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Belt and Road

Chinese state companies make up for Malaysia setbacks

New infrastructure contracts bode well for upcoming China-ASEAN expo

Rini Soemarno, left, Indonesia's minister for state-owned enterprises, listens to a briefing on the Jakarta-Bandung rail project. A consortium led by China Railway Group faces resistance from locals over land acquisition.   © Reuters

HONG KONG/NANNING, China -- Despite a series of recent setbacks in Malaysia, Chinese state-owned enterprises continue to expand their reach in infrastructure construction in the 10 member countries of the Association of Southeast Asian Nations.

A case in point is China Communications Construction, which was dealt a blow when its $13 billion Malaysian East Coast Rail Link project was suspended in July by the new government under Prime Minister Mahathir Mohamad. But the state-owned builder revealed recently that it had won a 13.64 billion yuan ($2 billion) highway project in Cambodia.

What it lost in Malaysia, China Communications Construction hopes to make up for by its investments in Cambodia, the country of focus in this year's China-ASEAN Expo, set to begin on Wednesday in the southern Chinese city of Nanning.

The expo -- which was proposed by Beijing at the China-ASEAN summit in 2003 and established as an annual event the following year -- has served as both a political gathering and a launch pad for Chinese companies to expand business in Southeast Asia. Xi Jinping attended the event in 2012 shortly before he became China's president, but this time he chose to be in Vladivostok and dispatched Vice Premier Han Zheng to Nanning in his stead.

The 190 km highway in Cambodia will link the capital, Phnom Penh, to the southwestern port city of Sihanoukville. The project is the subject of 19 memoranda of understanding signed by both governments during Premier Li Keqiang's visit to the Southeast Asian country in January.

According to documents filed by China Communications Construction, the project builder will control the concession for 50 years after a construction period of four years. Li Qingwei, head of overseas business at the company, said in Hong Kong on Sept. 4 that the project was still in the preparation stages, although local media reported that construction would start by year-end.

Even though the Cambodian project does not match up with the suspended Malaysian railway work in terms of contract value, it formed the second-largest new overseas contract for the company in the first half of the year, dwarfed only by a 27.2 billion yuan project involving a Hong Kong integrated waste management facility.

China seeks to further strengthen relations with crucial ASEAN ally Cambodia mainly through enhancing economic ties. This year also marks the 60th anniversary of diplomatic relations with Cambodia, and Prime Minister Hun Sen arrived in Nanning ahead of the opening of the annual investment and trade forum to take part in a roundtable discussion with some Chinese CEOs on Tuesday.

Cambodian Prime Minister Hun Sen enters the venue of the roundtable meeting with Chinese CEOs on Sept. 11. The roundtable was held prior to the 15th China-ASEAN Expo, opening Sept. 12 in the southern Chinese city of Nanning. (Photo by Kenji Kawase)

Cambodia's northern neighbor Laos is another investment target for Chinese state-owned enterprises. China Tower, which completed one of the largest initial public offerings of the year by raising 54.3 billion Hong Kong dollars ($6.9 billion) in August, signed a deal recently to establish its first overseas arm in Laos. The company noted in its prospectus that it will "prudently seek" development opportunities overseas.

According to Communist Party mouthpiece Xinhua, China Tower holds a 70% stake in the joint venture, Southeast Asia Tower, and it will control the board by appointing both the chairman and president. The remaining 30% is held by the Laotian government and a local company, Click Lao Marketing and Consultancy. The local Chinese embassy said that the country's defense ministry will hold the government's stake.

The total investment amount has not been disclosed, but the new joint venture will take on construction, maintenance and operation of telecom towers, mobile base stations, power supplies and indoor distribution systems in the Southeast Asian country. Even though no further details have been revealed, the Chinese tower operator -- mainly held by the three state-owned carriers, China Mobile, China Telecom and China Unicom -- will have a direct stake in Laos' telecommunication infrastructure.

Fellow state-owned builder China Railway Group is under contract to complete the first major railway in Laos. Chairman Li Changjin confirmed to reporters on Sept. 4 that construction has begun on the 414 km rail linking the Laotian capital of Vientiane to the town of Boten on the Chinese border. Meanwhile, the long-delayed Thai-Chinese railway that will connect to the Laotian leg is also moving ahead.

"The Thai government has been very supportive," Li said. "They want to connect railways from Thailand to China and Laos. They are also interested in having railways all the way to Singapore, creating a regional transportation network."

The 250 km first phase connecting Bangkok to Nakhon Ratchasima in central Thailand is expected to be operational in 2021, and the high-speed rail link will subsequently be extended to Nong Khai, which borders Laos.

On top of this, Li said the company expects to ink several big deals in the second half. "The Philippine government is in talks with us for several railway projects with a total investment of more than $10 billion. The Philippine president hopes that China will help finance the construction of its railway projects," he added.

As projects increase, Chinese state-owned construction material companies also see opportunities in the region. Anhui Conch Cement started operating cement grinding and clinker production facilities in the western Cambodian city of Battambang in June, while its cement factory in Indonesia's North Sulawesi province "will be put into operation shortly," according to a document filed by the company on Aug. 22.

Also, the construction of the company's cement factory in the ancient Laotian capital of Luang Prabang "is at its peak phase," and construction of the factory in Mandalay, Myanmar, has begun. Preparatory work for the projects in Vientiane is also underway. This multifront expansion in ASEAN has pushed up Anhui Conch's overseas revenue by 37% to 555 million yuan in the first half of the year.

In addition, Chinese port operators are on the hunt for maritime facilities in the region. Fu Gangfeng, chairman at China Merchants Port Holdings, expressed his willingness to seek investment opportunities in countries like Thailand, Singapore and Malaysia, as "Southeast Asia is an economy with stable growth, and we are hopeful for this area." He revealed to reporters on Aug. 31 that the company sent scouts to inspect port facilities in Thailand earlier in the month.

"But we are also very concerned about the risks ... We have seen major changes in many projects after a leadership shift," he said, citing examples in Malaysia, and the geopolitical risks -- which he described as "rather complicated."

"For any overseas investments, we must ensure the safety, sustainability and future profitability of the projects," he said, adding that the group is still searching for investments that meet its requirements.

This sentiment is shared among other managers of state-owned enterprises, including Li of China Railway Group. Although he said that the long-term outlook "remains good" for China's overseas plans under President Xi's Belt and Road Initiative, Li acknowledges the risks and challenges ahead given the massive scale of the project. The company already faces resistance from locals over land acquisition to construct the Indonesian high-speed railway connecting Jakarta and Bandung.

Nikkei staff writers Coco Liu and Nikki Sun contributed to this story.

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