Eastern promise

One of China’s biggest construction companies has the resources to draft thousands of workers onto projects - and to withdraw them even more quickly when required. CSCEC Middle East CEO Yu Tao talks to Michael Fahy about building a $4bn project pipeline in the region and its future plans
Tao believes that CSCECs access to Chinese bank capital is a major selling point.
By Michael Fahy
Sat 14 Sep 2013 10:58 AM

Yu Tao, the man responsible for around 5,000 construction workers as CEO of China State Construction Engineering Company’s (CSCEC) Middle East operations, is a big fan of Dubai’s Palm Jumeirah.

The development is the main reason he is in Dubai, he explains to Construction Week at a meeting at the company’s regional HQ. Until 2004, Tao headed CSCEC’s operations in Singapore, but he decided to move to Dubai “when my boss showed me the concept of the Palm Jumeirah and said would you like to work in Dubai on this particular project?”.

“That’s where China State started our operation nine years ago. Our first job here was Palm Jumeirah villas.”

Since then, the company has become something of a regional powerhouse, using the vast resources and experience at its disposal as one of China’s biggest contractors to win technically-difficult and challenging projects. To date, it has completed around $4bn (AED: 14.6bn) worth of projects in the region, and has just made its first major investment as a developer - taking a stake in Skai Holdings’ new $1bn Viceroy Hotel on Palm Jumeirah.

He said that the company, which recently moved 20 places up the rankings on the Forbes 500 Global list of the world’s biggest companies from 100 to 80, is best known outside of its home market as a contractor, but “is one of the most prestigious brands in China as a developer”.

Tao did not reveal how much of a stake it had taken in the Viceroy Hotel project, but said that CSCEC’s decision was taken very quickly.

“We moved extremely fast. I took probably ten minutes to make a decision.”

Of course, it takes longer for deals to be signed, but even then Tao said CSCEC finalised a deal “in less than three months”.

It was attracted by the “iconic” design from P&T Architects, as well as its location.

“I think the Palm Jumeirah is quite a mature, high-end market,” Tao said. “In the region, in the world...most people know this fantastic island. It is the pride of the UAE and Dubai.”

The $1bn resort is being developed by a special purpose vehicle, ASSAS, created between the partners. It will contain 481 rooms and a further 221 Viceroy Residences suites offering views over the Arabian Sea. Skai’s model involves selling rooms to investors, who lease them back to the hotel and receive 40% of the revenues. It has already sold around $660m (AED: 2.4bn) worth of rooms, and has said that the prices attracted have continued to rise since their launch.

CSCEC began construction on site in June under a three-year programme that will complete in 2016.

The initial phase has involved excavation, shoring and piling work on a site where adding basements below the sea level on a reclaimed island is an engineering challenge, but Tao is confident of CSCEC’s ability to deliver.

“We have been challenged with even more difficult projects.

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"We’ve done one in Abu Dhabi where we built some high buildings which had five basements – so it was much deeper than this one,” he said.

China State has a 10% share of the Chinese construction market, with a turnover in 2012 of $93bn (AED: 3416bn). It also signed new orders in the year with a value of $172bn (AED: 631.7bn).  Tao said the company has a global management workforce of around 150,000 and up to 2m workers.

“Construction is a labour-intensive business,” he said.

Its work in the GCC thus far has largely been UAE-focussed and has included a $300m (AED: 1.1bn) deal to deliver over 300 large villas and apartments at Mirdif, an RTA contract worth almost $1bn (AED: 3.6bn) to extend and upgrade the former Emirates Road (now Sheikh Mohammed bin Zayed Road), a $460m (AED: 1.7bn) project for Musanada to build the Shamha South interchange and a $231m (AED: 850m) contract to build the 238-bed Sheikh Khalifa Specialist Hospital for the UAE’s Ministry of Public Works.

The firm has also witnessed some more challenging schemes – particularly as the economic climate bit.

“Nine years ago, I found such good opportunities as a contractor.

“The developers were knocking at your door – ‘please, Mr Yu, can you price for me?’ Never have I had this situation before. We were always chasing after the developer.

