RISK ASSESSMENT FOR CONSTRUCTION JOINT VENTURES IN CHINA By L. Y Shen, George w.C. Wu, and Catherine S K.N ABSTRACT: The construction industry in China is developing toward the international procurement practice. and such development has attracted many foreign firms into the Chinese construction market through the for- mation of Sino-foreign joint ventures. Joint venture has become an important sector in the Chinese construction industry. However, the difference in management systems, technological practice, and cultural background among the partners within joint ventures brings difficulties to the function of joint venture. A significant degree of risk is involved in joint venture investments. Thus, foreign firms increasingly intend to spend more effort in studying proper strategies of managing risks in their joint venture businesses. Based on a survey, this paper establishes a risk significance index to show the relative significance among the risks associated with the joint ventures in the Chinese construction procurement practice. Real cases are examined to show the risk environment faced by joint ventures. The paper also investigates practical applications of risk management in the business of joint ventures INTRODUCTION A significant needed is expected from overseas in Since the implementation of"ope door"policy in China of these overseas investment work xpected in the early 1980s, a significant number of foreign construction mented through joint ventures(Nian 1999) nvestors and contractors have entered into the Chinese con Nevertheless, the development of Sino-foreign joint ven- struction industry through the formation of joint ventures with tures in the Chinese construction market has attracted foreig local firms. While China is cautiously opening its construction partners'attention to risk management. In the environment market to overseas, the report from the Ministry of Construc- where the market mechanism for protecting joint ventures tion(MOC)shows that the number of foreign contractor still being established, joint ventures present themselves to have obtained the business certificate from the chinese many uncertainties which can bring significant risks. In a typ- ernment has rapidly increased. There was none at the ning of 1990s, by the end of 1996 there were 118, by the responsible for providing the majority of financing, and the local partner provides facilities, land, and labor. Thus, overseas struction joint ventures has grown from 1, 200 in 1994,to party is usually in a more risky position, as they cannot easily 1,600 in 1995, and over 2000 by the end of 1996(MOC 1997, take with them the assets invested if they do not wish to con- 1998). This development is in line with the reform programs tinue or want to withdraw from cooperation. While a good of the Chinese construction industry, which aim for changing deal of the literature has presented the general business the project financing arrangement from traditionally govern- ronment for joint ventures in China, there are few works fo- mental free allocation to commercial loan and changing the cusing on the construction market. In the late 1980s, Walker project procurement system from governmental assignment to and Flanagan(1987)provided one of few typical works in competitive tendering. The application of competitive pro- vestigating the Chinese construction environment for joint curement has brought rapid development of other nonstate ventures. Flanagan and Li(1997)examined business condi- tive-owned firms, private firms, and Sino-foreign joint ven- al 's works present the procedures for foreign firms to enter tures. MOCs recent statistical report shows that, in 1998, the to the Chinese construction market(Shen and Fan 1994 total number of construction firms registered in the four-grade Shen and Lee 1998). It appears that little research has been rading system was 41, 114, employing 19, 427, 428 working conducted to investigate the risks associated with Sino-foreign staff. Still many small construction teams from rural areas joint ventures in Chinese construction. Thus, it is the main were not included in the grading system. These graded organ- izations include 8, 702 state-owned firms employing 6, 411, 423 relative significance. The paper establishes a risk significance working staff, 28, 304 collective-owned firms employing index, from which the most significant risks are highlighted 1, 231, 744 workers, 4, 108 other ownership employin The data used are from a recent survey Analysis is conducted 1, 784, 261 workers(MOC 1999). Other ownership mainly con through discussing real examples. By presenting the facts of sists of Sino-foreign joint ventures, shareholding firms, and risks, the paper presents references to overseas construction private firms. Sino-foreign joint ventures will continue to gro professionals who are working or planning to enter the Chi and play tant roles in the Chinese construction. In a cent development, the government has considered housing and nfrastructure as two main sectors in the Chinese economy CONDUCT OF SURVEY The research team conducted a survey from August 1998 to ssoC. Prof, Build and Real Estate Dept, Hong Kong Polytechnic February 1999. The survey, distributed to 185 professionals . Kowloon, Hong Kong. received 54 effective replies from firms based in Hong Kong or mainland China. The correspondents were from consultants, Sr Contracts Mgr., Henderson China Ltd, 5/F, Harcourt House, 39 designers, and project managers. They had good experience loucester Rd, Hong Kong working on behalf of a foreign partner in various joint ventures month, a written request must be filed with the ASCE Ma in major cities in China including Beijing, Shan zhou, Chongqing, and Shenzhen. The majority of the Journals. The manuscript for th s submitted for ossible publication on April 13, 1998. This paper is part of the Journal dents were working in leading construction and real of Construction Engineering and Management, Vol. 127, No. 1, J firms such as Henderson( China) Investment Co., St ire prop- J-y/February, 2001. OASCE, ISSN 0733-9634/01/0001-0076-0081 erties, New World Development( China)Ltd, Hongkong Land 00+ $.50 per page. Paper No. 18094 Ltd, China State Construction Engineering Co(Hong Kong) 76/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT JANUARY/FEBRUARY 2001
