase. CRBC has taken an active role establishing Planned projects such as the Helsinki–Tallinn local offices in and Serbia in tunnel in Finland remain in the planning order to conduct regional research.21 After stage despite signed memorandums of this Serbian bridge project, CRBC succeeded understanding. Projects are concentrated in entering Croatia, a neighbouring entirely in the eastern part of the EU, with no country with a similar cultural and political major construction work in China’s principal background but inside the EU. While the destinations for foreign direct investment like legal environment was different from the France or Germany. Chinese construction non-EU member states in which CRBC had contractors are possibly opting for countries previously worked, this did not prove to be an that are not part of the traditional EU core, obstacle to winning the bid for the Pelješac perceiving the newer EU member states Bridge. as less strict in terms of legal environment. However, if that is a motivating factor, Based on the few cases available to date, Chinese companies would be overlooking the approach of Chinese firms in Europe’s the supremacy of EU law over national law. infrastructure market can be summarised In other words, the legal environment is as testing the waters with methods largely the same throughout the EU. Another successfully employed elsewhere in other possible motivation is an attempt to gain parts of the world, such as Africa. At first, political leverage by building economic ties the contractors are not necessarily looking with countries that are in the periphery of the for profit maximisation, as the bids are EU or outside of it. unusually low, and the financing is provided by Chinese policy banks. This helps these companies to acquire the experience needed to deal with the legal and political specifics of European countries. Subsequently, the contractor often seeks to enter the markets 19 ‘Commission Approves EU Financing of the of neighbouring countries with a similar Pelješac Bridge in Croatia’, European Commission, 7 June 2017, https://ec.europa.eu/commission/ presscorner/detail/en/IP_17_1519. 20 ‘Pelješac Bridge Starts to Rise above Sea 21 ‘Where We Serve’, China Road and Bridge Level’, Croatia Week, 8 July 2019, https://www. Corporation, https://www.crbc.com/site/crbcEN/ croatiaweek.com/photos-peljesac-bridge-starts- ww/index.html?id=1e3af7c7-499f-4376-8881- to-rise-above-sea-surface/. b2f81c45b8f5.

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political or cultural background. According to – similar to the ones that the EU employs Stef van Wessel, an expert at Rijkswaterstaat, when it comes to goods exported by China – the executive agency of the Dutch Ministry of are non-existent. To summarise, in the strict Infrastructure and Water Management, who sense, European construction companies has been studying the activities of Chinese cannot rely on either support in terms of contractors in the EU, Chinese companies subsidies, or on protection in terms of anti- are driven by three types of aims: acquiring dumping regulation. new knowledge; strategic opportunities; and commercial prospects. For the companies Third, the safeguards placed in EU public to engage in a project, at least two of these procurement law are insufficient. Directive three aims need to be involved.22 2014/24/EU stipulates that authorities shall launch an investigation on a bid that This type of mode of entry to the EU’s has proposed abnormally low prices and construction market has produced negative if findings show that the low prices are results for European companies. First, because of non-compliance with mandatory 99 percent of the European construction Union law, rejection of the bid should be market consists of small and medium-sized mandatory.24 The cases of the A2 highway enterprises. These companies cannot make and the Pelješac Bridge show that existing use of export credit agencies or financing for legislation is not enough to ensure that projects outside of Europe from institutions countries are not left with half-completed like the European Commission or the projects, or to safeguard European interests European Investment Bank. Rather, this is when investigation of the abnormally low left to the incentive of their home country. tenders is completed and no wrong-doing Yet even Europe’s construction giants, such has been found. as the French Vinci Group, do not receive support from their respective countries to the When it comes to the strategic implications extent that Chinese enterprises do. While the of China’s economic involvement in the core of Vinci’s business runs on government- EU, the European Commission and EU backed infrastructure, the firm does not member states seem to be preoccupied rely on loans or subsidies that would allow with China’s direct investments in European it to bid for projects with significantly firms and with the purchase of Chinese lower prices. telecommunications equipment for 5G telecom networks. However, the construction Second, the EU is currently largely embryonic of transportation infrastructure constitutes when it comes to an industrial strategy. a strategic sector with potential long-term In 2012, the European Commission launched effects. the strategic policy agenda ‘Construction 2020’.23 International competitiveness First, if Chinese contractors consistently features among the five key goals, but no outperform non-Chinese counterparts and specific legislative measures have been achieve a dominant position in the European taken in order to address the issue of market, European governments could Chinese state aid, which is a major cause of become dependent on (a small number of) Chinese construction companies’ competitive Chinese companies for large-scale projects. advantage. A key issue is that construction This relates both to the actual building output is considered a service, not a good, and to long-term service contracts for so there is a lot of room for manoeuvre for maintaining and upgrading infrastructure. Chinese companies. Despite the intricate These dominant Chinese companies would acquis communautaire, efficient anti- dumping and anti-subsidies instruments

24 ‘Directive 2014/24 of the European Parliament and of the Council on Public Procurement and 22 Information provided by Stef van Wessel. Repealing Directive 2004/18’, Official Journal, 23 ‘Construction Sector Competitiveness’, European 26 February 2014, https://eur-lex.europa.eu/legal- Commission, https://ec.europa.eu/growth/sectors/ content/EN/TXT/PDF/?uri=CELEX:02014L0024- construction/competitiveness_en. 20160101&from=EN.

