Chinese Building European Market Share

BMI View:  We expect that rising levels of Chinese infrastructure investment in Central, Eastern and South-eastern Europe to persist over the coming years. China has begun targeting the region's infrastructure to develop new routes for Chinese goods into Europe and to gain greater access to European infrastructure projects for Chinese companies. 

China has steadily been growing its economic engagement with the Balkan and Eastern European countries. As the trade relationship has grown, so has Chinese investment in the infrastructure and related industries. In 2012, the Chinese government announced a USD10bn credit line for the region, along with announcing USD500mn of capital investment with a view to boost trade. This has come at a time when the EU has faced serious economic headwinds and has put more emphasis on managing internal economic and financial affairs within its member states, limiting attention given to periphery markets. 

In tandem with credit lines, as we have noted across other developing market's construction industries, major Chinese infrastructure firms have also begun to carve out a market share in South-eastern Europe and the Balkans. Although the European Bank for Reconstruction and Development (EBRD) and the European  Investment Bank (EIB) are still major financiers in regional infrastructure, cheap Chinese loans as part of the USD10bn credit line along with technically proficient, yet inexpensive in comparison to European construction firms, Chinese construction firms are proving extremely attractive to cash strapped and infrastructure poor countries. By positioning in Eastern Europe, we expect that Chinese construction firms will use the region as a platform to win more opportunities in Western Europe, where projects are likely to be more lucrative to the companies involved as there will be less reliance on cheap Chinese credit.

China's Growing Importance
Key Chinese Infrastructure Investments 2008-2014 By Market, USDmn

BMI View:  We expect that rising levels of Chinese infrastructure investment in Central, Eastern and South-eastern Europe to persist over the coming years. China has begun targeting the region's infrastructure to develop new routes for Chinese goods into Europe and to gain greater access to European infrastructure projects for Chinese companies. 

China has steadily been growing its economic engagement with the Balkan and Eastern European countries. As the trade relationship has grown, so has Chinese investment in the infrastructure and related industries. In 2012, the Chinese government announced a USD10bn credit line for the region, along with announcing USD500mn of capital investment with a view to boost trade. This has come at a time when the EU has faced serious economic headwinds and has put more emphasis on managing internal economic and financial affairs within its member states, limiting attention given to periphery markets. 

In tandem with credit lines, as we have noted across other developing market's construction industries, major Chinese infrastructure firms have also begun to carve out a market share in South-eastern Europe and the Balkans. Although the European Bank for Reconstruction and Development (EBRD) and the European  Investment Bank (EIB) are still major financiers in regional infrastructure, cheap Chinese loans as part of the USD10bn credit line along with technically proficient, yet inexpensive in comparison to European construction firms, Chinese construction firms are proving extremely attractive to cash strapped and infrastructure poor countries. By positioning in Eastern Europe, we expect that Chinese construction firms will use the region as a platform to win more opportunities in Western Europe, where projects are likely to be more lucrative to the companies involved as there will be less reliance on cheap Chinese credit.

China's Growing Importance
Key Chinese Infrastructure Investments 2008-2014 By Market, USDmn

We expect that this increasing presence of Chinese capital and companies to focus on the transport and energy infrastructure sectors, although also note that Chinese firms are increasingly setting up manufacturing bases in the region. While we have noted that Chinese capital is increasingly targeting developed market assets, in particular real estate in the search for safer long-term returns ( see 'China To Increase Developed Market Infrastructure Investment', 6 August), we believe that Chinese companies in the Southern and Eastern Europe will continue to focus on lower value and lower risk transport and energy projects. 

Opening The Route To Europe

Within the transport sector, China is building up the region's logistics capabilities so as to offer a quicker route to major European markets like Germany and France for Chinese goods than is currently possible via sea.

  • At the height of the financial crisis, in November 2008, former Chinese President Hu Jintao signed a EUR3.4bn agreement with Greece to allow the state-owned China Ocean Shipping Company (COSCO) to upgrade and run a container terminal in country's chief port in Piraeus. Piraeus offers a much shorter route to market than Northern European ports like Rotterdam, and as such is acting as the anchor for the development of the region's infrastructure.  COSCO is due to increase its investments and stake in the port this year.