76 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 RISK ASSESSMENT FOR CONSTRUCTION JOINT VENTURES IN CHINA By L. Y. Shen,1 George W. C. Wu,2 and Catherine S. K. Ng3 ABSTRACT: The construction industry in China is developing toward the international procurement practice, and such development has attracted many foreign firms into the Chinese construction market through the formation of Sino-foreign joint ventures. Joint venture has become an important sector in the Chinese construction industry. However, the difference in management systems, technological practice, and cultural background among the partners within joint ventures brings difficulties to the function of joint venture. A significant degree of risk is involved in joint venture investments. Thus, foreign firms increasingly intend to spend more effort in studying proper strategies of managing risks in their joint venture businesses. Based on a survey, this paper establishes a risk significance index to show the relative significance among the risks associated with the joint ventures in the Chinese construction procurement practice. Real cases are examined to show the risk environment faced by joint ventures. The paper also investigates practical applications of risk management in the business of joint ventures. INTRODUCTION Since the implementation of ‘‘open door’’ policy in China in the early 1980s, a significant number of foreign construction investors and contractors have entered into the Chinese construction industry through the formation of joint ventures with local firms. While China is cautiously opening its construction market to overseas, the report from the Ministry of Construction (MOC) shows that the number of foreign contractors who have obtained the business certificate from the Chinese government has rapidly increased. There was none at the beginning of 1990s; by the end of 1996 there were 118, by the middle of 1997 and there were 139. The Sino-foreign construction joint ventures has grown from 1,200 in 1994, to 1,600 in 1995, and over 2000 by the end of 1996 (MOC 1997, 1998). This development is in line with the reform programs of the Chinese construction industry, which aim for changing the project financing arrangement from traditionally governmental free allocation to commercial loan and changing the project procurement system from governmental assignment to competitive tendering. The application of competitive procurement has brought rapid development of other nonstate owned construction sectors in the industry, including collective-owned firms, private firms, and Sino-foreign joint ventures. MOCs recent statistical report shows that, in 1998, the total number of construction firms registered in the four-grade grading system was 41,114, employing 19,427,428 working staff. Still many small construction teams from rural areas were not included in the grading system. These graded organizations include 8,702 state-owned firms employing 6,411,423 working staff, 28,304 collective-owned firms employing 11,231,744 workers, 4,108 other ownership employing 1,784,261 workers (MOC 1999). Other ownership mainly consists of Sino-foreign joint ventures, shareholding firms, and private firms. Sino-foreign joint ventures will continue to grow and play important roles in the Chinese construction. In a recent development, the government has considered housing and infrastructure as two main sectors in the Chinese economy in 1 Assoc. Prof., Build. and Real Estate Dept., Hong Kong Polytechnic Univ., Kowloon, Hong Kong. 2 Executive Dir., Henderson China Ltd., 5/F., Harcourt House, 39 Gloucester Rd., Hong Kong. 3 Sr. Contracts Mgr., Henderson China Ltd., 5/F., Harcourt House, 39 Gloucester Rd., Hong Kong. Note. Discussion open until July 1, 2001. To extend the closing date one month, a written request must be filed with the ASCE Manager of Journals. The manuscript for this paper was submitted for review and possible publication on April 13, 1998. This paper is part of the Journal of Construction Engineering and Management, Vol. 127, No. 1, January/February, 2001. qASCE, ISSN 0733-9634/01/0001-0076–0081/ $8.00 1 $.50 per page. Paper No. 18094. the coming years. A significant proportion of the capital needed is expected from overseas investment, and the majority of these overseas investment works are expected to be implemented through joint ventures (Nian 1999). Nevertheless, the development of Sino-foreign joint ventures in the Chinese construction market has attracted foreign partners’ attention to risk management. In the environment where the market mechanism for protecting joint ventures is still being established, joint ventures present themselves to many uncertainties which can bring significant risks. In