Australia-China Services Trade: Opportunities and Challenges of a Free Trade Agreement
Beijing, 24 April 2006
Session Four: Transport and Logistics
RICHARD A KELL, AM FTSE, DIRECTOR, CARDNO INTERNATIONAL, THE CONSULTING ENGINEERING PERSPECTIVE
1. INTRODUCTION
The author is a qualified civil engineer who has spent his working life in consulting engineering, and was until recently chairman of Cardno Pty Limited, a major Australian based engineering consultant which is listed on the Australian Stock market. He remains a director of Cardno International Pty Limited. Cardno has a staff of about 1500 with offices in 10 countries, and provides services in the fields of engineering and social infrastructure. Cardno has undertaken several major projects in China: sewerage treatment plant, highways projects, environmental rehabilitation, natural resource management and health training. Cardno China Office Manager Scott Roantree is in the audience.
Details of Cardno may be obtained at www.cardno.com.au
The author is also Immediate Past President of the International Federation of Consulting Engineers, FIDIC, and as FIDIC President , he has worked with the Chinese National Association of Engineering Consultants CNAEC, on the delivery of FIDIC principles into China. He serves on the Advisory Board of the FIDIC Centre at Tshingua University, and he was co-chairman of the highly successful FIDIC International Conference held in Beijing in 2005 on the theme: Sustainable Engineering, Global Leadership. Co Chairman and good friend Chairman She Jianming is present at the conference.
It is from the perspective of an Australian consulting engineer working in China and internationally for his firm, and as FIDIC Past President that this paper is presented. The author has also consulted with other Australian engineering firms SMEC and Arup with long experience of working on major projects in China. .
2. AUSTRALIAN CONSULTING ENGINEERING FIRMS – BENEFITS AND OPPORTUNITIES
Australian engineering firms have worked within an open economy for some decades and as a result, a number of consulting firms have developed to be now ranked in the medium to large and even mega size by global standards (largest Australian consulting engineering firm has 10,000 staff). In addition, there are many high quality “niche market” firms in Australia. These firms both large and small are internationally competitive and highly experienced in operations outside Australia, including China. Most major Australian firms have established overseas offices, and are accustomed to working in a diverse range of economies, cultures, languages, geography and climatic conditions. Australian engineering firms have been working in China since 1980.
There are more than 60,000 staff employed in Australian consulting engineering firms.
Australian engineering has world class expertise across a wide range of project areas: ports, airports, road and rail, environment, water and waste water including re-use, commercial and urban and sports facilities and mining - Cardno works in all of these areas - and communications and oil and gas.
Australian engineers are at the forefront in strategic planning and integration of sustainability principles into infrastructure and the modern implementation models such as Design Build, PPP and Alliancing, Build Operate and Maintain, which are increasingly being adopted in other parts of the world often following the Australian experience.
Australian engineering is underpinned by a strong system of best practice national building standards aimed at ensuring structural integrity, fire safety and health and safety in design and construction. Australian engineering enjoys very high status – witness the presidency of FIDIC, and also the International Concrete Federation, FIB, and the World Federation of Engineering Organisations WFEO, all of which have Australians as presidents during the past three years.
Although Australian fees per person are higher than in China, Australian firms can be cost competitive with Design Institutes through efficient design management whilst providing projects at lower cost through value added engineering.
As an example of the status and reach of Australian Consulting Engineers, Australian firms ranked No 1 in projects funded by the Asian Development Bank in 2005, as indicated in the slide. Note – the low ranking of China and the rising position of India.
What potential benefits do these high standards and international experience represent for PRC Engineering? There are some clear advantages to be gained from Australian engineering firms:
- Ability to plan and manage consulting teams for major infrastructure projects to World Best Practice standards;
- Willingness and ability to reciprocate by engaging Chinese engineers on projects in Australia;
- Willingness to involve PRC engineers on projects in other countries;
- Outsourcing of design work to PRC affiliate companies;
- Relatively low cost (by Western standards) for Australian high quality management and engineering;
- Practice of Australian firms of using Chinese engineers on projects in China.
3. CHALLENGES FACED BY AUSTRALIAN ENGINEERING FIRMS WORKING IN PRC
At the outset, it is essential to acknowledge the high standard of Chinese engineering and the many examples of successful co-operation between Chinese and Australian engineering firms.
There are however, a number of challenges which represent key trade barriers:
- Wholly Owned Foreign Enterprises
Foreign firms are required to establish a commercial presence, either a WOFE or a joint venture (JV). Either way, there are serious restrictions. Decree 200 was introduced by the Ministry of Construction in December 2004, but as yet no regulations are in place. The Decree contains 5 categories of activity: construction, design, pricing, supervision and tendering. The regulations have the potential to significantly impact the way WOFEs are structured. Any provisions of Decree 200 that would adversely affect the structure of WOFEs should be reconsidered. Firms considering investment in China need certainty.
- Foreign Ownership of a Design Company
Existing ratios require to be met where Australian consulting engineering firms own or take over a local design company (for example: expatriate to local staff, numbers registered and language fluency) should be reduced or rescinded.
- WOFEs Right to Withhold Monies
Requirements for a set percentage of profits to be retained by the WOFE need to be abolished or reduced. Flexibility is needed.
- APEC Registration
Australian qualifications being regulated by the profession are not recognised in PRC, and yet Australian engineering and ethical standards are rated at the highest level. There should be mutual recognition of engineering qualifications which could be achieved through APEC engineering register.
- Slow & Delayed Payments
Slow and delayed payments indicate a lack of understanding of commercial realities and these places the financial viability of firms and relationships at risk.
- Certification
The market for consultants in government funded infrastructure projects is still largely closed due to the need to have certifications for different design and construction management activities. This is a “chicken and egg” problem. Chinese experience is needed to get the certifications and yet certifications are needed to get the experience. For example, a class A expressway design certification is needed to be able to design high standard expressways.
- Major projects require review by an Expert Panel
This process requires many submissions and meetings and some unconventional technical opinions may need to be addressed, resulting in un-necessary delays and costs.
- Documentation
Documentation expectations at the various stages of design differ between PRC and Australia (which follows international practice). This issue needs to be addressed as it leads to misunderstandings.
- Detail Design Phase
At present, it is normally not possible for an Australian firm to work beyond design development – the Local Design Institutes have a protected position, which is not necessarily the most effective approach. This policy may restrict the development of a competitive private sector in China.
- Preliminary Designs and IP
Preliminary designs are usually transferred to the Local Design Institutes and may be changed in the detail design phase. This reflects the seemingly privileged position of LDIs, and may not lead to efficient designs. Intellectual Property issues also arise here.
IN SUMMARY
There has been increasing level of co-operation between Australia and China in such areas as the upgrading of Chinese skills in the Western approach to project management, design and implementation. Progress is being made, but some key trade barriers remain. It is recommended that these can be addressed within the context of the Trade Agreement, for the benefit of all. In some cases, progress may be best achieved by joint working groups within the relevant sectors of the industry. The facilitation of exchange of staff between the two countries would also allow improved understanding and co-operation.
It is expected that exchange of ideas and experiences at this Conference will progress the relationships between China and Australia in trade in services.
RICHARD KELL, AM FTSE
Director
Cardno International Pty Limited