Under the PPP model, corporate profits have evolved from the single profit of construction to the aggregation of multiple profit points across the upstream and downstream of the construction industry. This not only allows sharing profits from project investment, operation, and other stages, but also achieves higher quality and efficiency than traditional construction models.

On February 24, China State Construction Engineering Corporation Limited (601668, SH, hereinafter referred to as China State Construction) announced a batch of major project announcements, covering housing construction and infrastructure, with contract amounts totaling 26.33 billion yuan.

In June this year, the China Western International Expo City project, contracted by China Construction Second Engineering Bureau, will welcome its first large-scale exhibition——the International Furniture Exhibition. The completion of this large expo center provides the western region with the largest conference and exhibition platform for promoting the "Belt and Road" initiative.

Among the many projects obtained by China State Construction, many have adopted the PPP (Public-Private Partnership) model, where investment and financing drive general contracting. The transformation and upgrading of enterprises is related to the construction market entering a winter period. Starting in the first half of 2015, both the floor space of new housing construction and the value of new contracts in the construction industry experienced negative growth for the first time in nearly a decade. At the same time, the pressure of structural adjustment in the construction market has become prominent.

On February 28, a reporter from the 21st Century Business Herald learned after interviewing China Construction Second Engineering Bureau that in the structural adjustment, infrastructure construction has become an important lever for the implementation of the "Belt and Road" initiative. The bureau seized the opportunity to make efforts in the investment and financing field. Last year, the operating revenue of the Southwest Branch's investment and financing + infrastructure projects reached 3.46 billion yuan, accounting for 28% of its annual revenue. China Construction First Building Bureau also proposed to obtain projects through new business models and investment.

How is the giant steel frame assembled?

The entire venue has no columns for support, which is extremely rare in large exhibition centers in China. On February 28, a reporter from the 21st Century Business Herald saw such a scene in the eight venues of the newly completed China Western International Expo City in Chengdu.

Above each single-story exhibition hall with a clear height of 15 meters and a column-free large space, the black steel structure is like a large net. In the Western Expo City, with a total construction area of 570,000 square meters, equivalent to 80 international football fields, how was the huge steel grid weighing 1,770 tons lifted into the air?

Yu Dehao, chief engineer of the Western Expo City project, told the 21st Century Business Herald: "This was the biggest challenge in construction. The grid structure is numerous and complex, especially some grids with large curvature changes, with the highest position reaching 70 meters. As the contractor, China Construction Second Engineering Bureau Southwest Branch had two options at the time: one was to weld on the ground and then hoist, and the other was to install in the air. Later, considering the large amount and difficulty of high-altitude welding, we chose the first option." He said that after calculation, the company selected four golden section points on the truss as lifting points and adopted hydraulic lifting. It took 4 hours just to hoist the entire structure into place.

He said that it is precisely because of the adoption of the new large-span prestressed shuttle-shaped truss that the column-free design maximizes the space utilization of the venue. Therefore, the first phase of the Western Expo City project extensively used steel structures. The total steel consumption of 160,000 tons has exceeded the 110,000 tons of the National Stadium "Bird's Nest" and the 120,000 tons of the CCTV new building. The project has won the highest award in China's steel structure industry——the China Steel Structure Gold Award.

In addition to the wisdom of skilled craftsmen, the ability to support this giant steel frame is inseparable from the innovation of China State Construction's investment and financing model.

The Western Expo City, constructed by China Construction Second Engineering Bureau Southwest Company, is a major project of the national-level new area Tianfu New Area, with a total investment of about 12 billion yuan, of which construction and installation engineering investment accounts for half.

Where does the money come from?

Unlike traditional project construction, China State Construction and its partner CITIC Group formed a consortium to bid. According to local media reports, as early as January 2015, led by CITIC Group, the first phase of financing for the Western Expo City, the opening project of Sichuan Province's financing and construction of Tianfu New Area, amounted to 6 billion yuan. According to informed sources, in fact, CITIC Group united with China State Construction, financial institutions, operating entities, etc. to form a consortium to bid and win the bid.

"In the consortium, all parties have needs, such as the government needs the project, and the bank needs excellent loans to obtain returns," said the above-mentioned informed source.

