Experts say initial failures must not discourage future opportunities

BEIJING - Chinese companies can still win contracts in Poland and use the market as a springboard to Europe's construction sector despite the shadow cast by a failed highway project, according to Poland's ambassador to China.

A Chinese business consortium including the China Overseas Engineering Group Co Ltd (COVEC) and several other firms won China's first European highway contract two years ago.

However, the contract was cancelled last month after the Chinese companies ran into unexpected financial difficulties.

"Both sides should not get discouraged or distracted by initial failures ... stemming from a lack of experience or insufficient understanding of mutual differences in the cultural and legal frameworks," Ambassador Tadeusz Chomicki said in a written interview with China Daily.

COVEC President Fang Yuanming, also head of the Chinese business entity in charge of the Polish project, was discharged from his post because of the embarrassment caused by the failure, reported the local magazine Caixin.

COVEC declined to comment. It is a subsidiary of China Railway Group, one of the largest construction and engineering companies in Asia.

The company won a contract to build two sections of the A2 highway in Poland at a price of about $447 million in 2009, which was considered impossibly cheap by the European competitors.

Soon after construction began, the consortium encountered liquidity problems and delayed payments to local subcontractors.

The case became a major concern for Polish authorities, as Premier Donald Tusk had pledged to have the key road link completed before the Euro 2012 soccer championships.

European standards and rules are different from those in China, and this fact was brought to the attention of COVEC many times from the beginning of the process, said Chomicki. However, many recommendations were not taken into account.

The Polish road agency is seeking compensation of 741 million zlotys ($271.1 million) from COVEC.

"Some European rivals claimed the bid price was dumping. Definitely not, we could make a profit at an even lower cost in China, but the European market is much tougher, " said an executive of a Chinese construction and engineering company who participated in bidding for similar contracts in Poland and Europe, speaking on condition of anonymity.

Raw material prices and equipment rentals skyrocketed far beyond expectations in the past two years, and no renegotiation of the contract was allowed, he said.

Zhang Jing, a researcher who specializes in Asia and Europe studies at the Development Research Center of the State Council, said Chinese companies cannot rely on their experience in the domestic or other developing markets as a benchmark for the demanding European market.

"A lesson must be learned, which is that Chinese companies are facing a changing economic scenario after the crisis.

"Stringent rules in Europe or markets that use the European standards as a reference" require more comprehensive feasibility studies, Zhang said, and due diligence work should be highlighted before making such deals.

Other Chinese companies that are planning to enter the Polish and European markets have been preparing carefully and systematically, said the ambassador. "We are confident they can be successful in Poland," he added.

Besides the construction sector, there is huge potential for cooperation in many areas between China and Poland. These sectors include environmental protection, clean energy and mining equipment and safety.

China's expanding consumption also provides a potential market for Polish products such as aircraft, pharmaceuticals and food, he said.