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Infrastructure and construction to China

(Last updated: 19 Jan 2015)

Trends and opportunities

The Market

China’s central government has established a tiered planning and legal system to guide implement and regulate urban development and construction in accordance with the national economic plan. The sustained growth of the Chinese economy means the number of cities and towns continue to rise, with around 20 million people estimated to move into urban centres each year over the coming years. In the face of increasing urbanisation, China has committed to accelerating construction of urban public infrastructure by investing as much as RMB7 trillion during its 12th Five-Year Plan (PDF) (2011 to 2015). Estimated investment over this period includes:

  • RMB700 billion in urban rail transit projects
  • RMB3 trillion on railway construction

(Source: China Daily, ‘China to invest 7t yuan for urban infrastructure in 2011-15’, 13 May 2010)

Investment in the aviation sector continues to grow. By the end of 2013, there were 193 civil airports in China, 10 more than in 2012. According to the 12th Five-Year Plan for Chinese Aviation Development (PDF) (2010), by 2015 there will be more than 230 civil aviation airports in China, covering areas producing 94 per cent of output, 83 per cent of its total population, and 81 per cent of its counties.

According to the 12th Five-Year Plan, by 2015, 36 large and medium sized cities will have sewer systems covering 100 per cent of urban areas with sewerage collection and treatment reaching over 85 per cent. All cities will safely handle domestic waste with a non-hazardous treatment rate over 85 per cent.

In the energy and utilities sectors, the focus will be on energy efficiency and low carbon generation, with renewable energy featuring strongly in the projects pipeline. The power grid will be further developed with an estimated investment of RMB17 billion on smart grid construction during the 12th Five-Year Plan.

In the housing sector, the government pledged the construction of another 50 million low cost housing units. Working towards this target, the government spent RMB380 billion in 2012. Since then, however, tighter local government budgets have seen construction in the retail sector slow.

Currently, there are several sources of possible funding for projects:

  • Central government budget
  • National bonds
  • Loans from multilateral funding agencies, such as the World Bank, Asian Development Bank and Japan Bank for International Cooperation
  • Local government budget
  • Private investment

With tighter access to finance by State Owned Enterprises (SOEs) and a shift in the Central Governments position on direct economic stimulus measures (moving instead towards consumption led growth), it is increasingly acknowledged that government investment alone cannot continue to meet the needs of ongoing public infrastructures and services. This may boost the prospects for greater private sector involvement through mechanisms such as public–private partnership (PPP). Work is still to be done around legal frameworks to facilitate these types of projects.

Architecture and Design

Since the early 1990s, Australian architects and urban planners have delivered many projects contributing to China’s changing landscape and growing cities. There are currently over 80 Australian Architectural Studios active and over 300 that have won work in China. More than 1000 Australian architects have worked in the market for Australian, foreign and Chinese design institutes.

Australian architects have delivered projects across a diverse range of categories including:

  • residential
  • commercial
  • tourism and leisure
  • sporting facilities
  • waterfront and retail/mixed use.

Beyond the first tier cities, the rising wealth of the Yangtze and Pearl River Delta regions has seen many projects delivered in Jiangsu, Zhejiang and Guangdong. In more recent years, the Central Government’s Urbanisation Policy, supported by strong economic growth in the regions of Western China and North Eastern China, has presented various project opportunities in cities such as Chongqing, Chengdu and Shenyang.

Government projects coordinated through provincial and district construction bureaus are often managed through a competition or tender process. This includes development of office buildings, schools, health/aged care facilities, cultural facilities, urban planning etc.

There are over 10 000 private Chinese property developers and foreign developers in China. Foreign developers with a strong presence include:

  • Singapore Capitaland
  • Hong Kong Swire Group
  • US Tishman Speyer.

Opportunities

There are opportunities for Australian exporters in the infrastructure sector in the underdeveloped western region, which covers 10 provinces and 56 per cent of China’s land mass. Regional infrastructure development in West China is transforming the region, with thousands of kilometers of high-speed railway, highway, hydro-electricity projects, and new urban and rural infrastructure. Opportunities in architecture, landscape and interior design will continue, albeit in a highly competitive environment. Partnering with local design institutes (LDIs) and developers remains a key factor to accessing the pipeline of new projects.

