This article first appeared in The Edge Malaysia Weekly on October 15, 2018 - October 21, 2018

THE government’s move to cancel or defer some infrastructure projects that Chinese state-owned enterprises (SOEs) are involved in has been criticised amid fears that it will upset China and discourage investments from the world’s second-largest economy.

But these concerns have not deterred China’s Pacific Construction Group Ltd (CPCG) from planning to invest here. China’s biggest privately owned construction company intends to set up a regional office in Kuala Lumpur and invest RM10 billion over the next 10 years in areas like infrastructure building and education.

So far, it has not participated in any public project in the country.

Malaysia will be its base to venture into Asis-Pacific to get a slice of the huge potential market. CPCG currently has over 50 companies operating outside China.

In an interview, CPCG founder Yan Jiehe says he was not surprised by remarks made by Prime Minister Tun Dr Mahathir Mohamad and decisions taken on certain projects in which China’s SOEs are involved in, including the massive Forest City development in southern Johor.

“I am aware of it. I think it is normal for the government to do this. If I am a Malaysian, I would not want my country to become a colony. I would be concerned about national security ... nothing is more important than national security,” says the 58-year-old construction tycoon.

Yan has been dubbed “the madman of China” by the media there for his blunt words and fearlessness. In February, he sued six local governments in Gansu province for late payments.

The historic change of government following the May 9 general election has not dissuaded him from investing here.

“To me, my aim is to participate in the free market here, not indulge in bureaucratic corruption we have seen in the past that has been detrimental to the country’s economy.

“I am saying that should Malaysia decide on CPCG as a partner, I do not ask for benefits. My conscience is clear. I am clean, in the sense that I have never budgeted for corruption in my projects. That is how I keep my costs low,” he says.

He shrugged off concerns over government interference in big-ticket items such as the suspension of the RM55 billion East Coast Rail Line (ECRL) and termination of the underground work contract of Mass Rapid Transit Line 2 (MRT2).

“Government interference is necessary when there are issues that have been identified. I have heard about these matters, and I thought [the government’s actions] were nothing unusual. In fact, I am not at all shocked. It is normal for the government of the day to have such concerns or make such decisions, especially given Malaysia’s current national debt situation,” says Yan, who had the opportunity to meet Mahathir during the prime minister’s official visit to Beijing in August.

In fact, he expects many bidders will be keen to take part when the MRT2 underground work contract is retendered. He believes the process will enable the government to find a better contractor.

A Global 500 company

CPCG was established in 1995 and ranked 96th on Fortune’s Global 500 list 2018, with an annual revenue of RM319 billion last year.

In its last fiscal year, the group turned in a profit of US$3.14 billion (RM13.06 billion), or about 5.6% of its assets of US$56.58 billion, according to Fortune.

To put things in perspective, Petronas, the only Malaysian company on the Fortune Global 500 list, posted revenue of RM223.6 billion last year. In 2014, when the price of crude was about US$100, its revenue was RM329.1 billion.

CPCG built its expertise over the past two decades in highways, municipal construction, water conservancy and buildings, as well as landscape design. It undertakes investment, construction and management of more than 3,000 industrial parks in over 1,000 cities across China. Its projects range from the Jiangyin Yangtze River Bridge, Nanjing Metro and Qifeng Mountain tunnel in Dali city, Yunnan to Lanzhou’s new city and districts.

Yan stresses that CPCG is not an SOE, and thus, has a very different management style. He says it will hire locals and source materials locally.

“Malaysia’s fundamentals are strong. You have excellent infrastructure, a robust ecosystem and a big pool of trilingual talents. Kuala Lumpur is thus a strategic launch pad for our expansion into Asia Pacific,” says Yan, noting that he feels at home when he comes to Kuala Lumpur.

The group intends to participate in infrastructure building, high technology machinery, knowledge transfer and education. It plans to set up business schools and universities as well as provide scholarships.

“We are open to increasing our investment, especially for federal projects that will benefit the people. With our track record of successfully delivering complicated construction projects in China, we are confident that, in collaboration with local partners, we will be able to do the same in Malaysia,” CPCI Holdings Sdn Bhd, CPCG’s Malaysian subsidiary, said in a press statement last week.

CPCI plans to employ 150 skilled professionals within the next five years, more than half of whom will be Malaysians, as it positions itself to be a major player across Asia-Pacific. It will utilise local materials for the projects it participates in, he said.

CPCI is currently involved in only one construction project in Malaysia. It secured a RM200 million contract to build workers’ quarters in oil palm plantations owned by Felda Engineering Ventures Plantations Sdn Bhd in Sahabat, Sabah. CPCI, he stresses, had secured the contract through an open tender.

Yan is a strong believer of the public-private partnership (PPP) model. To him, there are four PPP models, namely build and transfer (BT), build-operate-transfer (BOT), build-transfer-operate (BTO), and build-own-operate-transfer (BOOT).

He suggests that the government consider adopting the scheme most suitable for its infrastructure developments, given its current financial position.

BTO would the best model to ensure project quality as the contractor needs to take care of the maintenance costs of the infrastructure, according to him. Poor quality jobs would incur large maintenance costs that could wipe out the contractors’ profits.

The group is looking forward to participating in “challenging jobs” on such a basis, providing the necessary funds and technology in partnership with a local joint-venture partner here. Yan says the group is not keen on securing projects through direct negotiation and will only participate in open tenders.

He also states he will not build a business that relies on political patrons. “It would cause over-reliance”, and such a business model is much like a volcano that is just waiting to erupt, he explains.

According to the 2018 Lexis-Hurun China rich list, the Yan family has a net worth of US$17.5 billion (RM72.72 billion), placing them above Robin Li of Baidu (US$17 billion), Lei Jun of Xiaomi (US$16 billion), and Wang Wenyin of cable and copper supplier Amer International Group (also US$16 billion).

Yan quips that his mother has always told him that making good money from business is not something right to do, and notes that entrepreneurs are classified as the lowest class in society in Confucius’ philosophy. Hence, he says, CPCG always upholds transparency.

The new government’s moves in cancelling some mega projects might not have gone down well with Chinese investors and authorities. Like it or not, Malaysians may see Chinese-based companies in an unfavourable light, following reports of inflated project costs.

Perhaps CPCG’s venture in Malaysia could provide evidence in future as to whether Malaysia is a conducive environment for Chinese investors. By the same token, it might also change how Malaysians perceive Chinese-based companies.

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