WTF? - Chinese Construction Company Nets $100M New York Subway System Deal

[RedlightG20]

Way to go, America. Good job investing US tax dollars into American companies :doh:

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China State Construction nets $100m US subway deal

http://english.people.com.cn/90001/90778/90860/6821785.html

China State Construction Engineering Corp, the largest contractor in China, has bagged a subway ventilation project worth about $100 million in New York's Manhattan area, marking the construction giant's third order in the United States' infrastructure space this year.

The contract was given to China Construction American Co, a subsidiary, the Wall Street Journal quoted a source as saying.

"The new project, along with the $410-million Hamilton Bridge project and a $1.7-billion entertainment project it won earlier this year, signals China State Construction's ambition to tap the American construction market," said Li Zhirui, an industry analyst at First Capital Securities.

Li, however, said the order came as no surprise as the US government is spending massively on infrastructure projects.

The three orders only account for about 4 percent of the value of its total orders this year, Li added.

In the first three quarters of this year, the Chinese construction giant signed more than $2 billion worth of contracts in the US market. China State Construction was also the contractor for a high school, a railway station and the Chinese embassy in the US.

Despite the progress made in the US market, the Middle East, Asia and Africa remain the State builder's key markets. The value of its contracts in Algeria this year increased 32 percent year-on-year, exceeding $800 million, and the value of its contracts in the Middle East surged 62 percent year on year, also exceeding $800 million.

The domestic market is still the largest contributor to China State Construction's revenue, mainly due to strong property sales and infrastructure sector projects.

China State Construction said it reaped 41 billion yuan in revenue from the property sector in the first 10 months of this year, up 83.2 percent over the same period last year. Orders from the infrastructure construction business were boosted by 90 percent largely due to the fiscal stimulus allocated to China's infrastructure sector.

Citing the company's recent performance, Shenyin & Wanguo Securities has given China State Construction a "buy" rating for the first time.

According to statistics provided by the Ministry of Commerce, China's overseas project contracts have increased 22.7 percent to $100.15 billion in the first 10 months of this year.

[Rocky21]

And while we're on the subject, thanks to all those Wal-Mart shoppers too.

[Predicto]

So, you don't want your government to take the lowest responsible bid when it spends your tax money on an infrastructure project? :whoknows:

[Ellis]

I wouldn't get alarmed just yet.

The firm is likely to hire Americans to do the labor.

Now if we see a bunch of Chinese men show up and work for $0.45/hr... then we can freak out.

[Destino]

This is the country which saw it's major automobile manufacturers damn near vanish and not ONE politician asked people "consider an American car".

Money -> Politics -> Country

[Ellis]

This is the country which saw it's major automobile manufacturers damn near vanish and not ONE politician asked people "consider an American car".

Money -> Politics -> Country

A lot of Foreign Cars are built right here in America... by Americans.

[Hubbs]

So, you don't want your government to take the lowest responsible bid when it spends your tax money on an infrastructure project? :whoknows:

I actually think that more people would support spending $120 million on an American company than $100 million on a Chinese one. I would, and you know how much I hate on government spending.

[TimmySmith]

I wouldn't get alarmed just yet.

The firm is likely to hire Americans to do the labor.

Now if we see a bunch of Chinese men show up and work for $0.45/hr... then we can freak out.

More than likely they'll try to sub out all the work to the lowest contractor and take the profit off the top.

[Hubbs]

I wouldn't get alarmed just yet.

The firm is likely to hire Americans to do the labor.

Now if we see a bunch of Chinese men show up and work for $0.45/hr... then we can freak out.

The labor will be paid for here no matter what. But the profits leave the country, and we're paying for that. I'd rather not.

This is the country which saw it's major automobile manufacturers damn near vanish and not ONE politician asked people "consider an American car".

Money -> Politics -> Country

Ellis is right about foreign manufacturers actually moving to business-friendly states over here, but I'm gonna go ahead and say that politicians handing billions upon billions of dollars to American car companies was enough of a helping hand.

[Ellis]

Here's the thing about contracting work to foreign countries that perhaps many don't realize. These firms are paid in U.S. dollars. Where are they going to spend that currency? Most likely, on U.S. goods. Although the U.S. currency is recognized, trusted and respected in almost every country of the globe and can be exchanged on most international markets, ultimately, all money leads back to the U.S. It doesn't just magically disappear.

[Renegade7]

A lot of what we get from China for lower prices turns out to be of far lesser quality, even to the point of being dangerous. You'd think we would've figured this out by now, but I guess not. I don't like it. Give the contracts to American companies, it helps the overall economy even more.

[RedlightG20]

So, you don't want your government to take the lowest responsible bid when it spends your tax money on an infrastructure project? :whoknows:

In the end, the profits of this project are going overseas, benefiting a foreign-owned company. Right now, I would feel much better with spending more money and keeping it in the country. I think the benefits of giving our business to American companies and American employees will far outweigh the benefits of saving a few million dollars on a contract with a foreign company.

[Destino]

A lot of Foreign Cars are built right here in America... by Americans.

and I'm sure the people working on the construction project will largely be an American work force.

[Monte51Coleman]

Why should we have to pay more for an American company to do the work? Why aren't American companies competitive on these jobs? Is the projected profit percentage not high enough for them? Are our companies bloated and inefficient?

[RedlightG20]

Here's the thing about contracting work to foreign countries that perhaps many don't realize. These firms are paid in U.S. dollars. Where are they going to spend that currency? Most likely, on U.S. goods. Although the U.S. currency is recognized, trusted and respected in almost every country of the globe and can be exchanged on most international markets, ultimately, all money leads back to the U.S. It doesn't just magically disappear.

