CCCC expands its Latin America portfolio

In 2014, Brazilian construction company Odebrecht seemed set to take the world by storm. With projects in 21 countries, Odebrecht had revenues of US$46 billion, approaching the $55 billion in turnover of its Chinese competitor, the state-owned China Communications Construction Company (CCCC), which began expanding into Latin America a few years earlier.

But that same year, Operation Car Wash, a massive multinational investigation, untangled the webs of corruption that had supported Odebrecht. The company’s activities and reputation began to diminish.

In the meantime, CCCC moved ahead. Now, with revenues of nearly US$90 billion, the company is involved in more than 50 projects in at least 19 Latin America and Caribbean countries, according to a Diálogo Chino survey of websites belonging to the company and its more than 30 subsidiaries.

The reason for the expansion is simple, says Charles Tang, president of the Brazil-China Chamber of Commerce and Industry: “A few years ago, during the worst phase of the economic crisis in Brazil, it was the Chinese who had faith in and invested in Brazil.”

This faith (not only in Brazil, but in the entire region) has translated into extraordinary income. Today, CCCC executes some of the region’s major flagship infrastructure projects: the Bogotá subway system, the Maya Train in Mexico, the São Luís Port in Brazil, the expansion of French Guyana’s international airport, Jamaica’s North-South Highway, and a bridge across the Panama Canal, among dozens of others.

But this faith and Operation Car Wash are not the only reasons Chinese infrastructure companies have expanded in Latin America, according to Hsia Hua Sheng, a specialist in international corporate finance at Brazil’s Getúlio Vargas Foundation.

Another important reason is its deep pockets. CCCC has access to large volumes of capital and a number of projects are backed by Chinese banks. For example, the São Luís Port received US$700 million in finance from the Industrial and Commercial Bank of China. Many others are part of the Belt and Road Initiative.

“Small and medium-sized construction companies have more difficulty,” explains Sheng. “Capital is lacking”.

CCCC’s worrying precedents

After so many corruption scandals, the infrastructure sector is wary and CCCC’s own history of irregularities has caused some concern. After all, the state-owned company has been involved various cases of corruption around the world.

In 2009, CCCC was placed on the World Bank’s blacklist for fraudulent bidding in the Philippines. Later, it was suspected of corruption at a railroad project in Malaysia, and was investigated in Australia for its role in the construction of a children’s hospital. In Bangladesh, government figures accused one of its subsidiaries, China Harbor Engineering, of offering bribes. Accusations of corruption were also frequent during construction of a port in Tanzania.

In Latin America, while there are no major scandals, some projects involving CCCC are controversial.

In São Luís, where the company is building a huge port, local prosecutors are investigating whether the company took advantage of a locally run land grab scheme. Authorities in Panama also found irregularities in the bridge contract. Construction of a university in Ecuador also faced scrutiny.

What matters is that the individuals involved in problems in the past are not directly involved

Another sign of trouble came in 2016, when CCCC purchased Brazil’s Concremat, a construction company headquartered in Rio de Janeiro implicated in Operation Car Wash, with some executives accused of participation in corruption schemes.

The effects on the company were significant. In 2012, Concremat had 9,000 employees; in 2016, after corruption scandals and the collapse of an elevated cycle path in Rio de Janeiro, only 3,000 employees remained.

Criminal lawyer Pierpaolo Bottini, who has defended several executives from Brazilian companies implicated in Operation Car Wash, warns that past irregularities do not necessarily predict a company’s future:

“What matters is that [the company] has a structured compliance mechanism and that those old practices are no longer present,” he said.

CCCC also is subject to a tougher regulatory environment in post-Car Wash Latin America that is much more prepared to monitor and punish any irregularities, says Bottini. Investigatory agencies, he says, are already using more technology to investigate companies, cross-referencing databases to spot wrongdoing. This, he argues, has forced them to incorporate internal control systems to prevent misconduct.

“What matters is that the individuals involved in problems in the past are not directly involved [in administration]. Or, if they are, that they have already served their sentence,” Bottini adds.

Growth in times of crisis

Yu Yanhua, CEO of Shanghai Dredging Company, one of CCCC’s subsidiaries with projects in Brazil, remembers when his company began operations using only leased vessels, the first phase of its 20-year history in the country.

In an interview with Xinhua last year, he said this first phase was followed by a period of expansion from 2002 to 2018 and it has now entered a third phase since acquiring a Brazilian company.

“I hope we can be even more successful and reach an even larger market,” he said.

This ambition reflects the privileged position of a company with capital in a region with big infrastructure financing gaps and profound economic crises. In Brazil alone, the company says it is monitoring 26 projects.

Concremat executive chairman Mauro Viegas Neto told the Valor Econômico newspaper that the company’s objective was to work on projects through public-private partnerships. He said the focus would be cargo logistics, such as ports, bridges, and railroads “where the Chinese group’s knowledge is a differentiating factor”.

Lava Jato kicked off a political crisis that, along with other factors, has contributed to paralysing the Brazilian economy, spooking foreign investors. Strapped for resources, Brazil’s current minister of the economy, Paulo Guedes, is focusing on regulatory changes that could stimulate private investment in key areas such as energy, sanitation, and logistics.

And while many fled, CCCC has stuck around and, according to Charles Tang, will be vital for the country’s future.

“Brazil will be very dependent on Chinese investments to build necessary infrastructure”.

CCCC did not respond to requests for an interview for this article.