Chinese construction companies have been significantly expanding their global portfolios and market shares, from highways in Kenya and power plants in Brazil to high-speed railways in Turkey and skyscrapers in Dubai. While these companies are making remarkable inroads into the international construction market and paying more attention to legal risk management, their law firms have also seen their construction practices flourishing, with legal teams growing and billable hours soaring.

A quick glance at the latest statistics from the Engineering News-Record (ENR) shows 50 Chinese companies made it into the 2009 Top 225 international contractors ranking. Their total revenue from overseas markets reached US$43.2bn in 2008 – a stunning 90% year-on-year growth rate.

One example is China Railway Group. The world’s second-largest construction contractor by total contracting revenue and one of the country’s top ten international contractors has seen 128% growth in its overseas revenues for the first half of 2009 (US$1bn). Some of the bids it won last year included building roads in Fiji, Ethiopia, Ghana and Gabon, and railway restoration projects in Venezuela. Its top-three practice areas for outsourced work are in securities and capital markets, cross-border M&A, and due diligence and compliance for large cross-industry investments.

Yu Tengqun, the company secretary and former legal director of the Hong Kong and Shanghai dual-listed construction conglomerate, has identified that establishing a comprehensive and effective risk management system for the group is challenging. Since China Railway Group became a public company in 2007, it is expanding into new overseas markets and new industries.

With over 500 in-house legal staff, the group works regularly with various law firms on the surging volume of projects and legal matters both at home and abroad. China Railway’s most-used firms include international names like Linklaters, DLA Piper and Lovells, and domestic firms like Jiayuan, Zhong Lun and Jianyuan.

International firms with global coverage and strength in construction law are naturally well positioned to capitalise on the rise of Chinese companies on the international contracting scene. “We always take the view that China outbound work will be the future for international firms,” says Hew Kian Heong, head of Pinsent Masons Shanghai office. “We’ve focused on advising major Chinese construction and engineering companies building projects around the world since the launch of our China practice.”

Pinsent’s strategy to focus on construction practice in China was formed partially as a response to the increasing competition in the market. Its Shanghai office was opened in 2002 as a niche construction practice, seeking to distinguish itself from the many large international firms already established there. The firm has also recognised that foreign firms’ advantages do not lie in inbound investment and domestic projects.

This is due both to the fact that local law firms are catching up quickly on quality and capacity in this domain, and that the restrictions on foreign firms’ licenses limit their ability to compete for domestic and inbound work. “The effects of the GFC may have caused a decline in our revenue from China inbound work, but we are fortunate enough to maintain steady growth as we have experienced strong demand from our Chinese clients over the past 12 months,” says Hew.

During 2009, at least ten of the 30 major Chinese construction companies which Pinsent Masons has previously worked with instructed the firm to advise on new projects in many countries – including Pakistan, Indonesia, Sri Lanka, Afghanistan, Fiji and Singapore. The types of projects ranged from power plants, roads and bridges to sugar factories and cement plants.  “We expect to grow substantially our team that primarily focuses on China outbound work. That’s where our future growth will come from,” Hew says.

Currently, three partners lead 12 associates and consultants focusing primarily on construction in the firm’s Beijing and Shanghai offices. The total headcount of lawyers for Pinsent Masons is expected to grow to 20 in the next two years.

Follow clients abroad
Following closely behind international firms are an array of leading domestic construction practices. Having worked with construction companies on home projects for the past decade, these trusted domestic legal advisors increasingly receive new instructions from their clients who are entering overseas markets.

“Chinese construction companies are becoming an emerging force in the world construction and contracting

“Chinese construction companies are becoming an emerging force in the world construction and contracting markets” Ji Nuo, Fangda Partners

markets. They increasingly have to abide by the rules of international law and regulations in other jurisdictions,” says Ji Nuo, a partner with Fangda Partners. “When they face difficulties and legal matters overseas, they will turn to us for initial consultation and support, and we will work together with an international firm or a local firm from that foreign jurisdiction to provide the best possible solutions.” Ji says that demand for legal representation for international arbitration, in particular, has grown significantly in recent years.

Beijing-headquartered V&T is another firm that intends to increase its focus on Chinese companies’ overseas projects in the next two years. The firm’s construction and infrastructure practice was established in 2008 by joining with a strong team (led by partner Wang Jihong) from Beijing City Development Law Firm.

