Ugly Highway Crash for Chinese Firm in Poland

A construction project billed as a breakthrough for a China engineering concern ended in friction and failure

By staff reporters Gu Yongqiang and Wang Xiaoqing, and London correspondent Ni Weifeng for English Caixin

Not only did the incident hurt Covec’s reputation in Poland, but the public image for Chinese companies in general has been soured by labor strife and subcontractor payment disputes.

“The Polish media made many negative reports about China Overseas Engineering, which has had a huge, negative impact on the image of China and China’s manufacturing in Poland,” Chai said.

Highs and Lows

Covec, which has several big infrastructure projects in Africa as well as Asia under its belt, won the highway contract in September 2009 with a bid well below offers submitted by several major European engineering firms. The victory was hailed for offering China an important foray into the high-value European market for public infrastructure jobs.

A source close to the company told Caixin that Covec had been trying for some time to break into Europe’s market, and winning the expressway project represented a major breakthrough many hoped would lead to more construction projects across the continent. It was, indeed, the first large-scale infrastructure project ever for a Chinese firm in the European Union.

The contract called for building 29-kilometer and 20-kilometer stretches of road – the longest of five sections for the A2 highway – in 32 months. Polish officials hoped to complete the roadway in time for European football fans expected to drive to European Football Championship games next year in Poland and nearby Ukraine.

“The Polish government hoped to lower the price level in its infrastructure market by introducing Chinese companies” to the European-dominated market, said an analyst familiar with the Polish infrastructure industry.

The decision to award the contract to Covec stirred controversy almost immediately, since many in the European industry said the bid was too low and grumbled that the Chinese government might be subsidizing its builders.

“The Polish government’s budget for the construction of two sections of expressway was 2.8 billion zloty,” the source close to Covec explained. “China Overseas Engineering’s bid price was less than half that budget.

“Many European companies taking part in the bidding were amazed,” he said. “They thought the price was too low to make a profit.”

The Polish Construction Industry Association filed an unsuccessful complaint with the European Union after claiming that Covec “received Chinese government subsidies to offer a deliberately undervalued bid.”

But soon after they began construction, the above analyst said, Covec officials found the project’s difficulties had been underestimated by their own staff.

The source close to Covec told Caixin that the Polish government client did not initially specify the use of steel sheet piling for the expressway’s bridges. But over the course of construction, it was found that almost all bridges needed the expensive piling for reinforcements, driving up costs.

In addition, Poland’s economic rebound after the global financial crisis in 2008 and demand tied to 2012 football-related construction were blamed for huge price increases for building materials that hit the Chinese company much harder than European contractors with mature supply chains in the region.