According to the project leader of China Construction Second Engineering Bureau Southwest Branch under China State Construction, the company's financing part includes both its own funds and bank loans, ultimately driving general contracting through investment and financing. At present, the land transfer fee obtained by the project is earmarked for the construction of the project and is being paid to the general contractor China Construction Second Engineering Bureau through CITIC Group.

In fact, this is not the first PPP investment project won by China Construction Second Engineering Bureau. Previously, it won the bid for the PPP project of the development, construction, and operation of the Information Technology City in the Shenzhen-Shanwei Special Cooperation Zone, with a total construction cost of 1.611 billion yuan. The project adopts the PPP+EPC cooperation model, with a construction period of 3 years and an operation period of 7 years.

In recent years, the PPP model has become prevalent. The PPP franchise model has become a key factor and main source of profit for internationally renowned large contractors such as Ferrovial and Vinci to maintain stable growth in their business for many years.

"Under the PPP model, corporate profits have evolved from the single profit of construction to the aggregation of multiple profit points across the upstream and downstream of the construction industry. This not only allows sharing profits from project investment, operation, and other stages, but also achieves higher quality and efficiency than traditional construction models, making profits more sustainable and stable. It is also an important way for central enterprises to improve profitability," said an industry insider.

However, in China, due to financing pressure and operational risks, some construction companies provide products or services that cannot meet government requirements, resulting in total loss.

In response, the above-mentioned project leader said that China State Construction's investment platform has strict requirements: only governments with annual fiscal budget revenue exceeding 6 billion yuan are considered for infrastructure projects, and projects with an investment amount of less than 1 billion yuan are not included in the PPP model.

According to the 21st Century Business Herald, to control risks, a private enterprise once planned to invest in a railway project of 20 billion yuan, but due to scattered operational authority, China State Construction ultimately gave up bidding through investment and financing. Similarly, after calculation, a district and county government's fiscal revenue budget could not fulfill its repayment commitment, and China State Construction also gave up the municipal road construction that was planned to adopt the PPP model.

Wang Weimin, deputy party secretary of China Construction Second Engineering Bureau Southwest Company, said in an interview with the 21st Century Business Herald that in the PPP model, construction companies as social capital parties must participate in the entire project life cycle management, including project planning and design, investment and financing, project construction, and operation management, thereby transforming the enterprise from a single construction contractor to multiple roles such as investor, achieving transformation and upgrading.

He also admitted that the most difficult aspect of enterprise transformation is talent. As an enterprise that started with housing construction, its subsidiaries generally lack professionals in investment, financing, and infrastructure, and later operation challenges are even greater. At present, the company is using training and internal transfers to fill the gap.

Leveraging "Belt and Road" opportunities

During the 13th Five-Year Plan period, the central government proposed to achieve the "three major priorities" of China's regional economic layout: promoting the "Belt and Road", the coordinated development of Beijing-Tianjin-Hebei, and the construction of the Yangtze River Economic Belt. "Construction companies must proceed from reality in their transformation and upgrading, and adjust their industrial structure in accordance with the situation and market changes," said Wang Weimin.

Starting in 2015, the construction area of China Construction Second Engineering Bureau Southwest Branch expanded from the original Sichuan and Chongqing to Hunan, Yunnan, Guizhou, and other places, and branches were established.

In just two years, the company has built the Western Expo City, one of the top ten domestic regional platforms for promoting the implementation of the "Belt and Road" initiative. The venue is a display and trading platform for exchanges and cooperation between the western region and countries along the "Belt and Road", as well as for countries along the route to expand into the western Chinese market. China State Construction also invested in the largest single project in Yunnan, the Yunnan Huali Expressway, with a total investment of about 28.7 billion yuan, which is also the first national expressway project operated by the Yunnan Provincial Government under the PPP model.

According to the 21st Century Business Herald, the "Belt and Road" construction also provides huge market opportunities for China State Construction to expand overseas business. At present, China State Construction has established 9 marketing centers and 30 country groups, initially forming a marketing network covering key and hot country markets in Africa, ASEAN and surrounding areas, Central Asia, Central and Eastern Europe, and Latin America, and has established a mechanism to collect project information and respond quickly following Chinese funds' overseas investments.