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Design Institutes

Outlining the Position: Chinese Design Institutes Straddle Criticism and an International Standard

01.04.2008 | Editor: Gerd Kielburger

Using the latest technology, the 50:50 BASF-YPC joint venture on the 220 hectare works site on the Yangtze river in Nanjing, China, is operating a steam cracker with an annual capacity of 600,000 tonnes of ethylene and nine downstream plants. The joint venture between BASF and Sinopec invested around $ 2.9 billion. Without the involvement of Chinese Design Institutes, a project like this in China would be simply unthinkable.
Using the latest technology, the 50:50 BASF-YPC joint venture on the 220 hectare works site on the Yangtze river in Nanjing, China, is operating a steam cracker with an annual capacity of 600,000 tonnes of ethylene and nine downstream plants. The joint venture between BASF and Sinopec invested around $ 2.9 billion. Without the involvement of Chinese Design Institutes, a project like this in China would be simply unthinkable.

Anyone planning investment projects in China must follow the clearly-specified rules of the game, otherwise he is pre-programmed to fail. Without support from Chinese Design Institutes, nothing gets off the ground at all in China. The reason for this was illuminated at a DECHEMA information day.

When China awakes, the world will shake. This sentence, which was how Napoleon Bonaparte once characterized this perceived „sleeping land of giants“, seems more topical than ever. The economic boom in the People’s Republic of China is attracting global investors in the process industry with significant amounts of investment. At the same time, numerous international major plant constructors in China are looking for profitable major projects. But in every case, anyone looking to implement a project in China as a foreign investor must enter into a joint venture with a Chinese Group Corporation. As a rule, these have their own design institutes linked to the company. And this makes the forced marriage a perfect one.

Through this link to the key enterprises, Chinese Design Institutes (CDI for short) can fulfill a highly diverse set of roles as part of major projects, either as customer, advisor, (implementation) partner or sub-contractor. Irrespective of the investment volume, on such projects a feasibility study always needs to be drawn up at the outset, which then needs to be approved by the decision-makers at the policy level.

Already at this early phase in the project, one of the Design Institutes certified by the National Development and Reform Commission comes into play—since only these bodies are authorized for this, explains Bernd Josef Leistenschneider, Sales Director in Asia for the plant construction company Lurgi. As this close observer of China knows, this forced partnership is generally then also maintained with ongoing support throughout all project phases. Particularly when it comes to major plant construction, even for the “detailed engineering” close collaboration between the international partner and the Chinese Design Institute is obligatory.

Division of opinion regarding the CDI

Opinions are divided over the CDI in particular. Seen by some as the major competitor of the future, for others they are viewed simply as irritating forced partners, who in the end only want to absorb expertise. Whatever the view taken, one thing is clear: you can’t get by without them in China—there is no project in which a Design Institute is not involved.

Yet given the large number of projects and the high level of demand on engineering capacities, it seems difficult at the moment to find any Chinese Design Institutes capable of accepting further orders on any major scale. On the other hand, most international contractors do not hold the necessary certificates (Class A or Class B) to carry out the engineering design, EPC, EIA, CPDP etc.

The background to this, as explained by Lurgi Sales Director Leistenschneider, is that of the estimated number of over 10,000 Design Institutes, only a relatively small number meet international requirements (Table 1). However, Leistenschneider assesses these as now being highly capable of performing. He added that the noteworthy feature of collaborating with CDI was the high level of planning before the contract was signed, and the resulting implementation which then ran largely to plan. Overall, the view taken at Lurgi (which was not long ago incorporated into the Air Liquide group) is that the dealings with CDI on the basis of import contracts were very fair.

A similar assessment is given by BASF engineer Christian Feldmann, who has gathered experience in China through holding a number of different posts on BASF projects, and who saw the demands on costs and time-saving in plant construction rising continuously over recent years. In Feldmann’s opinion, the offer of engineering services in China is currently still highly fractured, with companies ranging widely in size and the market being dominated by subsidiaries of the large Chinese Chemicals Companies.

Feldmann adds that it is possible to observe an increasing professionalism and internationalization in these subsidiaries. Simultaneously with this, the development of independent engineering companies is noted; in the medium term, these will be offering detailed planning and assembly in a one-stop solution. Feldmann believes that this will open up new design options in how projects are handled.

On the other hand, the heightened expectations of past years at BASF certainly appear to have been moderated somewhat. Feldmann’s comment on this is that “the high expectations at BASF are based not least on the collaboration with CDI and their design contributions to the planning process. But although local partners are a valid precondition in constructing competitive plants, to date the full scope of the anticipated potentials has often not been realized.” At BASF, adds Feldmann, they tested out the earliest possible inclusion of CDI in the extended concept planning for two projects, and in neither instance were any significant cost savings achieved as a result. The background to this test had included media reports, according to which plant construction in China was said to be 50 to 70 per cent cheaper than in industrialized countries. But the savings were not found to be at that level—Feldmann notes that savings only of the order of 10 to 20 per cent were achieved. Anyone looking to realize greater cost savings needs to accept clear compromises in terms of technical equipment, was the comment from one attendee at the event. The difficulty facing western investors and plant constructors lies above all in the lack of transparency over local costs. It is claimed that much information simply cannot be checked. Furthermore, Chinese clients focus on engineering costs and not, as is now customary with western companies, on cost of ownership.

Against this, there was a fundamentally positive assessment of the very high planning depth of the CDIs in the early initial stage of the project, which as a rule is obtained through intensive use of staffing and time. Leistenschneider’s view is that the risks in implementing the project are reduced as a consequence, a point which can be demonstrated by reference to the more or less stable accompanying cost estimate.

Both negative and positive experiences of Design Institutes were found, for example, at Evonik Degussa. Thomas Kuegerl, currently head of the Process Technology & Engineering division in China for the company, outlined as negative experiences in particular the poor knowledge of English on the part of the Chinese partners, and a low level of appreciation for customer-driven requirements. Along with this, Kuegerl noted that they had found very limited experience in problem-solving where the challenges were not standard ones. Project managers repeatedly complain about incorrect execution of the pipe design, for instance, or even clearly over-dimensioned mountings or columns. Examples like these show that there are considerable problems with CDI in terms of day-to-day routine, but so far this has not caused any project to fail.

To conclude: however you twist and spin such positive and negative experiences with CDI, the process of change in China is perceptible. In the eleventh five-year plan, the term “Scientific Development” was introduced, aimed at raising the quality level of the Chinese domestic industry. The meaning behind this is the move from quantitative to qualitative growth. While the issue of breaches of patent rights was an issue which needed to be taken seriously in the past, today the issues of “learning“ and “partnership“ in connection with “cooperation during project realization” are more important.

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