Opportunities and challenges for Chinese companies with EPC contracts

In the past few years Chinese companies have become synonymous with engineering, procurement and construction (EPC) contracts in India. Their revenue share in the EPC market has been rising steadily at the expense of domestic and foreign competitors from countries like Japan and Germany. Yet these are early days, and Chinese companies still have limitless opportunities to pursue in India.

China’s dominance

In certain sectors like thermal power, which is the main source of electricity in India, the share of equipment supplied from China has reached 40%. In several other sectors such as hydropower, solar and wind, Chinese companies are fast catching up with their competitors. The rising dominance of Chinese companies is attributable primarily to four factors: lower cost of equipment; shorter lead times for orders; attractive financing from Chinese financial institutions; and lack of capacity among other manufacturers.

Instances of Chinese dominance include Power Construction Corporation of China’s US$2.4 billion contract with India’s IL&FS in south India, Shanghai Electric’s US$8.3 billion agreement with Reliance Power in western India and SEPCO III’s US$9 billion worth of contracts in India since 2005. The cumulative overall turnover realised by Chinese companies from contracts in India has risen from US$1.99 billion in 2007 to US$29.78 billion in 2012.