a typical Sino-foreign joint venture, the overseas party is usually responsible for providing the majority of financing, and the local partner provides facilities, land, and labor. Thus, overseas party is usually in a more risky position, as they cannot easily take with them the assets invested if they do not wish to continue or want to withdraw from cooperation. While a good deal of the literature has presented the general business environment for joint ventures in China, there are few works focusing on the construction market. In the late 1980s, Walker and Flanagan (1987) provided one of few typical works investigating the Chinese construction environment for joint ventures. Flanagan and Li (1997) examined business conditions for overseas construction professionals in China. Shen et al.’s works present the procedures for foreign firms to enter into the Chinese construction market (Shen and Fan 1994; Shen and Lee 1998). It appears that little research has been conducted to investigate the risks associated with Sino-foreign joint ventures in Chinese construction. Thus, it is the main purpose of this paper to identify these risks and examine their relative significance. The paper establishes a risk significance index, from which the most significant risks are highlighted. The data used are from a recent survey. Analysis is conducted through discussing real examples. By presenting the facts of risks, the paper presents references to overseas construction professionals who are working or planning to enter the Chinese construction market. CONDUCT OF SURVEY The research team conducted a survey from August 1998 to February 1999. The survey, distributed to 185 professionals, received 54 effective replies from firms based in Hong Kong or mainland China. The correspondents were from consultants, designers, and project managers. They had good experience working on behalf of a foreign partner in various joint ventures in major cities in China including Beijing, Shanghai, Guangzhou, Chongqing, and Shenzhen. The majority of the respondents were working in leading construction and real estate firms such as Henderson (China) Investment Co., Swire Properties, New World Development (China) Ltd., Hongkong Land Ltd., China State Construction Engineering Co. (Hong Kong)
Sun Hung Kai Properties Ltd, etc. Five in-depth interviews TABLE 1. Risks Associated with Sino-Foreign Construction were conducted in December 1998 and February 1999 that Joint Ventures supported the survey analysis. Rick classification a It is widely accepted that construction activity is particularly (alphabetical order) bject to more risks than other business activities because of its complexity, and a wide range of risks associated with con- struction businesses have been previously identified. A typical (1)Financial risk Bankr classification of risks includes technical risks, management Difficult convertibility of RMB risks, market risks, legal risks, financial risks, and political Loss due to fluctuation of inflation rate risks(Shen 1997). He(1995) presented some examples of Loss due to fluctuation of interest rate risks involved in foreign investment in China. Based on pre Loss due to fuctuation of rmb exchange rate vious works. a list of 58 risk factors. as shown in Table 1 ow credibility of shareholders and lenders were constructed and presented to respondents. The main pur (2)Legal Breach of contracts by other participants 0.222 pose of the survey is not to develop a new list of risks but to Breach of contracts by project partner 0.2336 Mo alyze the relative significance among the risks identified and 0.3345 Loss due to insufficient law for joint ventures 0.3505 The respondents were requested to judge the significance or ncertainty and unfairness of court justic 0.4319 expected loss"of each risk. There are many criteria that re 0.1641 spondents may need to consider. One alternative approach Change of organization within local partner mproper project feasibility study adopted by previous researchers is to consider two attributes 459 for each risk: the probability level of the risk occurrence, de mproper selection of project location noted by a; and the degree of impact or the level of loss if Improper selection of project type 0.5523 the risk occurs, denoted by B(He 1995; Li 1997). Therefore Inadequate choice of project partner risk significance, denoted as RS. can be described as the func- Inadequate project organization structure tion of the two attributes ncompetence of project management team Incomplete contract terms with partner oject management overhead 0.334 RS=f(α,阝) Poor relation and disputes with partner By applying this approach, the respondents were asked to re- Poor relation with govemment departments 0.3935 Problems associated with culture difference 0.1791 pond to the two attributes for each risk. For considering ox Project delay 0.6364 the respondents were required to judge the probability level of (4)Market risk occurrence by selecting one from among three levels, namely, low possibility, normal possibility, and high possibil- Fall short of expected income from project ity. For considering B, the respondents were required to judge Increase of accessory facilities price the degree of impact if the risk concerned occurs, by selecting f labor costs one from among three grades, namely, small impact, neutral Increase of materials pric rease of resettlement costs 0.5500 mpact, and large impact. Local protectionism ANALYSIS OF SURVEY RESULTS 0.1708 (5)Policy and political risk To assess the