Chinese firms have been hired to handle several major infrastructure projects in the U.S., raising concerns about the outsourcing of domestic infrastructure work to foreign businesses.
Many citizens and businesses in the United States became perturbed when government entities contracted Chinese firms to run several large infrastructure projects on U.S. shores last year.
A report from ABC News
highlights three projects: a $400 million bridge renovation in New York; a new $7.2 billion Bay Bridge between San Francisco and Oakland in California; and a proposed $190 million project in Alaska. California officials turned down federal funding for a major part of their project so they could avoid federal restrictions and hire a Chinese state-owned firm at lower cost. This decision cost 3,000 U.S. jobs and a billion dollars for the California economy.
In March, the trade group Alliance for American Manufacturing
(AAM) launched a campaign to block Chinese firms from U.S. infrastructure projects. Scott Paul, executive director of AAM, told IndustryWeek
that "There is a capacity to do this work in the United States" and "We need to make sure that our federal laws and our state laws give an appropriate preference to domestic firms for large-scale infrastructure projects."
The Chinese firm hired for the Bay Bridge project, Shanghai Zhenhua
, fabricated the main steel portions of the bridge in China, then shipped them to San Francisco to be erected. Defending California's decision on the Bay Bridge, a state official said that most of the bridge will still be made in America and that, in any case, U.S. companies would not have been able to complete the work that was let out to China on time, in part due to a shortage of welders. (Read a more detailed account of how this work was contracted and executed HERE
Beyond their interest in competing in construction, Chinese officials have also signaled a desire to invest in U.S. infrastructure, focusing on energy, the electric grid, water, digital communications, rail and transportation. In November 2011, CEO Lou Jiwei of the China Investment Corporation wrote in the Financial Times
that "the U.S. needs to spend at least $2,200 billion on infrastructure repairs or rebuilding." He said that sovereign wealth funds, such as his $410 billion fund, are seeking such projects to diversify their portfolios.
Jiwei argues that "[g]overnments seeking external investment in infrastructure should relax regulatory restrictions where necessary, and promote transparency and predictability for investors."
U.S. Infrastructure Markets: High Stakes
Construction of "hard" infrastructure in the U.S. represents hundreds of billions of dollars in revenue and millions of jobs. The stakes are high. According to market research firm IBISWorld
, heavy infrastructure, which includes road, mass transit, marine and building construction, is worth $44.1 billion per year and $12 billion in annual wages. Bridge and tunnel construction is worth an estimated $24 billion in revenue and $4.3 billion in wages.
While valuable, the U.S. market for infrastructure construction is also highly competitive and highly regulated. Companies operating in this sphere are naturally sensitive to new competitors invading their space. One lever the U.S. industry has against foreign competitors is the large amount of public funds allocated to infrastructure investment.
Given the sensitivity of the American public over the twin issues of a dragging economy and high public spending, one argument that's easy to make is: If we're going to spend all that money, why give it to foreign companies? Shouldn't it go to U.S. firms to create high-value American jobs?
Who's Building the Bridges?
IBISWorld says that there were a total of 136,816 deficient and functionally obsolete bridges in the U.S. as of 2011. This is 22.7 percent of the total stock, making bridges a key target for public funding and job stimulus, as well as creating a politically sensitive climate around infrastructure contracts.
However, the threat from foreign competition remains modest for now. Foreign competition and ownership in the bridge and tunnel business account for less than 10 percent of infrastructure-related revenue; the most important competitors are European firms such as Hochtief and Skanska. This trend is scaling up, though, and the globalization trend is working both ways - U.S. companies are also increasingly competing in overseas markets.