Opportunities for businesses include:

  • transportation e.g. highways, high speed trains and urban metro systems
  • gas pipeline design, construction and management
  • natural gas reticulation projects
  • renewable energy and smart grid systems
  • air navigation systems
  • airport construction services
  • port construction and management
  • environmental management e.g. wastewater treatment, surface water management and air pollution control
  • transit-oriented design around road and rail expansions
  • landscape design for major infrastructure projects e.g. airports
  • architectural and design services in retail/commercial, cultural centres, education precincts, hospitals and aged care facilities, waterfront and marina developments, urban transformation, warehousing, resorts and leisure centres
  • project management.

Competitive Environment

Competition is fierce; it is estimated that among the global top 200 architect firms, more than 140 have already entered the market.

Previously, projects tended to be concentrated in the Tier One cities of Beijing, Shanghai, Guangzhou and Shenzhen. These cities are still attractive for Australian firms, but are well developed with less land for new projects and strong domestic and foreign competition.

Tariffs, regulations and customs

China’s customs administration collects duties, industrial, commercial consolidated and regulating tax on import commodities.

Foreign exporters sometimes experience difficulties in understanding the application of customs classifications, tariff rates and import controls by local customs officials.

Industry standards

Industry standards for infrastructure projects vary depending on the nature (gas, power etc.) and the product or service to be provided to the project.

China has in place a green building rating system for the promotion of sustainable development. For more information, visit Sustainable Urban Development to China.

Suppliers are required to adhere to Chinese standards. Safety and fire proofing standards must be certified by the relevant authorities. For fire proofing standards in building and materials there are two commonly applied standards:

  • New China National Architectural Design Fire Code (GB 50016-2014) – this will come into force from 1st May 2015 (Fire Code (GB 50016-2014 - in Chinese language only).
  • Quality assurance system for building materials manufacturing - ISO 9001 and ISO 9002.

Regulations

The regulations make strict stipulations about foreign investors in real estate with respect to investment capital, qualifications, investment forms etc. Since the end of 2007, foreign investors have been restricted in investing in real estate agencies and prohibited in investing in the construction of golf courses.

According to the 2002 Guidance by the Ministry of Construction on foreign investment in the construction industry, a wholly foreign owned construction company is allowed in China. However, the company has to get approval from local authorities and have the relevant qualifications.

A wholly foreign owned construction company is only entitled to operate in certain business areas where either the projects are generated from overseas or when foreign construction technology is needed, whilst joint ventures can contract any local project according to their qualifications.

The most efficient way for a foreign constructor to enter the Chinese market is to set up a joint venture with a domestic Chinese construction company or purchase one.

As a foreign architectural firm, it is possible to set up a Wholly Foreign Owned Enterprise (WOFE) as a consultancy firm on architectural design. All official documents and drawings, including permission drawings for the local authorities, official tender drawings and execution drawings have to be stamped by a Local Design Institute (LDI) for approval. It is not necessary to have a joint venture; cooperation with different LDI's on a project basis is possible.

Australian architects and construction firms will benefit from the China Australia Free Trade Agreement (ChAFTA) with improved market access. Interested parties should continue to follow up on details, particularly once the ChAFTA text is released.

Marketing your products and services

Market entry

Early identification of opportunities is the key to Australian business success in infrastructure projects. Australian companies should consider several possible options for market entry:

  • direct export via local agents or distributors
  • local investment – joint venture, partnership, wholly owned foreign company
  • manufacturing localisation, including technology transfer
  • development of a strong in-market presence to support market development, particularly where products and technologies require service support
  • for supply to large projects, local governments sometimes require the establishment of a local presence
  • establishing long-term relationships with local companies who can recommend your products to end users
  • acquiring local companies who are in the same industry and have a track record and customer base.
  • linking up with local or international companies in the market to co-bid for projects
  • setting up a representative office or company in China
  • ‘Fly in Fly out’ delivery of projects i.e. without fixed physical presence.

Chinese design institutes often play a critical role in the approval, recommendation and assessment of new products for infrastructure and architecture/design projects. Austrade  has a strong Infra/Construction team in China that can help you with market research and advise you on market access and individual projects.

Distribution channels

Distribution channels will vary depending on the type of project and its location.

Links and industry contacts

Government, business and trade resources

State Development and Planning Commission
The Ministry of Finance
National Development and Reform Commission (NDRC)
Ministry of Housing and Urban-Rural Development (MOHURD)
China Economic Information Network
Chinabidding.com

Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.

Contact details

The Australian Trade Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

  • develop international markets
  • win productive foreign direct investment
  • promote international education
  • strengthen Australia's tourism industry
  • seek consular and passport services.

Austrade provides information and advice that can help you reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.

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