Feature Story - November 2005

Giant Market

New York Area Firms Size up Projects in China

Crews at John F. Kennedy International Airport installed pile caps this year for a 700,000-sq.-ft. parking garage that will serve a new American Airlines terminal. (Photo courtesy of Port Authority of N.Y. and N.J.)

A few companies based in the New York market have already jumped into projects in one of the world's fastest-growing economies. China's vast resources and expected growth could provide opportunity to New York-area design and construction firms, but some say the hurdles to success are formidable.

It's no wonder that China's architecture, construction, and engineering services industry is estimated to be a $315 billion market that grew 7 percent in 2004.

China is, after all, the world's most-populated country with 1.3 billion people and a quickly expanding economy.

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And the potential demand for additional infrastructure is staggering. The United Nations Educational, Scientific and Cultural Organization estimates that the migration in China of up to 300 million rural residents will boost the urban share of the population to 45 percent in 2010 and to 70 percent by 2050.

Add in the roughly $100 billion in development under way to prepare for the 2008 Beijing Olympics, as well as construction of some of the world's tallest skyscrapers, the world's largest mall in Beijing's 6-million-sq.-ft. Golden Resources complex, and the world's biggest dam in the giant, 15-year, 26-generator Yangtze Three-Gorges Dam project - and it's no surprise that some New York firms are reaching for a slice of the pie.

"China has a huge amount of money and is going from the 17th Century to the 21st virtually overnight," said Thomas Fridstein, CEO of New York-based Hillier Architects and a former project manager on the 88-story Jin Mao Tower in Shanghai for Skidmore, Owings & Merrill.

But expansion-minded New York-area firms should be aware that the opportunities for foreign firms in China may be limited by another trend - the increasing maturation of the native Chinese design and contractor community, said Dennis Poon, managing principal at New York-based Thornton-Tomasetti Group, who is responsible for several projects in Asia.

"In order to survive in the very near future, we must establish our firms locally now," he added.

The $600 million CCTV tower in Beijing is slated for completion in time for the 2008 Olympics.

Generally speaking, China has been relatively open in recent years to foreign architectural firms. The reason is twofold.

On the one hand was China's effort, starting in the early 1990s, to aggressively pursue foreign investment and well-established international expertise. At the same time, the Chinese architectural community lagged in the experience and technical training needed to build skyscrapers or advanced architectural projects.

It has already been a decade since New York-based Skidmore, Owings & Merrill designed what remains China's tallest building for the China Shanghai Foreign Trade Centre - the imposing 1,380-ft. steel and glass-clad Jin Mao Tower, which has a 53-floor-high atrium and a Hyatt hotel on its top levels.

Skidmore, whose Chicago office played a lead role on its work in China, has since opened a Shanghai office and is working on several large-scale projects, including the redevelopment of Chongming Island, a 750-sq.-mi. isle on the Yangtze River near Shanghai.

Meanwhile, New York-based Perkins Eastman has about 30 active projects in China at various stages. It also is one of three finalists in the Shanghai Expo 2010 design, a massive project comprising several facilities and buildings sprawled over a 2-sq.-mi. plot.

New York-based engineering firms have also begun to penetrate the market, primarily at the niche level. Highly technical M-E-P systems, for instance, often call for the expertise of foreign firms.

Thornton-Tomasetti has grown its Shanghai staff from two to 20 in only three years. Engineers are also piggybacking with foreign architects who have already won commissions in China.

Competitive and Regulatory Hurdles

The Chinese market has offered relatively fewer opportunities to contractors and construction managers from the New York area and from the United States as a whole. It's not uncommon for projects to have American-based architects and engineers but use Chinese contractors.

For instance, New York-based Kohn Pedersen Fox designed the Shanghai World Financial Center, a 1,614-ft.-tall tower with a 164-ft.-diameter circular opening on the top. New York-based Leslie E. Robertson Associates was structural engineer. But the general contractor on the project, now under construction, is a partnership of three Chinese firms.

Similarly, Kohn Pedersen is designing the $400 million Plaza 66, a two-tower, 2.6-million-sq.-ft. project scheduled for completion next year in Shanghai. Thornton-Tomasetti is the structural engineer and New York-based Flack + Kurtz is the electrical engineer. The construction manager, however, is a Chinese company.

"To date, Hillier has not worked with any U.S.-based construction managers," added Barry Shapiro, a China-based project manager for the firm.

One of the main factors that appears to be holding back American-based contractors is the difficulty of competing with the cheaper labor provided by Chinese companies.

In addition, the U.S. government's delicate political relationship with China makes it more difficult to compete with Australian, Asian, and European firms, whose governments often actively help them to gain Chinese business, said a New York-based construction industry executive who requested anonymity out of concern for his company's business prospects abroad.

And Chinese developers are starting to show a preference for local contractors, Hillier's Shapiro said.

"It has become increasingly difficult for U.S. general contractors and construction managers to get work in China," he said. "It has also become more difficult for U.S. or even Hong Kong-based developers to win big, high-profile projects in the major cities.

"We are increasingly seeing local Chinese developers winning the right to develop major projects in the large cities," Shapiro added. "Local developers are more likely to use local contractors and construction managers. This trend seems to have increased over the last one to two years."

Lack of information - and fear of the unknown - can also be an obstacle to entering the Chinese market. John Wang, president of the New York-based Asian American Business Development Center, unsuccessfully attempted to organize a networking mission for New York construction and design industry executives that would have taken place this summer. He found they were often "wary" of the Chinese market.

"But if you don't go there, you don't find out," he said.

And then there are local hurdles. Any foreign firm participating on projects in China has to work through entities called Local Design Institutes - associations of architects, engineers, and consultants that must review design plans. The institutes then sign off and forward the plans for final government approvals.

By working with foreign designers, the native firms in the institutes can gain more experience and greater ability to compete, raising the possibility that Chinese developers will hire them in lieu of U.S. firms. Thornton-Tomasetti's Poon warns that these changes are afoot.

"The LDI's, while working with us, also compete with us," he added. "In order to survive, we have to bring technological know-how, our design expertise, and our experience on high-rise structure design."

A Glimmer of Hope for Contractors

Despite the obstacles, a New York-based contractor is working on one of China's most high-profile projects.

Turner International, a division of Turner Construction, broke ground last year on the Chinese Central Television tower in Beijing, a $600 million project scheduled for completion in time for the 2008 Olympics. Turner is acting as a construction management consultant on the project, a role that involves less responsibility than a typical American construction management assignment, but which allowed the company to remain cost-competitive with Chinese counterparts.

Turner had previously made a name for itself in Asia as project manager on the 1,667-ft. Taipei 101 Tower in Taiwan, the tallest building in the world upon its completion in 2003.

Turner won the CCTV job in part because of the complicated design prepared by Rem Koolhaas's Office for Metropolitan Architecture, a practice based in Rotterdam, the Netherlands.

The CCTV structure is a skyscraper framed into an angular doughnut. It includes an 'expressed diagrid' - a system of steel braces integrated into the façade design of the curtain wall, which is necessary to handle gravity and lateral loads.

"It's a very complicated project because in a sophisticated, challenging design such as CCTV, you're looking for management expertise and expertise with mechanical-electrical systems, steel, and high rises," said Caryn Conlon, director of business development and marketing for Turner International.

The company is also looking at the Chinese market for its potential to supply materials to Turner construction projects worldwide, Conlon said.

"We're not only building there, but also resourcing out of China," she added.