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6 White Paper on the Business Environment in China
channel for foreign funds to enter the Chinese property market, The document also reportedly stipulated that “officials at
foreign direct investment into the field in 2010 saw an impres- all levels of government will be ordered to start inspecting all
sive 40 percent year-on-year increase, reaching US$24 billion construction projects for which they are responsible, to ensure
and contributing 22.7 percent to the total actual foreign capital that these problems are not repeated”29.
that went to non-financial areas.”28
In August 2009 (a month after the proclamation) it was
With the slowdown in construction (as well as the overall noted that “during the last three months, there [had] been
economy), Premier Li Keqiang has emphasized the importance high-profile residential building collapses in Shanghai, Cheng-
of tackling the long-standing problem of industrial overcapacity du, Zhejiang, Jiangsu, and Shijiazhuang”).29
as traditional industries and “zombie enterprises” continue to
struggle. Speaking at a December 2015 seminar on the coun- It appears that there is work yet to be done on this issue:
try’s economic situation, Premier Li discussed the increasingly in November 2010, a 4-hour fire that consumed an apartment
prioritized issue of overcapacity on traditional industries, which building in Shanghai was reportedly caused by unlicensed
has been blamed for surplus inventory and shrinking profits in welders.30
the industrial sector and a drag on overall economic growth.
“From next year,” the Premier said, “we should be determined While the issue lingers, some sectors are at least making ef-
to cut back on overcapacity in traditional industries as well as a forts at compliance. The South China Morning Post last year
large number of zombie enterprises,” pointing out in particular reported that when state-run Sinopec was granted approval for
the worst-performing steel and coal industries. 42 a refinery expansion (a project reportedly worth US$ 900 mil-
lion) in Fujian province in March 2012, the company issued a
According to the China Daily, China produces 800 million strict warning to its project team specifically about accepting
tons of steel a year – four times more than any other country bribes, stating that “project engineering and construction has
has ever produced – yet the sector is currently experiencing been a main area for corruption at Sinopec.” The warning “un-
overcapacity of about 400 million tons as construction slows. derscores” - the SCMP reports – “what experts say is the great-
Both large and medium-sized Chinese steel companies saw est challenge facing President Xi Jinping and his drive to tackle
overall losses in the first eight months of 2015. 42 corruption – rampant graft in engineering, procurement and
construction contracts.” 37
Notable Policy Activity
New Regulation of ‘Irregular’ Contracting
Investigation Into Corruption and Illegal Activity in the Con- A draft regulation on the construction sector was published
struction Industry
on the State Council Legislative Affairs Office’s website in late
Jointly issued on July 9, 2009 by the general office of the November 2012 for public comment. As originally published,
Central Committee of the CCP and the State Council, the the draft “bans one construction project from having more than
‘“Zhong Banfa” Document No. 27’ noted that there were some one general contractor,” in addition to “[stipulating] that only
systemic problems in the construction industry that had hurt the the general contractor can outsource the project to subcontrac-
industry as a whole and betrayed the public trust. These issues tors,” that “subcontractors are banned from outsourcing again”
were reported by law firm Jones Day as being identified as29: and that “the developer is banned from interfering,” among oth-
er stipulations.31
• Money-for-power deals and commercial bribery, where-
by some officials abuse their power to acquire personal Offering context for the additional regulation of construc-
gain. tion, Xinhua notes that:
• Some local governments operate approval and lease Malpractice in the contracting of construction projects
procedures illegally, and change the use categorization has become a major cause of poor-quality housing and
of land and increase the utilization rate of construction infrastructure projects in China. Some projects have
without approval. been outsourced again and again among many contrac-
tors and subcontractors, making it difficult to check the
• Some contractors illegally subcontract construction qualifications of builders and supervise construction
work. quality.
• Some tendering agencies operate illegally. In a number of cases, irregular contracting has also re-
• Some local governments waste taxpayers’ money by con- sulted in defaulted payments to construction workers. 31
structing lavish buildings.
• Some contractors violate safety and quality regulations.
• Some local governments requisition land illegally during
the construction process.
