Introduction to Foreign Investment in the Construction Industry

China's first foreign-funded construction project was the water division tunnel of the Lubuge Hydropower Station in Southwest China's Yunnan Province, which was launched in the early 1980s with loans from the World Bank through international open bidding. The project made the construction sector the forerunner in China's opening up to the outside world. Since then, foreign contractors started to enter China's construction market.

The number of foreign contractors increased sharply in the early 1990s and many foreign-funded prospect and design institutes and construction enterprises emerged in China. In 1992, the Ministry of Construction and the Ministry of Foreign Trade and Economic Cooperation jointly issued the Administration Regulations on Examining and Approving Sino-Foreign Joint Venture Design Institutes; in 1994, other coordinated documents were promulgated, including the Interim Administration Rules on Foreign Enterprises Contracting Construction Works in China and the Regulations Concerning the Establishment of Foreign-funded Construction Enterprises that began the work of legislative construction to serve the opening up of the construction sector.

According to the above-mentioned documents and policy, the basic principles of the construction sector in opening up to the outside world are: allowing the establishment of Sino-foreign joint venture (JV) design institutes, Sino-foreign JV construction enterprises and Sino-foreign cooperation supervision organ in China; not allowing the establishment of wholly foreign-owned prospect and design institutes and construction enterprises in China, but allow foreign enterprises (including enterprises from Hong Kong, Macao and Taiwan) to directly undertake contract engineering work as an overseas legal person with restrictions on the scope of the contracting construction.

China launched 256 construction projects with direct foreign investments in 2001, accounting for 0.98 percent of the total foreign-funded projects that year. Of the projects, 136 were civil engineering works, 48 were railway, highway, tunnel and bridge projects, and seven were dam, power station and harbor projects. They involved combined contractual foreign funds of US$1.823 billion -- 2.63 percent of the total, including US$1.034 billion for civil engineering works, US$470 million for the construction of railways, highways, tunnels and bridges, and US$443 million for the construction of dams, power stations and harbors. The actual amount of foreign funds used was US$807 million, 1.72 percent of the total.

By the end of 2001, China's construction sector launched a total 9,315 projects with direct foreign investments accounting for 1.11 percent of the total and contractual foreign funds of US$21.514 billion -- 2.89 percent of the total.

In 2001, China had 622 construction enterprises involving investments from Hong Kong, Macao and Taiwan that employed 76,800 people. Their total output value was 10.255 billion yuan that year; incremental value, 2.735 billion yuan; area under construction, 3,748,500 square meters; completed area, 1,459,400 square meters; total profits, 376 million yuan and taxes, 331 million yuan.

Foreign-funded enterprises totaled 274 in 2001, employing 42,900 people. Their total output value was 7.306 billion yuan; incremental value, 1.6 billion yuan; area under construction, 5,057,500 square meters; completed area, 2,998,400 square meters; total profits, 234 million yuan and taxes, 180 million yuan.

The opening-up policy has helped improve the investment environment for the construction industry and created conditions for the implementation of construction projects with loans provided by international financial organizations and investments from foreign countries. The inflow of foreign enterprises has promoted the reform of Chinese enterprises and helped establish a platform for Chinese enterprises to get a better understanding of international practices, and compete on the world market.