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be competing among each other, while at materialise only if Chinese involvement in the same time operating within parameters European infrastructure-building increases set by the Chinese government and Chinese from its current very limited level to a far Communist Party. In particular, political larger scale. In the short run, it seems motives could be part of the considerations unlikely that there will be a major influx of that direct corporate decisions. In the future, Chinese construction projects across the a risk for European governments would be EU. Chinese contractors still have ample that whether they enjoy good diplomatic opportunities for expansion in countries relations with China could affect the price– outside the EU, which are more easily quality ratio of major infrastructure building. accessible. The projected demand outside Chinese involvement in related sectors, such the EU is also higher. By 2030, 60 percent as in operating existing infrastructure (such of the infrastructure investment demand as airports or seaports) and in international will come from emerging economies.26 transportation (such as rail, sea, or air Moreover, for China to grow its involvement freight), could further contribute to the in European infrastructure-building, it needs ability of the Chinese government to exert a clear track record that shows that Chinese political pressure. Chinese government contractors are able to complete large- and commercial actors are active not just scale infrastructure projects in Europe. in infrastructure-building but in a broad This makes the Pelješac Bridge and the range of related activities: policy-making Hungarian section of the Belgrade–Budapest and market regulation; financing; operating; railway of paramount significance to Chinese transport; logistical services; shipping; and contractors’ future in the EU market. Their providing passengers.25 projected finalisation is set for 2022 and 2025, respectively. A second potential effect relates to the technological domain. With the emergence While China has proved itself to be a major of the internet of things and autonomous player in infrastructure-building globally, driving, physical transportation infrastructure legal hurdles within the EU still pose a will increasingly become connected to significant challenge. Moreover, Chinese the internet and to advanced forms of firms have so far been active mostly in mobility. A large role for Chinese firms the eastern half of the EU. In the western in the construction and maintenance of EU countries, procurement conditions for roads, railways, tunnels, bridges, ports, individual projects are more often than and airports would enhance their ability to in the east tailored to long-established set technological standards. Here, again, relations between government agencies political factors may become relevant, and established contractors.27 This makes as the Chinese government could use its it harder, but certainly not impossible, influence in standard-setting to strengthen for Chinese contractors to enter the the competitiveness of Chinese companies infrastructure-building market in western (for instance, in car manufacturing or for European countries. suppliers of railway equipment) in relation to non-Chinese competitors. A pressing issue for the EU is to ensure that project bids will not involve price renegotiations at a later stage, as happened Conclusion in the case of the Polish highway. Ensuring

China’s involvement in the construction of European transportation infrastructure could eventually weaken the EU’s strategic 26 ‘Bridging Global Infrastructure Gaps’, McKinsey autonomy or its ability to set technological & Company, June 2016, https://www.mckinsey. com/~/media/McKinsey/Industries/Capital%20 standards. However, these effects would Projects%20and%20Infrastructure/Our%20 Insights/Bridging%20global%20infrastructure%20 gaps/Bridging-Global-Infrastructure-Gaps-Full- report-June-2016.ashx.. 25 Information provided by Stef van Wessel. 27 Insight provided by Stef van Wessel.

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transparency to prevent unfair competition largely outside the EU (both in China and because of state subsidies has been and in third countries) but is likely eventually should remain a key aim of EU policies. to affect intra-EU competition. By the time Still, from a geopolitical perspective, fair they start to focus more on the EU market, competition and good-quality projects are Chinese firms may have further expanded not the only relevant criteria. Preventing their size relative to their non-Chinese overdependence on China in terms peers. For the European Union to prepare of contracting capacity and related for a future in which Chinese contractors technological standards are important are major players in the EU, it needs to requirements for the EU if it wants to protect develop a set of criteria that define a proper and strengthen its strategic autonomy. balance between economic cooperation The process of state-backed growth by and strategic autonomy with regard Chinese contractors currently takes place to China.

About the Clingendael Institute Clingendael – the Netherlands Institute of International Relations – is a leading think tank and academy on international affairs. Through our analyses, training and public debate we aim to inspire and equip governments, businesses, and civil society in order to contribute to a secure, sustainable and just world.

www.clingendael.org  @clingendaelorg [email protected]  The Clingendael Institute +31 70 324 53 84  The Clingendael Institute  clingendael_institute  Newsletter

About the authors

Mirela Petkova is a Junior Researcher at the Clingendael China Centre. Her work revolves around China’s foreign policy, with a special interest in the EU and Eastern Europe.

Frans-Paul van der Putten is a Senior Research Fellow at the Clingendael Institute. His area of research is the geopolitical significance of the rise of China as a global power. He is the coordinator of the Clingendael China Centre.

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