ABSTRACT

Population Population 1,321 mn Urban population 45% Population under 15 18% Population 65 and over 9.4% Average annual growth rate (2004 to 2007) 0.55% Geography Land area 9,425,290 km2 Agricultural area (2005) 60% Capital city Beijing Population of capital city 16.3 mn Economy Monetary unit Renminbi (Rmb) Exchange rate (average fourth quarter 2008) to: the pound sterling Rmb 10.70 the US dollar Rmb 6.83 the euro Rmb 9.00 the yen x 100 Rmb 7.15 Average annual inflation (1998 to 2007) 1.3% Inflation rate 4.8% Gross Domestic Product (GDP) Rmb 25,148 bn GDP per capita Rmb 18,934 Average annual real change in (GDP) (1998 to 2007) 10.0% Private consumption as a proportion of GDP 35.4% Public consumption as a proportion of GDP 13.3% Investment as a proportion of GDP 42.3% Construction Gross value of construction output Rmb 5,104 bn Net value of construction output Rmb 1,401 bn Net value of construction output as a proportion of GDP 5.6%

THE CONSTRUCTION INDUSTRY

Construction Output

The property market in China was at an unprecedented peak in 2007. The hot property market led to a boom in construction activities. Unlike 10 years ago, this boom was no longer concentrated only in the coastal cities and provinces but had, following the implementation of the Western Development Strategy by the Central Government, spread to the inland and western areas too. Construction works were initiated not only by government and foreign investments but also by the extensive developments from the newly established local private companies. The net value of construction output in 2007 was Rmb1,401 billion, equivalent to US$189 billion, representing 5.6% of GDP. In line with the remarkable growth of China’s economy in recent years, the construction industry in China is now one of the largest in the world. Many political observers have pointed out that a large proportion of senior ministers in the Chinese Government have an engineering education. This is in contrast to that in western developed countries where political leaders tend to come from a legal or social science background. It is therefore not surprising that the Chinese Government has always had a particular love for infrastructure developments. Such policies are usually taken much to their heart by many of China’s leaders. An example is how Past Premier Li Peng pushed forward the Three Gorges Dam project in the face of fierce criticism from both outside and inside the country and the enormous resettlement problem of whole towns and villages affected. China’s new infrastructure is the envy of many developing countries. Many articles have been written comparing China with another major rising economy, India, and China’s infrastructure is always quoted as one of its main advantage. However the breakdown in electricity supply and railway service in the central and southern parts of China at the beginning of 2008 due to a series of unusually harsh snow storms has put into question its sufficiency for modern China. It appears that investment in infrastructure works will not be reduced for quite some time. On the building side, the passing of the long awaited Property Rights Law in 2007 (the law was first initiated in 1994 and has gone through 8 readings since then) aroused the long suppressed Chinese Dream of owning one’s own house. The rush to buy newly constructed homes has made property development so hot and property prices rising so fast that the government has had to implement a series of administrative measures to control its activities. Foreign investments in this sector of the economy were basically discouraged. A few of the more radical actions taken include reserving certain parcels of land for purchase by local development companies only; extra administrative requirements on exchange conversion on money remitted into China; and a near banning of bank financing for purchase of land. On another aspect, international environmental pressure groups have been raising concerns over the effects on the environment due to China’s massive building process. To address such criticisms, the government has promised to boost its efforts in tackling with environmental problems by the introduction of a new Energy Law which will call for the development of energy-efficient production

processes, energy-efficient consumption approaches and sustainable development for new construction projects. The new Energy Law would increase the cost of construction but the effect on demand for building works would be very minimal. On the other hand, it is expected that it will elevate the design and construction capability of design institutes and construction companies and will generate new types of industries and projects, like wind farms and biomass plants, etc. for the construction industry. China’s construction industry has been growing at an average annual rate of nearly 19% for the past 10 years. The 2008 financial tsunami may slow its growth in the short term, but with the continual investment in the infrastructure by the government, the large scale rebuilding projects in Sichuan after the 12 May 2008 earthquake and the spreading of private developments into second tier cities and inland provinces due to insatiable demand for new modern homes and good commercial spaces, the medium to long term growth still looks very robust. The distribution of construction activities in China in 2007 are shown in the table below.