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5 White Paper on the Business Environment in China
White Paper contributors Dezan Shira note that “In 2010 unlicensed welders.30
alone, overseas PE funds including the U.S.-based Blackstone, While the issue lingers, some sectors are at least making
Netherlands-based GTC Real Estate, and some foreign
capital-based PE funds of the HSBC Bank have established e orts at compliance. e South China Morning Post last
partnerships with domestic property developers.” and that year reported that when state-run Sinopec was granted
“As a major channel for foreign funds to enter the Chinese approval for a re nery expansion (a project reportedly worth
property market, foreign direct investment into the eld in US$ 900 million) in Fujian province in March 2012, the
2010 saw an impressive 40 percent year-on-year increase, company issued a strict warning to its project team speci cally
reaching US$24 billion and contributing 22.7 percent to the about accepting bribes, stating that “project engineering
total actual foreign capital that went to non- nancial areas.”28 and construction has been a main area for corruption at
Sinopec.” e warning “underscores” - the SCMP reports –
Notable Policy Activity “what experts say is the greatest challenge facing President Xi
Jinping and his drive to tackle corruption – rampant graft in
Investigation Into Corruption and Illegal Activity in the engineering, procurement and construction contracts.” 37
Construction Industry
New Regulation of ‘Irregular’ Contracting
Jointly issued on July 9, 2009 by the general o ce of the A draft regulation on the construction sector was published
Central Committee of the CCP and the State Council, the
‘“Zhong Banfa” Document No. 27’ noted that there were on the State Council Legislative A airs O ce’s website in late
some systemic problems in the construction industry that had November 2012 for public comment. As originally published,
hurt the industry as a whole and betrayed the public trust. the draft “bans one construction project from having more
than one general contractor,” in addition to “[stipulating]
ese issues were reported by law rm Jones Day as being that only the general contractor can outsource the project
identi ed as: to subcontractors,” that “subcontractors are banned from
outsourcing again” and that “the developer is banned from
• Money-for-power deals and commercial bribery, interfering,” among other stipulations.31
whereby some officials abuse their power to acquire
personal gain. O ering context for the additional regulation of
construction, Xinhua notes that:
• Some local governments operate approval and lease
procedures illegally, and change the use categorization Malpractice in the contracting of construction projects
of land and increase the utilization rate of construction has become a major cause of poor-quality housing
without approval. and infrastructure projects in China. Some projects
have been outsourced again and again among many
• Some contractors illegally subcontract construction contractors and subcontractors, making it di cult
work. to check the quali cations of builders and supervise
construction quality.
• Some tendering agencies operate illegally.
• Some local governments waste taxpayers’ money by In a number of cases, irregular contracting has also
resulted in defaulted payments to construction
constructing lavish buildings. workers. 31
• Some contractors violate safety and quality regulations.
• Some local governments requisition land illegally Regulatory Attempts to Contain Housing Prices
In addition to macroeconomic adjustments, increased
during the construction process.29
down payment requirements and the new property tax, the
e document also reportedly stipulated that “o cials at Ministry of Land Resources has added additional regulatory
all levels of government will be ordered to start inspecting all pressure on developers to assist with the Central Government’s
construction projects for which they are responsible, to ensure property price control e orts.
that these problems are not repeated.”29
A September 2010 release from the Ministry stipulated
In August 2009 (a month after the proclamation) it was that, among other things, “Chinese property developers
noted that “during the last three months, there [had] been and their controlling shareholders will be banned from
high-pro le residential building collapses in Shanghai, participating in land auctions if they are found guilty of
Chengdu, Zhejiang, Jiangsu, and Shijiazhuang”).29 illegal activities,” that “Developers who have failed to start
It appears that there is work yet to be done on this
issue: in November 2010, a 4-hour re that consumed an
apartment building in Shanghai was reportedly caused by
180
White Paper contributors Dezan Shira note that “In 2010 unlicensed welders.30
alone, overseas PE funds including the U.S.-based Blackstone, While the issue lingers, some sectors are at least making
Netherlands-based GTC Real Estate, and some foreign
capital-based PE funds of the HSBC Bank have established e orts at compliance. e South China Morning Post last
partnerships with domestic property developers.” and that year reported that when state-run Sinopec was granted
“As a major channel for foreign funds to enter the Chinese approval for a re nery expansion (a project reportedly worth
property market, foreign direct investment into the eld in US$ 900 million) in Fujian province in March 2012, the
2010 saw an impressive 40 percent year-on-year increase, company issued a strict warning to its project team speci cally
reaching US$24 billion and contributing 22.7 percent to the about accepting bribes, stating that “project engineering
total actual foreign capital that went to non- nancial areas.”28 and construction has been a main area for corruption at
Sinopec.” e warning “underscores” - the SCMP reports –
Notable Policy Activity “what experts say is the greatest challenge facing President Xi
Jinping and his drive to tackle corruption – rampant graft in
Investigation Into Corruption and Illegal Activity in the engineering, procurement and construction contracts.” 37
Construction Industry
New Regulation of ‘Irregular’ Contracting
Jointly issued on July 9, 2009 by the general o ce of the A draft regulation on the construction sector was published
Central Committee of the CCP and the State Council, the
‘“Zhong Banfa” Document No. 27’ noted that there were on the State Council Legislative A airs O ce’s website in late
some systemic problems in the construction industry that had November 2012 for public comment. As originally published,
hurt the industry as a whole and betrayed the public trust. the draft “bans one construction project from having more
than one general contractor,” in addition to “[stipulating]
ese issues were reported by law rm Jones Day as being that only the general contractor can outsource the project
identi ed as: to subcontractors,” that “subcontractors are banned from
outsourcing again” and that “the developer is banned from
• Money-for-power deals and commercial bribery, interfering,” among other stipulations.31
whereby some officials abuse their power to acquire
personal gain. O ering context for the additional regulation of
construction, Xinhua notes that:
• Some local governments operate approval and lease
procedures illegally, and change the use categorization Malpractice in the contracting of construction projects
of land and increase the utilization rate of construction has become a major cause of poor-quality housing
without approval. and infrastructure projects in China. Some projects
have been outsourced again and again among many
• Some contractors illegally subcontract construction contractors and subcontractors, making it di cult
work. to check the quali cations of builders and supervise
construction quality.
• Some tendering agencies operate illegally.
• Some local governments waste taxpayers’ money by In a number of cases, irregular contracting has also
resulted in defaulted payments to construction
constructing lavish buildings. workers. 31
• Some contractors violate safety and quality regulations.
• Some local governments requisition land illegally Regulatory Attempts to Contain Housing Prices
In addition to macroeconomic adjustments, increased
during the construction process.29
down payment requirements and the new property tax, the
e document also reportedly stipulated that “o cials at Ministry of Land Resources has added additional regulatory
all levels of government will be ordered to start inspecting all pressure on developers to assist with the Central Government’s
construction projects for which they are responsible, to ensure property price control e orts.
that these problems are not repeated.”29
A September 2010 release from the Ministry stipulated
In August 2009 (a month after the proclamation) it was that, among other things, “Chinese property developers
noted that “during the last three months, there [had] been and their controlling shareholders will be banned from
high-pro le residential building collapses in Shanghai, participating in land auctions if they are found guilty of
Chengdu, Zhejiang, Jiangsu, and Shijiazhuang”).29 illegal activities,” that “Developers who have failed to start
It appears that there is work yet to be done on this
issue: in November 2010, a 4-hour re that consumed an
apartment building in Shanghai was reportedly caused by
180
