Page last updated at 23:37 GMT, Wednesday, 16 September 2009 00:37 UK

China's controversial Polish contract

By Rob Broomby
BBC News, Warsaw

Construction on a new Polish motorway
Some Poles fear local wages will be driven down by Chinese contractors

At a dusty building site on the fringes of Warsaw, globalisation has just taken its latest twist - and it's one which will send tremors through Europe's construction industry.

Two decades after the fall of communist rule, a Polish government with an almost fundamentalist commitment to the free market has awarded contracts for two large motorway sections to a Chinese state-owned company that won the job with a dramatic knock-down bid.

It is the first time the Chinese have won such a contract in Poland and it is believed to be a first within the EU.

But instead of just cutting the price, they slashed it to pieces, offering to build the road for 60% less than the guide price - saving taxpayers millions, but leaving many wondering how they can do it so cheaply without pain.

Work is already under way on the interchange where the Lodz-Warsaw motorway will arrive in the Polish capital.

Stopping the traffic to allow heavy construction lorries to turn, Artur - clad in a hard hat and luminous jacket - says he is "very surprised".

"The Chinese probably work cheaply," he says.

Social fears

The Chinese Overseas Engineering Group (Covec), has told the Polish authorities it will employ EU workers, but fears persist that it will ship in cheap labour from China to complete the job.

"Of course they can bring Chinese workers with them to help with the construction," says Andrzej Maciejewski of the Polish Roads Agency (GDDKIA) that awarded the contract.

But "first of all, they will hire the workers from our market," he adds.

He also says that Covec will have to obey Polish and EU employment laws, and comply with working hours and minimum wage regulations.

It's a good challenge for Europe to have lower-cost workers
Hanna Gronkiewicz-Waltz
Mayor of Warsaw

But nevertheless the fear that the Chinese company will practise wage dumping is very real.

Andrew Kureth, editor of the Warsaw Business Journal, has watched Chinese firms in action in Poland.

"The Chinese companies are bringing in their own workers from abroad," he says.

He cites a Chinese company building an apartment block next to his home using only Asian workers.

"If that continues to happen I think there is a possibility there will be a social outcry here."

With many Polish builders working in the UK and perceived by some to be undercutting UK pay rates, it is ironic that their jobs at home could now be filled by Chinese workers.

A spokesman for the European Investment Bank, which is lending much of the money, said that for the bid to be legal, proper procurement procedures would have been followed.

'Chinese effect'

There are also indications that the Polish authorities are using Chinese bidders to drive down costs.

When Warsaw felt the bids for its new underground train line were too high, it got the Chinese to bid.

The Chinese did not win that time, but their competitors slashed their prices drastically in response.

It has been called the "Chinese effect", says Michael Dembinski of the British-Polish Chamber of Commerce.

Andrzej Maciejewski of the Polish Roads Agency (GDDKIA)
Polish officials say local workers must be hired first

"We need to look at the scale of this," he says.

"If the Chinese bring over tens of thousands of labourers there will be unease about this."

"If it's a question of a couple of hundred skilled engineers, that's not going to be too much of an issue."

The mayor of Warsaw, Hanna Gronkiewicz-Waltz, formerly Vice President of the European Bank for Reconstruction and Development, says the company will probably employ a mixture of Chinese and local workers.

"It's a good challenge for Europe to have lower-cost workers," she says.

Asked to comment on the fact that a government committed to free market principles has awarded a contract to a Chinese state-owned company, she is unapologetic.

"Countries in the West should reform their economies," she says.

A spokesman for the European Internal Market Commissioner said they were not investigating the contract and there was "insufficient information to see if it was within the rules or not".

This might be the first motorway contract for the Chinese in the EU but it is unlikely to be the last.

But with tension mounting in the UK, in particular, over the employment of foreign contract labour, the authorities in Warsaw and Brussels will need to tread very carefully.

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