relative significance among risks, this study Cost increase due to changes of 0.6409 suggests to establish a risk significance index by calculating a Loss incurred due to corruption and briber 0.4595 0.2509 core for each risk. An alternative for calculating Loss incurred due to political changes Loss due to bureaucracy for late approvals 0.5141 he significance score is to multiply the probability of occur-(6)Technical risk rence by the degree of impact. Thus, the significance score for Accidents on site each risk assessed by each respondent can be obtained through the model Errors in design 0.2518 Hazards of en where S,=significance score assessed by respondent for risk 0.2714 i;af= probability of occurrence of risk i, assessed by respon- dent j; and B,=degree of impact of risk i, assessed by re Materials short 0.0518 Obsoleteness of building equipment 0.1305 y averaging scores from all 54 responses, it is possible to get an average sl cance e for each risk. and this av Poor quality of procured materials erage score is called the risk index score and is used to rank among all risks. The model he calculation of risk index Shortage in accessory facilities score can be written hortage in skillful workers 0.1527 Shortage in supply of water, gas, and electricity Unknown site physical conditions 0.2345 Unusual weather and force majeure 0.1145 where RS= index score for risk i; and S= significance score "neutral"take a value of 0.5, and that"high"and"large assessed by respondent j for risk i take a value of 1. By adopting these numerical scales, when To calculate S/, the three-point scales for a and p(low- the 54 responses are applied to model 2 and 3, the index scores normal-high and small-neutral-large)need to be converted int for all risks are calculated. as shown in Table 1. Based on the numerical scales. As an alternative method, it is suggested that index scores, risk ranking is established, as shown in Fig. 1 low"and"small"take a value of 0. 1, that"normal"and The risk ranking provides a useful reference to help joint ven JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT JANUARY/FEBRUARY 2001/77
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 / 77 TABLE 1. Risks Associated with Sino-Foreign Construction Joint Ventures Rick classification (alphabetical order) (1) Index score (2) (1) Financial risk Bankruptcy of project partner 0.2595 Difficult convertibility of RMB 0.3091 Loss due to fluctuation of inflation rate 0.3236 Loss due to fluctuation of interest rate 0.3650 Loss due to fluctuation of RMB exchange rate 0.2500 Low credibility of shareholders and lenders 0.4555 (2) Legal risk Breach of contracts by other participants 0.2223 Breach of contracts by project partner 0.2336 Lack of enforcement of legal judgment 0.3345 Loss due to insufficient law for joint ventures 0.3505 Uncertainty and unfairness of court justice 0.4319 (3) Management risk Change of organization within local partner 0.1641 Improper project feasibility study 0.6386 Improper project planning and budgeting 0.4591 Improper selection of project location 0.5796 Improper selection of project type 0.5523 Inadequate choice of project partner 0.5229 Inadequate project organization structure 0.3163 Incompetence of project management team 0.4023 Incomplete contract terms with partner 0.4933 Increase in project management overheads 0.3341 Poor relation and disputes with partner 0.1932 Poor relation with government departments 0.3935 Problems associated with culture difference 0.1791 Project delay 0.6364 (4) Market risk Competition from other similar projects 0.4614 Fall short of expected income from project use 0.2827 Increase of accessory facilities price 0.1500 Increase of labor costs 0.0391 Increase of materials price 0.1786 Increase of resettlement costs 0.5500 Inadequate forecast about market demand 0.5819 Local protectionism 0.4941 Unfairness in tendering 0.1708 (5) Policy and political risk Cost increase due to changes of policies 0.6409 Loss incurred due to corruption and bribery 0.4595 Loss incurred due to political changes 0.2509 Loss due to bureaucracy for late approvals 0.5141 (6) Technical risk Accidents on site 0.1214 Design changes 0.4978 Equipment failure 0.1141 Errors in design drawings 0.2518 Hazards of environmental regulations 0.1563 Incompetence of transportation facilities 0.0377 Increase in site overheads 0.2714 Industrial disputes 0.0722 Local firm’s incompetence and low credibility 0.4664 Materials shortage 0.0518 Obsoleteness of building equipment 0.1305 Poor quality of procured accessory facilities 0.2234 Poor quality of procured materials 0.2459 Problems due to partners’ different practice 0.3205 Shortage in accessory facilities 0.1450 Shortage in skillful workers 0.1527 Shortage in supply of water, gas, and electricity 0.2450 Subcontractor’s low credibility 0.3909 Unknown site physical conditions 0.2345 Unusual weather and force majeure 0.1145 Sun Hung Kai Properties Ltd., etc. Five in-depth interviews were conducted in December 1998 and February 1999 that supported the survey analysis. It is widely accepted that construction activity is particularly subject to more risks than other business activities because of its complexity, and a wide range of risks associated with construction businesses have been previously identified. A typical classification of risks includes technical risks, management risks, market risks, legal risks, financial risks, and political risks (Shen 1997). He (1995) presented some examples of risks involved in foreign investment in China. Based