China: Construction Industry

Market situation

Booming for years, China's construction industry is rated as the world's third largest construction market. Continuing growth in this sector offers many opportunities for domestic and foreign investors. Currently the annual turnover in the construction industry is about USD 93 billion, accounting for more than 6 percent of China’s GDP. Growth has been at an average annual rate of nearly 10 percent since 1979. The high growth rate of construction industry is attributable to an ongoing shortage of infrastructure facilities and modern commercial and residential space. This growth rate is likely to remain high in the foreseeable future, especially in the less well developed cities in China.

Authorities in charge

Established at the end of the eighties, the Ministry of Construction ("MOC") is in charge of administrating and supervising the construction industry. Other governmental agencies are always involved with construction projects involving foreigners. For example, the approval from the State Development Planning Commission ("SDPC") or its local or provincial office must be obtained for any construction project using foreign loans, and the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") will be involved when setting up sino-foreign construction joint ventures.

Basic legal framework

The Construction Law of the People's Republic of China took effect on 1 March 1998. This law is supplemented by a number of regulations and rules issued by MOC, other Ministries and municipal governments.

Market access for foreign firms

There are various methods by which a construction company may establish a presence in China, depending on the work anticipated. It is possible to set up a joint venture to carry out a specific construction project, or to formalize a long-term relationship with a Chinese counterpart. A construction firm may set up a representative office for liaison purposes, and may sell building materials and after sales service to Chinese contractors.

Various restrictions on foreign participation in the insurance market are to be phased out gradually, although not completely, following China's accession to the WTO. Foreign majority ownership in joint ventures is supposed to be allowed already, upon China's accession. Within three years after the accession, wholly foreign owned enterprises will be permitted, but they may only participate in the following four types of construction projects: (1) construction projects wholly financed by foreign investment and/or grants; (2) construction projects financed by loans from international financial institutions and awarded through international tendering; (3) Chinese-foreign jointly constructed projects with foreign investment equal to or more than 50 percent; and Chinese-foreign jointly constructed projects with foreign investment less than 50 percent but technically difficult for Chinese construction firms by themselves. With the approval of the provincial government, foreign construction firms may participate in Chinese invested construction projects that are difficult for Chinese construction enterprises alone.

For further information and guidance please contact Luke Filei on [email protected] or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.