A Tour of Hong Kong’s Construction Industry Dr Weisheng Lu, [email protected]@hku.hk Dept. of Real Estate and Construction, University of Hong Kong,

A Tour of Hong Kong’sConstruction Industry

Dr Weisheng Lu, [email protected]

Dept. of Real Estate and Construction, University of Hong Kong, Pok Fu Lam, Hong Kong

mailto:[email protected]

Greetings from Hong Kong

Two minutes about Hong Kong

Outline

• Figures and Facts • Players in the sector• How is the sector

operating?• Features in one word• Are you going to find

steak here?

Outline Figures and Facts


Hong Kong

Kowloon

The New Territories


East Pearl

Hong Kong Island became occupied by British forces in the First Opium War, and was formally ceded to Britain under the Treaty of Nanking of 1842

In 1860, Kowloon Peninsula and other islands were ceded to Britain

In 1898, Britain obtained a 99-year lease of Lantau Island and the adjacent lands, which became known as the New Territories.


In 1997, the sovereignty over Hong Kong was transferred to PRC.

Hong Kong continues to maintain its own currency, legal system, political system, immigration control, rule of the road

“One country, two systems”


Land Area 1018 km2 (428 mi2)

Population: 7 m in 2008÷

=6,876 people per km2


“Although you see many Christians, Buddhists, Catholics, Hindus here, but money is the only religion in this city”. -BBC

“Relatively, everything is not too expensive except for one thing - house”. -Weisheng“Hong Kong people have to stay in very compact space, even after death”. -BBC


“Relatively, everything is not too expensive except for one thing - house”. -Weisheng


Outline

• “Can do”• Fast• Thin/compact/crowd• Open

China – the next economy superpower?

• 9.60 million km2 – 3rd largest territory


• 1.3 billion – the world’s largest population

1,300,000,000“One-Child Policy”

• $3,280,053M- 4th largest GDP



• Annual Growth – about 10%


• 1978 “Open-Door” Policy• From Planned Economy to Market Economy• This was achieved in 30 years (1979-2008)

Centrally Planned

Economy

Market Economy

Economic Reform 1978 2008

Planned Economy VS Market Economy

• Planned EconomyBased on from Marx’s economic theoryUSSR/ socialismDemand and supply were centrally planned in advanceFactories produced goods based on a quota systemMaterials were allocated for freeProducts were owned by governmentCompanies were not really profit oriented

• Market economyWestern countriesDemand and supply were regulated by market (Invisible

hand, Adam Smith, 1776)Main purpose of companies is to make profit

Planned Economy VS Market Economy

• Market economy but with a certain amount of central control

Market malfunction (e.g. Environment protection)

Low efficiency sometimes Privatisation and nationalization Federal Reserve, saving interest rate

Suggested Readings: Samuelson & Nordhaus (1995), Economics, 15th

Ed.Adam Smith (1776), Wealth of Nations.

Centrally Planned

Economy

Market Economy

Economic Reform 1978 2008

A glance of its Political, Economical, Social, and Technical (PEST) conditions

30 years ago Now


30 years ago Now


30 years ago Now


30 years ago Now


30 years agoNow

• No Doubt!

• We should know more about it if we want to do business with this country


China – a land for your construction dreams

The Great Wall

Three Gorges Dam

Qinghai- Tibet Railway

Hangzhou Bay Bridge

The CCTV New Headquarters

“Bird Nest”

The National Stadium

The Water Cube

Bank of ChinaTower, Hong

Kong

IFC II

10% of GDP

Construction is one of the “pillar” industries

How is the industry operating?

How does the whole industry operate?

Government

PeopleCompanies

•GovernmentGovernment plays a substantial role in all aspects of the construction industry. It is able to affect the industry, not only as a government in its functions of managing the economy and setting and maintaining standards, but also directly as a client (Hillebrandt, 1974).

Recommended Reading:•Hillebrandt, P.M. (1974), Economic Theory and the Construction Industry, London: Macmillan Press.•Hillebrandt, P.M. (1984), Analysis of the British Construction Industry, London: Macmillan Press.


Government

Central government level

Provincial level

Regional level

Ministry of Housing

and Urban-Rural

Development

(MOHURD)

National Development and Reform Commission

(NDRC)

Ministry of Landand

Resources (MLR)

Ministry of Commerce (MOFCOM)

Construction

Commissions

Provincial Development and Reform

Commissions

Bureaus of Landand

Resources

Commissions of Commerce

……………………


Government

Central government level

Provincial level

Regional level

Ministry of Communicatio

ns

Ministry of Railway(MOR)

State-owned Assets Supervision and

Administration Commission of the State Council

(SASAC)Communicati

on Commissions

Regional Bureaus of Railway

SASAC at province/municipal level

……………………

(Continued)


Suggested Reading:• Flanagan, R. and Li, S.R. (1997), International Construction: A Perspective of C

hina, Ascot [England]: Chartered Institute of Building (CIOB).• Weisheng Lu, A System for Assessing and Communicating Contractors’ Com

petitiveness (2006), Hong Kong Polytechnic University.

Government

How does the wholeindustry operate?

Problems in the system•Strict hierarchy system•Different interest groups•More than one boss•Don’t talk to each other•Bureaucracy

Source: Anthony Walker, and Roger Flanagan (1987), China, Building for Joint-Venture,

Government

Other issues relating to government operations-

Law and legislations, Qualification of Enterprises (QoEs)Environment and sustainable development, Health and Safety, Quality monitor, Public Procurement, Market entry, WTO, etc.


