Two thirds of China’s regions have announced more than $1.8 trillion in spending on major infrastructure investments this year, and in March 2023, an index measuring China’s construction activity surged to its highest level since 2012.
Efficient costs and supply chains have been core drivers of success for Chinese construction companies delivering domestic projects. However, these advantages have not been consistently observed when delivering international projects. Scaling up China’s construction capabilities to reach global markets will require local leaders to make meaningful strides in adopting digital and AI, integrating design standards, and embracing modular industrialization, customer-centricity and quality consistency.
On April 10, 2023, the Global Infrastructure Initiative (GII) hosted a roundtable with more than 40 senior leaders across China’s construction and real estate industry. The event provided a summary of leading insights from the 8th GII Summit, along with a dedicated discussion on the latest global trends, China’s current strengths and opportunities in construction, and levers for scaling China’s construction capabilities internationally.
The roundtable surfaced five key takeaways and actions for the industry to consider (download Chinese language version here):
- The industry must evolve its enduring strengths to meet disruptive challenges. China’s construction industry has outperformed globally on schedule controls, cost controls and supply chain management, resulting in some of the world’s greatest engineering, procurement and construction (EPC) projects. However, the industry now faces low productivity, labor shortages, and rising construction costs. Frequent challenges cited include a lack of project management capabilities when working on international projects, as well as insufficient use of digital tools.
- Create a long-term, holistic view of digital / AI’s benefits. Digital and AI adoption in the construction industry lags behind the manufacturing sector by a large margin, not because the technology is not available, but because traditional construction leaders have not fully embraced the innovations and lack the patience and commercial incentives to invest in digital / AI transformation. When polled, 62 percent of roundtable participants said they were in “initial stages” of deploying key data and analytics innovations, with the remaining partially deployed. When budgets are allocated at a project-by-project level, the ROI for digital innovation cannot be viewed holistically. As economic conditions change and market growth slows, leaders must shift from a “one-time cash flow” model to a long-term portfolio view when investing in digital / AI innovations.
- Productize and export Chinese modular / prefab units, leveraging China’s local cost and supply chain advantages to increase global competitiveness. The global construction industry is already exploring a more standardized approach to design, procurement, materials and equipment manufacturing, supply chain and logistics, and on-site assembly. China’s high levels of industrialization and manufacturing maturity lend themselves well to this approach. One leader said: “Industrialization is not done just for the sake of doing it; the ultimate objective is to provide better products and services that customers are willing to pay for.” There is an opportunity to partner with overseas customers earlier in the design process to align standards and construction methodologies and integrate Chinese ecosystems.
- Chinese engineering and construction companies have opportunities to improve the way they engage with the international market. The global market demands quality, precision, safety, and sustainability. Yet Chinese engineering and construction leaders cited challenges with meeting these expectations, including low customer satisfaction and a lack of customer centricity. Chinese construction companies need to rethink their value proposition beyond cost and productivity. One important offering is carbon reduction on projects. Leaders should tailor sustainability measures to each phase of a project, including steps toward recycling, decarbonized materials, and design optimization.
- Focus on codifying best practices that can be replicated consistently across geographies. Inconsistent project performance and delivery quality can be damaging factors for the credibility of Chinese construction in overseas markets. Within each firm, an over-reliance on “star” project managers makes it difficult to iterate, improve and scale. Localized management can help companies enter high-barrier markets and diversify their developments. Global mergers and acquisitions can also pose challenges – without a unified strategy or culture, talent is often lost, and there must be seamless alignment on expected results and resourcing. Chinese construction players should systematize best practices and skills that can be replicated consistently across project types and countries.