The construction industry in China was valued at US$2.1 trillion in 2012; a staggering figure that hints at the huge scale of construction in China. Despite this, there is the common perception that as a result of corruption, poor and rushed construction and a tendency to cut corners, construction projects in China are dangerous, dirty and full of faults. Incidents such as the collapse of a multi-million dollar bridge in Harbin and the toppling of a newly completed residential building in Shanghai do little to improve perception of Chinese construction quality. However, these highly publicized incidents aside, developments in the public and private sectors have already begun to change the construction industry, and things are set to change further.
Stumbling blocks
Several factors affect the quality of construction in China. Both the state and private sector face the twin problems of overreliance on migrant labour and corruption. The reliance on cheap, migrant labour means that there is a skill shortage and poor awareness of safety standards. This leads to a large number of workplace accidents, although the exact number is hard to ascertain.
This is due to the high levels of corruption in the construction industry. Underhand practices include covertly reducing the quality of the building materials and pocketing the profit, or bribing safety inspectors to look the other way. Recent news that unprocessed sand was being used in concrete for several high-profile buildings in Shenzhen, including one which was set to become China’s tallest, is just one example of the tangible effects of corruption on building quality.
There is also a tendency in both sectors to contract work out, which is often then sub-contracted to another company. This chain can be several companies long, reducing efficiency and transparency and encouraging poor practice.For the construction of residential units, land use rights for residential purposes in China only extend to 70 years, meaning that the incentive to construct residential buildings which will last longer than that period of time is effectively gone. This results in a short-sighted attitude towards construction.
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The Private Sector leads the way
However, the private sector has been improving as a result of market demands. In an increasingly crowded, competitive market with high demand, private sector companies have to rely on their reputation in order to attract business. Companies such as Soho China and Wanda stake their success on high-end, reliable construction projects that enhance their reputation. Wanda having assest worth over $40 Billion and an annual revenue of $22.2 Billion, operates 55 locations in China and is just starting it`s overseas expansion, with the first of 10 projects, starting in London, with a luxury hotel. Over the past few decades, Soho China has gone from strength to strength, and their current Soho Galaxy project is at the cutting edge of design and architecture not just in China, but worldwide. Companies tend to spend around 5% of their budget on marketing; they cannot afford to have their efforts undermined by poor construction.
The high demand has also increased the price of property and land, especially in major cities. The average price of newly built homes in China’s 70 largest cities increased by 5.3% over the last year, and a package of land in the Beijing suburb of Tongzhou recently sold for a staggering 1 billion RMB. With the high land prices and the subsequent prospect of large returns, developers and construction companies will feel more comfortable in spending money on assuring construction quality.
Market shifts aside, recent legislation which restricts the amount of times a single project can be sub-contracted and forbids companies from shortening the duration of construction unless they can prove that it is necessary will also have a positive impact on construction quality.
State Owned Companies are trailing.
Although State Owed Companies are similarly driven by profit, they are somewhat shielded from changes in the market, meaning that they are slower than their private counterparts in improving construction quality. State Owned Companies are more liable to corruption and unscrupulous business practices, and therefore the quality of both infrastructure and real estate projects suffers. A notice sent out in 2010 by SASAC requiring companies whose main business is not real estate to withdraw from the real estate market has largely fallen on deaf ears. Indeed China Metallurgical Group set a new record for the highest price paid of a land plot in 2012 with a US$0.9 billion dollar deal.
Although little progress has been made in the real estate market, the rise of social media and public awareness has had a significant impact on state infrastructure projects. Beginning with the Sichuan earthquake in 2008 and finally the Wenchuan railway crash in 2011 a turning point has been reached- attempts at a cover-up were quickly exposed on platforms such as Weibo and several officials and workers have been brought to account over shoddy workmanship in various projects. Although the state sector is experiencing a slower transformation, things are improving.
Private companies are leading the way in terms of quality, with the state sector following. Better buildings will improve China’s tarnished reputation, both domestically and abroad. Furthermore, as Chinese companies start to break ground in foreign markets with projects such as the US$8.3 billion Nigerian Railway Modernization Project, a reputation for quality construction will only help these companies expand. Whether these changes will stand the test of time remains to be seen.