Foreign Builders Could Get a Chance in China

TAIPEI (TheStreet) -- China's booming capital city announced in August it would open 126 construction projects to foreign bidders, a rarity for a country that often barricades offshore companies from its ever-thriving infrastructure sector for nationalistic reasons.

Beijing is known for taking a more progressive approach to business than the rest of China. But if its 338 billion yuan ($55.48 billion) endeavor goes off without national security hitches or backlash from Chinese contractors, other local governments may follow, especially as the country puts the accent on construction quality over quantity during its Five-Year Plan through 2015. Chinese officials know the foreign guys do quality work.

China's coastline would need that investment the most, if we believe a warning this month from the Asian Development Bank. I've learned to be leery of the-world-is-ending proclamations from large non-governmental organizations, but let's say just a fraction of this forecast comes true:

More than a million people may be displaced as a landmass four times the size of Hong Kong is submerged by 2050, the development bank says. Flooding of once-in-20-years severity will increase to as often as once per four years through mid-century, it adds.

The low-interest lender points, in an Oct. 17 statement, to rising sea levels, would-be "havoc" on agriculture and infrastructure and submergence of 4,000 kilometers of coastline netting some of China's more important cities, namely Shanghai and Tianjin.

Scenario becomes reality "if the country does not take action to prepare for rising sea levels and more intense cyclones," the bank's statement says.

These warnings may bring foreign investors out into the storm because the Asian Development Bank also determined that climate-proofing of all infrastructure in China, including roads and drainage, would cost up to $44 billion per year between 2010 and 2050.

Construction-crazed China has never ducked a chance to build new infrastructure, and this endeavor could get up there in scale with the central government's $62 billion South-North Water Transfer Project. You don't want to goof up on something like that, so I'm going with coastal flood control as a bedrock test case for how far offshore contracts can extend.

Chinese officials generally "know the local (contractors) are cheaper but then the project might fall apart in 10 years," says China hand Jack Perkowski, managing partner of merchant bank JFP Holdings in Beijing.

It's hard to say which company would lead a field of foreign bidders. Projects for public facilities usually fall to local titans such as China Communications Construction (1800.HK), China State Construction Engineering (601668.SS) and China Railway Construction (1186.HKG).

On the foreign side, German metal worker ThyssenKrupp (TKA.DE) may glimmer as it already sells tens of thousands of elevators to China per year as well as technology for the Shanghai airport maglev airport train. French electrical systems builder Thales SA (HO.PA) has also provided equipment and service for a Chinese airport.

Japanese and Korean names turn up in consortiums for engineering projects, as well. Also, never count out global engineering giant Siemens ( SI), which enjoys a long, clean relationship with China in part because of its emphasis on energy-efficient work.

"Given that some of these projects are more knowledge intensive, some of (the Chinese firms) might not have the experience or the scale," notes Wai Ho Leong, regional economist with Barclays in Singapore.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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