The impact of shares plummeting in Shanghai could result in Chinese ambitions turning to the UK construction market

Richard Steer 2014

While UK business was preoccupied with the latest Budget statement from George Osborne and the eyes of Europe were dominated by the prospects for a Greek bailout – the global business community were far more interested in what was happening in Asia. The fragility of the Chinese economy were exposed on the world stage for the first time with its share index dropping faster than a theme park rollercoaster. The episode, which was short lived, did show the vulnerability of the Chinese equity markets at a time of growing concern about growth prospects for the Chinese economy. Last year China expanded at its slowest rate in 25 years.

The benchmark Shanghai Composite equity index has fallen by almost 40% since mid-June. Some worry that China’s equity sell-off could feed back into the economy, by weakening the financial system and underlining consumer activity. However according to seasoned observers at Deloitte’s this, for now, looks like a fairly small risk. For a start the Chinese market is far smaller relative to the size of the Chinese economy than Western markets are to Western economies.

Why should we care? In my view, this seismic shift in stocks is relevant to us over here in the UK construction sector. China understands the weakness of dependence on its own internal markets and it is looking to expand, now maybe at an accelerated pace as passenger car sales in China just registered their first monthly fall in two years – another sign of a slowing of consumer spending. It is no secret that they need to expand outside their own borders and in my view the recent events will speed up the desire for the Chinese government to invest, or more likely take over large portions of the UK construction sector, as it is doing in other parts of the world.

China could become involved in a devolved housebuilding programme that is increasingly becoming a crisis issue for this country

Let’s not be fooled, this is not about greed. It is about the need to absorb, copy and inculcate our skills and intellectual capital into their own construction processes. This is a defensive strategy predicated by a long-term plan to become the world’s largest and most successful economy. The evidence is already growing for this. It was recently rumoured that the China Civil Engineering Corporation was sounding out advisors and banks about the prospects for buying Balfour Beatty. The offer, rumoured to be £2bn, may have been too low but the intent was there according to market analysts. The China Harbour Engineering Company was recently awarded the largest deal on the £1bn Swansea Bay Tidal Lagoon. They guaranteed half of the contract value of £300m for the marine works would be spent on the UK workforce, partners and supply chain. Chinese Investment in HS2 and the nuclear sector has also come about, with skills transfer being an integral element of the arrangement.

It is no secret we built only 140,000 homes last year and we need 250,000

So we have China keen to diversify outside of its domestic market and we have the UK keen to welcome foreign investment and partnering initiatives. Surely it could not be a giant leap of imagination to see China becoming involved in a devolved housebuilding programme that is increasingly becoming a crisis issue for this country. It is no secret we built only 140,000 homes last year and we need 250,000. According to some, we also need 1 million new recruits into the industry by 2020 to get anywhere near closing the skills shortage gap, which is pushing up prices and distorting the market. According to the China Daily newspaper, its government sees housing as being a solution to helping create a more balanced economy in its own country. So they have developed home-grown skills in this area of construction. They certainly have the labour and they have the ambition.

Earlier this year the Chinese housebuilder WinSun claimed to have ‘printed’ 10 houses in 24 hours

There are all sorts of political obstacles to this solution, not least of which are immigration rules. However, I note that earlier this year the Chinese housebuilder WinSun claimed to have “printed” 10 houses in 24 hours, using a proprietary 3D printer that uses a mixture of ground construction and industrial waste, such as glass and tailings, around a base of quick-drying cement mixed with a special hardening agent. WinSun has apparently further demonstrated the efficacy of its technology with a five-storey apartment building and a 1,100m² villa, complete with decorative elements inside and out, on display at Suzhou Industrial Park. I am not sure how your average UK Building Control officer would react to a 3D printed house, plus health and safety concerns have not always been paramount in the Chinese construction process. Nevertheless the stock scare last week has brought the thought of Chinese global ambitions to the fore and don’t be fooled, if the UK government is desperate enough they will grasp any cost effective solution that’s on offer.

Richard Steer is Chairman of Gleeds Worldwide