on previous works, a list of 58 risk factors, as shown in Table 1, were constructed and presented to respondents. The main purpose of the survey is not to develop a new list of risks but to analyze the relative significance among the risks identified and to highlight the major risks. The respondents were requested to judge the significance or ‘‘expected loss’’ of each risk. There are many criteria that respondents may need to consider. One alternative approach adopted by previous researchers is to consider two attributes for each risk: the probability level of the risk occurrence, denoted by a; and the degree of impact or the level of loss if the risk occurs, denoted by b (He 1995; Li 1997). Therefore, risk significance, denoted as RS, can be described as the function of the two attributes RS = f(a, b) (1) By applying this approach, the respondents were asked to respond to the two attributes for each risk. For considering a, the respondents were required to judge the probability level of risk occurrence by selecting one from among three levels, namely, low possibility, normal possibility, and high possibility. For considering b, the respondents were required to judge the degree of impact if the risk concerned occurs, by selecting one from among three grades, namely, small impact, neutral impact, and large impact. ANALYSIS OF SURVEY RESULTS To assess the relative significance among risks, this study suggests to establish a risk significance index by calculating a significance score for each risk. An alternative for calculating the significance score is to multiply the probability of occurrence by the degree of impact. Thus, the significance score for each risk assessed by each respondent can be obtained through the model i ii Sj jj = a b (2) where = significance score assessed by respondent j for risk i Sj i; = probability of occurrence of risk i, assessed by respon- i aj dent j; and = degree of impact of risk i, assessed by re- i bj spondent j. By averaging scores from all 54 responses, it is possible to get an average significance score for each risk, and this average score is called the risk index score and is used to rank among all risks. The model for the calculation of risk index score can be written 54 i O Sj i j=1 RS = (3) 54 where RSi = index score for risk i; and = significance score i Sj assessed by respondent j for risk i. To calculate , the three-point scales for a and b (low- i Sj normal-high and small-neutral-large) need to be converted into numerical scales. As an alternative method, it is suggested that ‘‘low’’ and ‘‘small’’ take a value of 0.1, that ‘‘normal’’ and ‘‘neutral’’ take a value of 0.5, and that ‘‘high’’ and ‘‘large’’ take a value of 1. By adopting these numerical scales, when the 54 responses are applied to model 2 and 3, the index scores for all risks are calculated, as shown in Table 1. Based on the index scores, risk ranking is established, as shown in Fig. 1. The risk ranking provides a useful reference to help joint ven-
Top Ten Risks Fourth ten risks Ist. Cost increase due to changes of policie 31st. Increase in site overheads 2nd. Improper project feasibility study 32nd. Bankruptcy of project partn 33rd. Errors in design drawings 4th. Inadequate forecast about market demand 34th. Loss incurred due to political changes 5th. Improper selection of project location 35th. Loss due to fluctuation of RMB exchange rate 6th. Poor quality of procured materials Increase of resettlement cost ply of water, gas electricity 10th. Design changes 40th. Poor quality of procured accessory facilities Second Ten risk Other Risks 2th. Incomplete contract terms with pa 41st. Breach of contracts by other participants 42nd, Poor relation and disputes with partner 13th. Local firm's incompetence low credibility 43rd. Problems associated with culture difference 14th. Competition from other similar projects 44th. Increase of materials price 15th. Loss incurred due to corruption and bribery 45th. Unfairness in tendering 16th. Improper project planning and budgeting hange of organization within local partner 48th. Shortage in skillful workers 9th. Incompetence of project management team 49th, Increase of accessory facilities price 20th. Poor relation with governmen 50th. Shortage in accessory facilities 51st. Obsoleteness of building equipment Third Ten Risks 2nd. Accidents on site 21st. Subcontractor's low credibility 2nd. Loss due to fluctuation of interest rate 53rd. Unusual weather& force majeure 23rd. Loss due to insufficient law for joint ventur ustrial disputes 24th. Lack of enforcement of legal judgement 6th, Materials shortage 57th. Increase of labor costs 26th. Loss due to fluctuation of inflation rate 58th, Incompetence of transportation facilities 27th. Problems due to partners'different practice 28th. Inadequate project organization structure :9th. Difticult convertibility of RMB 30th. Fall short of expected income from project us FIG. 1. Risk Ranking for Sino-Foreign Construction Joint Ventures in China tures be aware of these major risks and plan proper ways of joint venture for damages. The contractor denied the liability controlling them and refused to attend any meeting for negotiation and settle ment. Finally, the case was settled through mediation, and the RISK ANALYSIS joint venture had to reimburse the factory for all of the dam ages her adversities involved in this case include the dif- While it is not practical to discuss the full implications of ficulty to control the contractor's performance particularly on all the risks identified