“Of course, when the financial crisis started, it completely changed.

“The more projects you were handling, the more trouble you would get. Many projects were terminated, stopped or slowed down.

“A lot of our energy was no longer in the construction - it was in handling the financial arrangements together with the client to make sure we can continue. To a certain extent, the client's problem becomes ours.”

The company is main contractor on the 57,600m2 Al Hikma Tower on Sheikh Zayed Road, which was started in 2009 on an initial 28-month contract. The tower is being built for HH Sheik Issa Bin Zayed Al Nahyan. It has recently undergone a financial restructuring and CSCEC has worked with the client to readjust timetables.

“Recently, the project was refinanced by the bank and we are going to go for speed again,” he added.

Most of the reinforced concrete and curtain wall structures have now been completed, although MEP works and some interior design work on the 62-storey tower remains.

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“It will take us another year,” Tao said.

“We will do whatever we can to deliver the project. As a contractor, we can go fast if the client wants a fast-track job. We can slow down if the client prefers a slow motion kind-of style.”

It has also tailored its pace at City of Lights – the sprawling complex of 13 buildings being developed at Reem Island in Abu Dhabi for developer Al Tamouh.

China State is building five of the 13 buildings under a $463m (AED: 1.7bn) contract awarded in 2009.

“The project started right after the financial crisis and they were quite comfy then. But things change, you know?

“We've been spending a lot of time with the client trying to find out the best way to manage it. We've spent a lot of effort to find a better financial arrangement for the client.

“We would rather treat our client more like a partner. If there is a problem, we would like to do whatever we can to help out.”

The project is still ongoing, with more than 1,200 workers on site.

“Of course, with the size of our resources, we can double our workers on the site if the client requires.”

Currently, that project is also expected to take another year to complete.

One of CSCEC’s most recent deals signed in the UAE was a $164.4m (AED: 600m) specialist sub-contract to deliver the steel frame at the $3bn Midfield Terminal Complex at Abu Dhabi International Airport.

Although CSCEC was unsuccessful in its bid for the main contract, Tao believes that its experience in its home market (it has built 50% of China’s airports) was a factor in it being tasked with delivering “the critical heart” of the project.

“It is one of the most complex steel structure buildings in the world,” he said.

“We have a 580m arch steel span that is 50m high. But the good thing is we have just finished a similar project in the Shenzhen province of China. The design is very much similar and the size is similar, so we are moving over the whole team.”

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Tao argued that another of the CSCEC’s major selling points is that it can access finance from Chinese banks keen to invest in overseas projects.  He sees a major opportunity in serving the GCC’s demand for affordable housing – particularly in Saudi and the UAE.

In China, the company has worked on huge urban development projects that have involved governments handing over massive parcels of land with a request for a set number of houses. CSCEC then looks after the master planning, financing, construction, handover, maintenance and ongoing operations.

These deals, usually developed as joint ventures with the state, present a business model to governments that “is saving them a lot of headaches”, Tao said.

“That’s where we have built our reputation in the China market.

"Out of the 1.3bn population, 130m is living in a property that we constructed or developed,” he added.

China State has carried out projects like this in North Africa – initially in Algeria and later in Libya.

It was invited into the latter after ex-leader Muammar Gaddafi saw how well its properties had withstood earthquakes in Algeria.

Its work in Libya stopped for two years following the onset of the revolution, but the company restarted in June after signing an agreement in May to work on a project to build 20,000 new homes in Benghazi.

“We have been in a lot of wars,” said Tao. “Like in the first Gulf War, we were in Iraq.

“We had 150,000 employees and we had to withdraw within a very short span of time. The same thing happened in Libya."

He said that CSCEC managed to withdraw 15,000 employees from Libya in three days.

“We can build very fast and we can run very fast,” he joked.

The evacuation from Libya was organised from Dubai, and Tao said that “as a contractor, you need this kind of ability”.

“To us, we're a contractor. Our business is to do construction. We're not really involved in the political.”

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