Heard of this company?
They are one of the world’s most famous EPC companies, known for successfully delivering megaprojects around the world. It is not an exaggeration Bechtel can build entire cities, industrial complexes, and power grids from scratch.
Fifty years ago, that was rather special, because Bechtel already had a CV that included the Hoover dam, and BART. In more recent years, Bechtel’s major projects include Boston’s Big Dig, and the Channel tunnel linking the UK with France.
Pretty impressive, by any standard. If you have a difficult civil engineering project, Bechtel is the go-to contractor if you need been-there, done-that expertise. It has been the top U.S. contractor for 21 consecutive years, according to the ENR.
How much revenue did the top U.S. contractor generate last year?
About $25.5 billion.
Now let’s cross the Pacific to China, a flight from first world to third to look at the Chinese competition.
What’s China’s Bechtel?
I would wager a bet very few have heard of this company:
CSCEC, or the China State Construction Engineering Corporation.
What was their revenue in 2019?
1.2 trillion RMB, or $171 billion—almost 7 (yes, 7!) Bechtels worth of business.
With a list of completed projects that include:
The world’s first operational 3rd gen EPR nuclear power plant in Taishan.
Tesla’s Shanghai Gigafactory 3.
The Jiuquan Satellite Launch Center.
The Guangzhou Opera House.
The Xi’an Daming palace.
The Shanghai World Financial Center.
The $1.4 billion Wuhan railway station.
The iconic CMG HQ in Beijing.
The Macau Tower.
The futuristic Baoan airport.
The Haixia Olympic Center.
The Chongqing International Convention and Exhibition Center.
That is what one third world EPC is capable of, in terms of sheer scale and complexity.
What’s my point?
Fifty years ago, Bechtel was special, and operated in the rarefied air of exclusivity.
Two decades into the new century, third world “upstarts” operate on way greater scale and have just-as-impressive references.
The difference this time? They are significantly cheaper and faster while staying on-spec.
Which is the same story you will find across the industrial spectrum. There may be few Chinese brands you’re aware of, but I bet there are numerous Chinese-made products in the average household, especially critical components of electronics found in everything from throwaway flashlights to the latest iphone.
China has consistently delivered on-spec products at unbeatable prices and speed for decades. That is why she is the world’s factory—entirely on merit.
I once asked an industry veteran why businesses are unable to resist the allure of China. He explained it wasn’t a matter of choice. If his competitor moves his factories to China, he has to follow suit or risk irrelevance within a decade. In other words, business models are turbocharged with Chinese production. Unless you have a niche market with moats and high walls, you die, even if you are brontosaurus size.
All that talk about IP theft and forced tech transfers is way off base. The companies that went to China made decisions with their eyes wide open. They caught the prevailing wind which blew them into China’s embrace. In fact, many couldn’t wait to get in bed with the Chinese after catching wind of their competitors’ bottomline post-China.
Notice the elevated proportion of those 25–34? That translates into tens of millions jobs that won’t be filled by those coming after them (the 10–24).
China is facing a labor crunch in the coming decade. Thankfully, it is not a nightmare because China is now at $10,000 GDP per capita, firmly third world. Which means there are plenty of third world jobs in the economy. Like assembling iphones. Or making plastic flowers. What the demographics tell us is older factories making low-margin goods will find it difficult to replace labor in the tight market, and fade into obsolescence. Wages will rise, fueled by better qualified youth from improving education outcomes.
Demographics is destiny and it is the inevitable labor crunch that will bring about an end to cheap China. This is the real reason why the Chinese themselves are moving low margin production offshore. Trump’s trade war is merely a friendly shove towards an unavoidable future.
What is this MIC 2025? In short, it is a push towards self-sufficiency in these key sectors:
MIC 2025 seeks to raise the domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025.
Which is where the economy has to evolve anyway, due to the changing labor structure. MIC isn’t about Chinese brands taking over the world. Rather, it is about Chinese brands developing home-grown technology to compete more prominently in the domestic market. This is no different from any country. Toyota and Panasonic dominate the Japanese market, so does LG and Samsung in Korea and GM and Apple stateside.
There is nothing sinister about MIC 2025, except it will make Chinese brands more visible. Which cuts into the “easy money”—branding. That is why CSCEC isn’t attacked like Huawei. Expect ever wilder conspiracy theories about how evil Chinese are taking over the world by robbing and stealing everyone blind, as Chinese brands creep up the domestic, then global brand visibility index.
Good luck trying to stop MIC 2025, because seriously, other than illegal tariffs, the rechurning of Taiwan/HK separatism, and a multidimensional and broad-base media flame war, America has not provided alternatives to MIC 2025.
The Chinese consumer will ask, do you have anything 90% as good but half the price?
The answer is no, which answers the question too.
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