in the survey, this section intends to the cost aspect during construction. The negotiation on rates demonstrate the pattern of the risk environment by presenting for new items was almost always in favor of the contractor some practical examples discussed in the five in-depth inter- and the joint venture had to pay higher rates for many items views following the survey. Not all the risks addressed in this In the end, the project was delayed, and substantial extra costs section respond to the most important risks"ranked in the occurred. The experience learned from this case demonstrates risk significance index as interviewees have different experi- one of many possibilities of making loss due to inadequate ences, and their perception or judgment may not be fully in choice of partner. Usually, overseas businesses tend to find armony with the calculated average index scores their partners from large state-owned companies. However, many large state-owned companies may have huge registered Management Risk often have a complicated and bureaucratic system, and the The survey shows that there are five management-type risks top managers are usually appointed by the government. There- among the 10 top risks. When the in-depth interview was ce fore, such a joint venture's cooperation needs to be incorpo- ducted, it seemed that"inadequate choice of project partner rated with the interests of the local partner's superio is a typical risk to joint ventures. a wrongly selected partner can lead to substantial losses. In a commercial building project Policy Risk developed by a Sino-foreign joint venture in Shanghai, the foreign partner suggested selecting the main contractor In the process of reforming the economy system, govern- through selective tendering, but the local partner insisted on mental policies are subject to reviews or change es or updated employing one of its subsidiary construction firms Following as reform progresses. Therefore, many provisional policies and a number of discussions within the joint venture, the local regulations are issued by both the central and local govern- partner's construction firm was eventually employed. How- ments. However, the variations in policies and regulations can ever, due to the contractors inadequate building methods, dif- have significant impact on joint venture businesses. In the sur ferential settlement occurred at the foundation of the adjacent vey of this study, "cost increase due to policy changes"was factory building, and its production line was damaged during ranked as the top important risk. A joint venture project located the basement excavation of the project. The factory sued the old city in Guangdong province was to redevelop a res- 78/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT/ JANUARY/FEBRUARY 2001
78 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 FIG. 1. Risk Ranking for Sino-Foreign Construction Joint Ventures in China tures be aware of these major risks and plan proper ways of controlling them. RISK ANALYSIS While it is not practical to discuss the full implications of all the risks identified in the survey, this section intends to demonstrate the pattern of the risk environment by presenting some practical examples discussed in the five in-depth interviews following the survey. Not all the risks addressed in this section respond to the ‘‘most important risks’’ ranked in the risk significance index as interviewees have different experiences, and their perception or judgment may not be fully in harmony with the calculated average index scores. Management Risk The survey shows that there are five management-type risks among the 10 top risks. When the in-depth interview was conducted, it seemed that ‘‘inadequate choice of project partner’’ is a typical risk to joint ventures. A wrongly selected partner can lead to substantial losses. In a commercial building project developed by a Sino-foreign joint venture in Shanghai, the foreign partner suggested selecting the main contractor through selective tendering, but the local partner insisted on employing one of its subsidiary construction firms. Following a number of discussions within the joint venture, the local partner’s construction firm was eventually employed. However, due to the contractor’s inadequate building methods, differential settlement occurred at the foundation of the adjacent factory building, and its production line was damaged during the basement excavation of the project. The factory sued the joint venture for damages. The contractor denied the liability and refused to attend any meeting for negotiation and settlement. Finally, the case was settled through mediation, and the joint venture had to reimburse the factory for all of the damages. Other adversities involved in this case include the dif- ficulty to control the contractor’s performance particularly on the cost aspect during construction. The negotiation on rates for new items was almost always in favor of the contractor, and the joint venture had to pay higher rates for many items. In the end, the project was delayed, and substantial extra costs occurred. The experience learned from this case demonstrates one of many possibilities of making loss due to inadequate choice of partner. Usually, overseas businesses tend to find their partners from large state-owned companies. However, many large state-owned companies may have huge registered capital and assets, but little real cash flow. Furthermore, they often have a complicated and bureaucratic system, and their top managers are usually appointed by the government. Therefore, such a joint venture’s cooperation needs to be incorporated with the interests of the local partner’s superior. Policy Risk In the process of reforming the economy system, governmental policies are subject to reviews or changes or updated as reform progresses. Therefore, many provisional policies and regulations are issued by both the central and local governments. However, the variations in policies and regulations can have significant impact on joint venture businesses. In the survey of this study, ‘‘cost increase due to policy changes’’ was ranked as the top important risk. A joint venture project located in an old city in Guangdong province was to redevelop a res-