Wang, now a senior partner of V&T, pinpoints opportunities in the high-speed railway construction industry.  “China’s high-speed railway network is leading the world in both length and technologies. Its cooperation in this area with other countries, such as the US, Russia, India and Brazil, will grow strongly and lead to more cross-border legal work,” he says. “It will also create more incentives and opportunities for domestic firms and international firms to work together.”

Domestic law firms are gaining an increasing share of the outbound construction market segment, and more firms are keen on entering the field. However, the threshold for firms to compete and perform well is constantly being pushed higher. For example, China Railway Group now has higher requirements for external counsel. According to Yu Tengqun, law firms wanting to work for the group need to have extensive expertise and experience in certain specialised areas.

Firms must have a leading position and an enormous depth of resources, while understanding the client’s needs thoroughly, and be immediately responsive to these needs, he says. They also need to take an innovative, yet practical, approach when seeking business solutions and always look to add value to transactions.

“As China construction companies have gained more knowledge and experience in international markets they will demand a higher level of skills and knowledge from their legal advisors” Qin Yu, Jun He

“As Chinese construction companies have gained more knowledge and experience in international markets they will demand a higher level of skills and knowledge from their legal advisors,” explains Qin Yu, a partner of Jun He specialising in industrial construction. “They’ve been doing projects overseas for a long time, generally much longer than their lawyers, so sometimes their questions to the legal counsel can be very challenging and difficult.”

Qin Yu and a large team of partners and lawyers joined Jun He from legacy infrastructure and project finance boutique firm Jun Yi in 2007, and form a major part of Jun He’s current infrastructure and project finance practice group. The team has been servicing Chinese companies’ outbound projects since 2005 and has first-hand experience. “In the early days, the provision of legal advice and services to overseas projects was quite easy. Now the matter lies in not only how good your technical skills and knowledge are, but also how well you understand clients’ business and strategies and apply the legal skills and knowledge to help achieve their business goals.”

Qin has followed clients to over ten countries; mostly in Africa, South America and the former USSR. One of the recently completed projects is CITIC International Cooperation’s EPC contracts for three cement production lines in Belarus. The project is the largest industrial cooperation project between China and Belarus. A Jun He team led by Qin participated in the whole process, from contract drafting to negotiation and providing advice on contract implementation.

“Considering the stage of market developments, more opportunities can be expected in this area. Domestic firms will have increased chances to serve as lead counsel in overseas projects, due both to their strengthened capabilities and the proximity to clients’ decision-making authorities, who are mostly based in China,” Qin says.

Top 10 Chinese contractors*
ENR rank	Company	Headquarters	2008 revenue (US$m) total	New contracts in 2008 (US$m)
2	China Railway Group	Beijing	34,548	62,731
4	China Railway Construction Corporation	Beijing	32,417	54,111
6	China State Construction Engineering Corporation	Beijing	27,659	57,104
7	China Communications Construction Group	Beijing	25,966	40,707
9	China Metallurgical Group Corporation	Beijing	23,314	30,973
29	Shanghai Construction (Group) General Corporation	Shanghai	10,062	10,024
31	Sinohydro Corporation	Beijing	8,923	14,141
32	Zhonghao Overseas Construction Engineering Co	Beijing	7,671	21,094
48	Dongfang Electric Corporation	Chengdu	5,111	11,142
55	China National Chemical Engineering Group Corporation	Beijing	4,399	7,810
Source: ENR’s 2009 Top 225 Global Contractors * Based on total firm contracting revenue

Top 10 Chinese international contractors*
ENR rank	Company	Headquarters	2008 revenue (US$m) international	2008 revenue (US$m) total
14	Zhonghao Overseas Construction Engineering Co.	Beijing	7,671	7,671
17	China Communications Construction Group	Beijing	5,859	25,966
25	China State Construction Engineering Corporation	Beijing	3,523	27,659
28	China National l Machinery Industry Corporation	Beijing	3,081	3,858
51	China Railway Construction Corporation	Beijing	1,957	32,417
56	Sinohydro Corporation	Beijing	1,804	8,923
59	CITIC Construction	Beijing	1,621	1,672
61	China Metallurgical Group Corporation	Beijing	1,373	23,314
62	China Railway Group	Beijing	1,338	34,548
72	China Civil Engineering Construction Corporation	Beijing	1,083	1,233