194
channel for foreign funds to enter the Chinese property market, The document also reportedly stipulated that “officials at
foreign direct investment into the field in 2010 saw an impres- all levels of government will be ordered to start inspecting all
sive 40 percent year-on-year increase, reaching US$24 billion construction projects for which they are responsible, to ensure
and contributing 22.7 percent to the total actual foreign capital that these problems are not repeated”29.
that went to non-financial areas.”28
In August 2009 (a month after the proclamation) it was
With the slowdown in construction (as well as the overall noted that “during the last three months, there [had] been
economy), Premier Li Keqiang has emphasized the importance high-profile residential building collapses in Shanghai, Cheng-
of tackling the long-standing problem of industrial overcapacity du, Zhejiang, Jiangsu, and Shijiazhuang”).29
as traditional industries and “zombie enterprises” continue to
struggle. Speaking at a December 2015 seminar on the coun- It appears that there is work yet to be done on this issue:
try’s economic situation, Premier Li discussed the increasingly in November 2010, a 4-hour fire that consumed an apartment
prioritized issue of overcapacity on traditional industries, which building in Shanghai was reportedly caused by unlicensed
has been blamed for surplus inventory and shrinking profits in welders.30
the industrial sector and a drag on overall economic growth.
“From next year,” the Premier said, “we should be determined While the issue lingers, some sectors are at least making ef-
to cut back on overcapacity in traditional industries as well as a forts at compliance. The South China Morning Post last year
large number of zombie enterprises,” pointing out in particular reported that when state-run Sinopec was granted approval for
the worst-performing steel and coal industries. 42 a refinery expansion (a project reportedly worth US$ 900 mil-
lion) in Fujian province in March 2012, the company issued a
According to the China Daily, China produces 800 million strict warning to its project team specifically about accepting
tons of steel a year – four times more than any other country bribes, stating that “project engineering and construction has
has ever produced – yet the sector is currently experiencing been a main area for corruption at Sinopec.” The warning “un-
overcapacity of about 400 million tons as construction slows. derscores” - the SCMP reports – “what experts say is the great-
Both large and medium-sized Chinese steel companies saw est challenge facing President Xi Jinping and his drive to tackle
overall losses in the first eight months of 2015. 42 corruption – rampant graft in engineering, procurement and
construction contracts.” 37
Notable Policy Activity
New Regulation of ‘Irregular’ Contracting
Investigation Into Corruption and Illegal Activity in the Con- A draft regulation on the construction sector was published
struction Industry
on the State Council Legislative Affairs Office’s website in late
Jointly issued on July 9, 2009 by the general office of the November 2012 for public comment. As originally published,
Central Committee of the CCP and the State Council, the the draft “bans one construction project from having more than
‘“Zhong Banfa” Document No. 27’ noted that there were some one general contractor,” in addition to “[stipulating] that only
systemic problems in the construction industry that had hurt the the general contractor can outsource the project to subcontrac-
industry as a whole and betrayed the public trust. These issues tors,” that “subcontractors are banned from outsourcing again”
were reported by law firm Jones Day as being identified as29: and that “the developer is banned from interfering,” among oth-
er stipulations.31
• Money-for-power deals and commercial bribery, where-
by some officials abuse their power to acquire personal Offering context for the additional regulation of construc-
gain. tion, Xinhua notes that:
• Some local governments operate approval and lease Malpractice in the contracting of construction projects
procedures illegally, and change the use categorization has become a major cause of poor-quality housing and
of land and increase the utilization rate of construction infrastructure projects in China. Some projects have
without approval. been outsourced again and again among many contrac-
tors and subcontractors, making it difficult to check the
• Some contractors illegally subcontract construction qualifications of builders and supervise construction
work. quality.
• Some tendering agencies operate illegally. In a number of cases, irregular contracting has also re-
• Some local governments waste taxpayers’ money by con- sulted in defaulted payments to construction workers. 31
structing lavish buildings.
• Some contractors violate safety and quality regulations.
• Some local governments requisition land illegally during
the construction process.
194