families used to live in the area. The joint venture started the typical technical risk associated with joint vent c.However,a idential area into a high-class residential area. More than 1, 600 shortage of resources, injuries and accidents re in China is project by signing the contract in July 1993. One of the critical considered due to the partners'different practices, although it contractual terms concerned the resettlement of the residents. does not appear among the most significant risks in the survey According to the existing policy, those residents affected by index. In a commercial building project developed by a joint the redevelopment for commercial and high-class residential venture in Beijing, significant extra costs were incurred due to buildings should be permanently resettled to an external lo- the difference in working procedures for constructing wal cation. The resettlement work started accordingly later that The incident concerned the procedures for laying conduits for resettled, the local government was requested by upper level by a nominated E&M subcontractor. The main contract government to revise the resettlement policy. According to the cluded the term"attendance for nominated subcontractors works, "which stipulated the main contractor's responsibility the redevelopment for residential buildings, those residents for attending to the works carried out by the nominated sub- who were affected should be resettled into their original living contractor. However, during normal inspection, the joint ven- district. The new policy was in effect and applicable to all ture's work supervisor received a complaint from the E&M suddeets irrespective of the date of contract signing. Due to the contractor that the local masonry workers hired by the main sudden change of the policy, the joint venture had to chang contractor were damaging the vertical conduits laid earlier by the redevelopment plan, and the salable area from the devel he e&M contractor. The supervisor went to the site and four pment was dramatically reduced. As a result, it was reported that all vertical conduits were bent outward from structural that the profit of this joint venture project dropped by over brick walls instead of being concealed in the walls as specified When questioned, the workers setting the walls revealed that Variation in tax composition is also a typical policy risk. the local practice of finishing the works was in the sequence For the development of a construction project, there are many of erecting structural brick walls, making chases for conduits, tax/fee items applied against urban infrastructure facilities, laying conduits by the E&M contractor, and applying finishing public facilities, roads, water, gas, treatment for waste water, to conceal the conduits. When the masonry workers started to olice station, school, kindergarten, and public toilets. Ac work, they found that vertical conduits were installed and ob- cording to the central government policy, there are 48 tax/fee structed their operation. They therefore bent the conduits items to be charged by 14 governmental departments on con- (some conduits were even pulled out and set aside) in order struction project as follows: construction charging, 19; land to make way for setting the brick wall. When the supervisor management, 10; electricity, 5; public security, 3; industrial discussed the case with the main contractor the main contrac and commercial administration, 1; culture, 2; environmental tor blamed the E&M contractor and asked for compensation protection, 1; labor resource, 1; auditing, 1; statistics, 1; civil for abortive works. Because the different practice was not ex administration, 1; education, 1; sports/physical culture, 1 and pected in the contract, the joint venture had to compensate the ost and telecommunications, 1(SPC, 1997). However, this main contractor. This case demonstrates that different tech- regulation has been violated in local applications. The number nological practices can bring considerable losses if coordina- of tax/fee items varies widely in different regions. There were tion is lacking among the parties within joint ventures. In fact, 107 tax items for the development of a construction project in it is said that a significant part of contractual disputes within Wuhan and 102 items in Beijing(Hung 1997). Most of these Sino-foreign joint ventures are due to poor communication and extra items are charged against administration expenditures in misunderstanding between parties and that the difference in local governments. Joint ventures may have to bear substantial technical practice is the major cause for the problem(Song extra costs due to the variation in tax/fee items Technical risk Market Risk Any construction work will be subject to some technical The "inadequate forecast of market demand"was ranked sks, such as changes and errors in design, equipment failure, as one of the major risks in the survey. One typical example STATE MINISTRY OF inder Other ministries CONSTRUCTION Enginecring Corporation Autonomous Regions Construction Committee ersea City, Town or Cou Bureaus Construction Committee S C.Es S.C.E S,CE S.C.E S C Es CCEs RCTs FIG. 2. Hierarchy of State-Owned Construction Enterprises JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT JANUARY/FEBRUARY 2001/79