Maybe I'm dumb but could you explain this a little more? I don't understand how the currency used to pay for this work has bearing on how or where it's ultimately spent. If a company gets paid in US Dollars, which is widely respected and used, couldn't they could just use that same money to purchase foreign-made trucks, tools, and other equipment back in their own country? How is it most likely to be spent on US goods? How does it ultimately get routed back into the States?

[artmonkforHOF]

I wouldn't get alarmed just yet.

The firm is likely to hire Americans to do the labor.

Now if we see a bunch of Chinese men show up and work for $0.45/hr... then we can freak out.

doesn't matter where they get their labour from, they are required to pay a certain rate if it is a union job. Most likely, only the higher ranking officers are Chinese, and most other workers, from a guy pushing a broom up to project manager are all American.

This just means that any profits from the job ( maybe $10mill) will go to China.

[RedlightG20]

Why should we have to pay more for an American company to do the work? Why aren't American companies not competitive on these jobs? Is the projected profit percentage not high enough for them? Are our companies bloated and inefficient?

I would venture a guess and say that these foreign companies have a great advantage over their American counterparts based on the fact that they spend less in labor costs in their home country, where the economy is skyrocketing. If they can pull in more profits by spending less in labor costs on projects back home, they can afford to take in much less profit for the sake of doing business in the US because they have the support of the cash cow back home. Many domestic companies don't have that luxury, where the norm here is to pay much more for labor.

Just a guess though, perhaps others here can shine some more light on this.

[SkinInsite]

And a lot of American firms are awarded business deals for foreign contracts, it's called a free market.

[mjah]

I'm not a big fan of the "wages get paid to Americans so it's not so bad" point of view.

Certainly it's better that the wages go to Americans. And I assume the contracts are in US dollars. But the profits, laurels (if any), sales experience, negotiating power for future work based on this contract, employment-based corporate political leverage, strategic positioning -- they all go to China when a Chinese company does the work.

At a high level that's not so different from buying a Camry that was built here. But the automotive horse left the barn long ago. This is comparatively new; it's infrastructure instead of a consumable item to be discarded in ten years; and it's China.

To me, ultimately it's a matter of the market penetration the Chinese get and whether or not that penetration hampers American efforts to stay at the forefront of construction technologies and capabilities. It's also a matter of whether or not they eventually decide to use new labor because Americans are too lazy and expensive. If a $120M contract to an American contractor turns into $100M for a Chinese contractor using American labor, how much more will be saved when the Chinese contractor offers to use minimally documented Chinese labor instead? Will China be heavily subsidizing the Chinese bids to guarantee that they come in below American companies'?

If we're just talking dollar signs, then surely some cash-strapped highway and public works departments will see that as an offer too good to refuse. I can easily see a situation like the following: For $100M in an American-labor scenario, the crumbling West Podunk Bridge in Podunk, MI WILL NOT get the rebuild it desperately needs, and West Podunkians will have to drive an extra hour each way around Lake Pollutia to get to Metro City while the bridge sits condemned for years awaiting funds. For $80M, a new bridge will get built next to the old one using cheap Chinese labor and all will be well. The $80M price is carefully selected to be just within available funds for the job while undercutting American companies' abilities to cover costs. Which option does the state of Michigan choose, and how many West Podunk Bridges are there in the nation?

[Ellis]

Maybe I'm dumb but could you explain this a little more? I don't understand how the currency used to pay for this work has bearing on how or where it's ultimately spent. If a company gets paid in US Dollars, which is widely respected and used, couldn't they could just use that same money to purchase foreign-made trucks, tools, and other equipment back in their own country? How is it most likely to be spent on US goods? How does it ultimately get routed back into the States?

You're not dumb and asking questions is always a good thing.

Check this interview out between Mike Norman and Warren Mosler. It's a very layman's term conversation about U.S.-China trade, Fed Reserve functions and deficits. Read all 3 pages of the transcript and especially page 3, where Mosler explains how the relationship between the U.S. and China work.

http://www.hardassetsinvestor.com/features-and-interviews/1852.html

Granted, trade is much more complicated. Mosler is attempting to bring the industry down to a level that every American can understand so that all the doomsday-er's can't scare people about the deficit.

[jnhay]

A lot of what we get from China for lower prices turns out to be of far lesser quality, even to the point of being dangerous. You'd think we would've figured this out by now, but I guess not. I don't like it. Give the contracts to American companies, it helps the overall economy even more.

Do you have any statistics to back that up?

I kinda understand your reasoning, but if you think about it, the country would probably be worse off if we just decide to "buy American"

[btfoom]

There is a HUGE difference between a foreign car company selling cars here and a firm being given a government deal. The foreign car companies are selling the cars on the open market and we are buying them because we feel they are better for the cost.

This is the US government, not the market, awarding a contract to a foreign company. Very different (note the article doesn't mention how the bid was submitted, how many companies bid, etc).

[zoony]

Anyone know how much money US Firms made on the Three Gorges Dam project in China?

[sjinhan]

I think the American companies needs to step up and bid more competitively on these jobs...

on the topic of quality... it doesnt matter where the product is made or built from.. you get what you pay for... Trust me Chinese can make and are making high quality products if you are willing to pay for them.

[mjah]

Anyone know how much money US Firms made on the Three Gorges Dam project in China?

Possibly a lot.

If so, I assume that's due to expertise that we have and China doesn't (or didn't). And I'd like to see the balance stay that way...