Government


Government

PeopleCompanies

•CompaniesIn the past: State-Owned/Collective-OwnedNo private companies, not profit-making…


Companies

•CompaniesComparison with Western construction companiesSimilarities: Organisation structure (e.g. Head office, administrative depts., sub companies, project teams…)Market operations (e.g. PM, CM, competitive bidding)Business Models (e.g. EPC, Design-Build, BOT, PFI, PPP, …)Listed in the stock market….Differences:Market structure (e.g. SMEs, big contractors)Business culture (e.g. Guanxi, Don’t like to solve problems in court, Co-petition)


Companies

ENR’s list of TOP 225 IC 2008

Source: ENR, 8/18/2008, 261(5)

Companies

Strong presence in the international construction market

49 Chinese companies were listed on the ENR’s Top 225 International Contractors (TIC225) in 2007

In 1006 along gained a total contracting revenue of 16.289 billion U.S. $

Companies

Formed in 1982

Listed in the ENR’s TIC225 since 1984

Largest construction corporate in China

Largest housing project contractors in the world

Create 70,000 jobs every year

Companies

CCCC is mainly engaged in the construction and design of transport infrastructure, dredging and port machinery manufacture

It is the largest port construction and design company in China

The largest dredging company in China and third largest in the world.

It is also the world’s largest container crane manufacturer.

It is a multinational company which owns 37 solely-invested and share-holding subsidiary companies and 19 joint stock companies.

Companies

Railway Group Limited can be traced back to the 1950.

It is a super-large integrated construction group that encompasses infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing, property development and other businesses.

China Railway Group Limited has 46 subsidiaries, including 28 wholly owned subsidiaries, 15 holding subsidiaries, 4 branch companies and 3 joint venture subsidiaries

In 2007, CREC was ranked 342nd in the Fortune Global 500 companies, and listed the 417th in the World’s 500 most influential brands.

• People – at labour level

Germany 92 million

Turkey 63 million

France 60 million

UK 60 million

Sweden 9 million


China Construction Workers 30 million

20 million

• Emerging issues about labour

In UK Ageing population

Lack of manpower Women in construction Manpower from East Europe Work Permit Informal economy

Here in China

Cheap labour

Plentiful supply

Lack of training

Health and Safety

Welfare


People

People

• Professionals(1) Registered Project

Supervision Engineer;(2) Project Manager (to be

transferred to the Registered Builder);

(3) Registered Architect;(4) Registered Structure

Engineer;(5) Registered Project Cost

Engineer;(6) Registered Town Planner;(7) Registered Real Estate

Appraiser;(8) Registered Real Estate

Broker;(9) Registered Survey and

Design Engineer;(10) Registered Builder.

Strengths and weaknesses

• They are one of the best groups in the world.

• Well trained, can do most sophisticated works in the world.

• Managed by government bodies

• Interface between this group and the international construction professional communities


People

Are you going to find steak in China’s

construction market?

International Players(Not an exhaustive list)

International Players

• Architects • Consultants• Institutions• Contractors• Developers

SWOT Analysis

• Strengths, Weaknesses, Opportunity, and Threats (SWOT)

Strengths Weaknesses

Opportunities O/S Maxi-Maxi O/W Maxi-Mini

Threats T/S Mini-Maxi T/W Mini-Mini

Source: Adapted from Weihrich (1982)

Suggested Reading:Weihrich, H., (1982), the TOWS matrix: a tool for situational analysis. Long Range

Planning, 15(2), 54-66.Weisheng Lu, Roger Flanagan (2007), A Creative Decision Support System for

Generating Decision Options from Situation Analysis, KIM Conference, Reading.

Good Project Management SkillsBetter Information Management FacilitiesAdvanced machinery and equipmentHigher labour productivityGood finance-raising abilityProper debt/asset ratioGood cost control skillAttraction to good human resources

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

Limited number of professionalsHigher production costsLimited channels for market informationLack of knowledge of regulationsLower businesses qualificationsLimited businesses relationships

Improved policy environment for foreign businesses

Govt promotion of construction

Establishment of credit system

Market access protected by WTO agreement

Development of industry towards international practice

The reduction of the investment on fixed assetsCertain restrictions on foreign investmentIncreasingly intense competitionThe risk of breaching contractsSuggested Reading

Shen, L., Zhao, Z and Drew, D. (2006), Strengths, Weaknesses, Opportunities, and Threats for Foreign-Invested Construction Enterprises: A China Study, Journal of Construction Engineering and Management, Vol. 132, No. 9.

S1 Low cost/good value for moneyS2 Abundant cheap manpowerS3 Hard workingS4 Plenty and cheap construction materials availableS5 Good relationship with Asian and African countriesS6 Booming home marketS7 Strong support from government

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

W1 Relatively low management capacityW2 Lack of experience for sophisticated project procurementW3 Low ability to create financial solutions for clientsW4 Relative low ability to manage sophisticated projectsW5 Limited extent of using ICTW6 Weak in professional services

O1 Booming international construction marketO2 More open global construction marketO3 Increasing ODI by Chinese companiesO4 Chinese construction industry’s reform towards international practiceO5 Increasing collaboration and partnering amongst international competitors

T1 Intense competition in the global construction marketT2 High non-tariff barriersT3 Sophistication of management and technologiesT4 Increasing trend towards providing integral serviceT5 Intense competition for talent people

Suggested ReadingLu,W., Li, H., Shen, L. and Ting Huang, T.(2007), A SWOT analysis of Chinese construction companies in the global market, ASCE Journal of Management in Engineering, forthcoming.

Thank

Any questions?

Documents

A Tour of Hong Kong’s Construction Industry Dr Weisheng Lu, [email protected]@hku.hk Dept. of Real Estate and Construction, University of Hong Kong,