  • To transport goods from Piraeus into the major European markets requires a major improvement in road and rail connections in the Balkans and South-eastern Europe. Chinese companies are reportedly interested in the privatisation of Greek train operator TRAINOSE as well as a stake in a transmodal hub in Thriasio outside Athens.

  • Further north, China will complete a new bridge over the Danube in Serbia by end-2014 and China Communications Construction Company being shortlisted to build the Craiova-Pitesti motorway concession in Romania. Chinese firms are beginning to help connect some of the least developed, in terms of infrastructure, parts of Europe with the rest of the continent.

  • In addition to Piraeus, China is also looking to build up land connections with Europe, with the development of a modern day 'silk road' - a rail connection from China all the way to Europe via Central Asia, Iran and Turkey. As a result, Turkey has been one of the major export markets for Chinese rail infrastructure companies and Chinese high-speed rail infrastructure. China has also offered to join Bulgaria to Turkey's high-speed rail network, thus giving a direct route into the EU for Chinese goods once the Asian sections of the line are connected.    

Key Chinese Infrastructure Projects In CEE Region
Country Project Name Sector Value (US$mn) Size
Bosnia-Herzegovina Combined Heat and Power Plant KTG Zenica Power Plants & transmission grids 284.4 390MW
Bosnia-Herzegovina Tuzla coal fired power plant Power Plants & transmission grids 1100 450MW
Romania Photovoltaic solar plants, Prundu Power Plants & transmission grids 103 50MW
Romania Cernavoda Nuclear Power Plant Units 3 Power Plants & transmission grids N/A 720MW
Romania Cernavoda Nuclear Power Plant Units 4 Power Plants & transmission grids N/A 720MW
Serbia Corridor 10 highway project, Grabovnica-Grdelica and Vladicin-Donji Neradovci Roads & Bridges 2100 330km
Serbia Kostolac coal fired power plant Upgrade Power Plants & transmission grids 345 350MW
Serbia Elektroprivreda Sribije Coal Plant Power Plants & transmission grids 2750 744MW
Turkey Amasra coal fired power plant, Bartin province Power Plants & transmission grids 2400 2640MW
Turkey Istanbul-Ankara High Speed Railway(Phase 2) Rail 2270 214km
Turkey Istanbul-Ankara High Speed Railway Rail 4000 570km
Turkey Silk Road Railway Rail 30000 7000km
Source: BMI Infrastructure Key Projects Database

Powering China's European Energy Market Share

In the energy sector, we see Chinese activity as more of a long-term play to gain market share in the European energy sector - both in the East of Europe, but also in other parts of the continent. With Europe's periphery countries one day likely to join the EU, as Croatia has done, by developing a presence in Europe now, Chinese firms could stand to benefit from EU market access in the future.

In conventional thermal generation, nuclear and increasingly renewables, China is developing some of the largest projects in the Balkans and Eastern Europe:

  • China Machinery Engineering Corp. (CMEC) has now signed a USD716mn deal to build Serbia's first new coal-fired power plant unit in 23 years. The new power generation unit at the Kostolac power plant beside the Danube in central Serbia will be 85% funded by a loan from China Export-Import Bank (see 'China Making Good On Investment Pledges', November 26 2013). In Bosnia-Herzegovina and Montenegro also, China  Gezhouba  Group and Guangdong  Electric  Power  Design  Institute and Hubei Electric Power Survey & Design Institute have bid for thermal generation projects.

  • Notably, in the nuclear sector in which China is looking increasingly to export its domestically produced technology, Canada-based Candu Energy and China Nuclear Power Engineering Company (CNPEC) signed a binding and exclusive cooperation agreement to establish two more reactors at the Cernavoda nuclear power plant in Romania. In November 2013, a letter of intent was signed by CNPEC's parent company China General Nuclear Power Group and Romanian power plant operator Nuclearelectrica to develop two additional nuclear units. The plant already operates two CANDU 6 nuclear reactors of 700MW each, which started operating in 1996 and 2007, respectively.

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Related sectors of this article: Infrastructure, Transport Infrastructure, Utilities - Infrastructure, Construction, Project Finance, Railways, Roads and Bridges, Ports, Power Plants and T&D
Geography: Europe, Albania, Bosnia-Herzegovina, Bulgaria, Greece, Montenegro, Romania, Serbia, Slovenia, Turkey, Kosovo
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