Megaprojects - KPMG

Lessons
from China
driving sustainable
change through
megaproject delivery
By James Stewart, KPMG in the UK
From the Great Wall of China to the
Three Gorges Dam, few countries
can rival China’s illustrious history
of megaproject development. Over
the past decade, China’s love affair with
the megaproject has only become more
passionate. Today, China’s pipeline and portfolio
of megaprojects rivals any in the western world.
Yet, to many in the West, China’s megaproject
market continues to be shrouded in mystery
and – on the whole – not open to foreign
participation. To learn more about the market
from a China insider, I spoke with Victor Chuan
Chen, a Professor of Engineering Management
with the Business School of Sichuan University.
A focus on priority sectors
Victor has spent the past few years
working with the World Bank to monitor the
infrastructure market in China. What he has
found is a massive and ever-growing market
for transformational projects, particularly in
the transportation and power sectors. “Of
the almost 50 megaprojects that I’m tracking
regularly for my research, almost two thirds
are in the transport sector and most of the
remainder are in the power sector,” noted
Victor. “With the exception of one water
project – the South-to-North Water Diversion
Project – and one telecom project, the list
really is dominated by two main sectors.”
As the country strives to maintain its
rates of economic growth, poverty reduction
and productivity, the central government is
keenly focused on the transport and power
sectors in particular. “Transport projects
have played such a crucial role in promoting
urbanization in China which has brought
real benefits to millions of Chinese,” Victor
noted. “The same can be said for the power
sector which now stretches into some of the
most remote parts of the country bringing
with it an increased standard of living and
massive productivity gains as businesses
and households become electrified.”
A distinctly local game
While much work and investment is being
put into the country, few opportunities
exist for foreign players. “We have already
got a number of very strong State Owned
Enterprises in each of these sectors
and they are all competing for projects,
meaning that there seems to be very little
room for foreign players to break into the
transportation or power markets,” added
Victor. “That being said, there have been
a number of cases where foreign and local
private companies have participated in
water projects, but these are often smaller,
more localized projects.”
vALuable lessons
So what lessons can foreign players and
governments take from China’s extensive
megaproject experience Three main
concepts stand out to Victor as viable models
for foreign markets.
The first is that by focusing on infrastructure
development, governments can help drive
greater economic growth and stability. “In
China, the government recognizes that if
we want to develop our economy, we must
develop more infrastructure projects and
so the central and provincial governments
have all made infrastructure development
a key priority over the past few decades,”
added Victor. “Nobody in China doubts the
massive role that infrastructure has played
in our progress to date.”
Victor’s second finding is that China has
benefited from developing megaprojects
at times where resource and labor costs
were comparatively low. “Clearly, China’s
cost advantages are going to shrink
somewhat over the longer-term and prices
for projects are only going to rise. I think
the government has done an admirable
job in getting many of these projects off
64 | INSIGHT | Megaprojects