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 / 79 FIG. 2. Hierarchy of State-Owned Construction Enterprises idential area into a high-class residential area. More than 1,600 families used to live in the area. The joint venture started the project by signing the contract in July 1993. One of the critical contractual terms concerned the resettlement of the residents. According to the existing policy, those residents affected by the redevelopment for commercial and high-class residential buildings should be permanently resettled to an external location. The resettlement work started accordingly later that year. However, after less than half of the families had been resettled, the local government was requested by upper level government to revise the resettlement policy. According to the new policy, if the demolition of old buildings was caused by the redevelopment for residential buildings, those residents who were affected should be resettled into their original living district. The new policy was in effect and applicable to all projects irrespective of the date of contract signing. Due to the sudden change of the policy, the joint venture had to change the redevelopment plan, and the salable area from the development was dramatically reduced. As a result, it was reported that the profit of this joint venture project dropped by over 50%. Variation in tax composition is also a typical policy risk. For the development of a construction project, there are many tax/fee items applied against urban infrastructure facilities, public facilities, roads, water, gas, treatment for waste water, police station, school, kindergarten, and public toilets. According to the central government policy, there are 48 tax/fee items to be charged by 14 governmental departments on construction project as follows: construction charging, 19; land management, 10; electricity, 5; public security, 3; industrial and commercial administration, 1; culture, 2; environmental protection, 1; labor resource, 1; auditing, 1; statistics, 1; civil administration, 1; education, 1; sports/physical culture, 1; and post and telecommunications, 1 (SPC, 1997). However, this regulation has been violated in local applications. The number of tax/fee items varies widely in different regions. There were 107 tax items for the development of a construction project in Wuhan and 102 items in Beijing (Hung 1997). Most of these extra items are charged against administration expenditures in local governments. Joint ventures may have to bear substantial extra costs due to the variation in tax/fee items. Technical Risk Any construction work will be subject to some technical risks, such as changes and errors in design, equipment failure, shortage of resources, injuries and accidents, etc. However, a typical technical risk associated with joint venture in China is considered due to the partners’ different practices, although it does not appear among the most significant risks in the survey index. In a commercial building project developed by a joint venture in Beijing, significant extra costs were incurred due to the difference in working procedures for constructing walls. The incident concerned the procedures for laying conduits for electrical and mechanical installations, which was undertaken by a nominated E&M subcontractor. The main contract included the term ‘‘attendance for nominated subcontractor’s works,’’ which stipulated the main contractor’s responsibility for attending to the works carried out by the nominated subcontractor. However, during normal inspection, the joint venture’s work supervisor received a complaint from the E&M contractor that the local masonry workers hired by the main contractor were damaging the vertical conduits laid earlier by the E&M contractor. The supervisor went to the site and found that all vertical conduits were bent outward from structural brick walls instead of being concealed in the walls as specified. When questioned, the workers setting the walls revealed that the local practice of finishing the works was in the sequence of erecting structural brick walls, making chases for conduits, laying conduits by the E&M contractor, and applying finishing to conceal the conduits. When the masonry workers started to work, they found that vertical conduits were installed and obstructed their operation. They therefore bent the conduits (some conduits were even pulled out and set aside) in order to make way for setting the brick wall. When the supervisor discussed the case with the main contractor, the main contractor blamed the E&M contractor and asked for compensation for abortive works. Because the different practice was not expected in the contract, the joint venture had to compensate the main contractor. This case demonstrates that different technological practices can bring considerable losses if coordination is lacking among the parties within joint ventures. In fact, it is said that a significant part of contractual disputes within Sino-foreign joint ventures are due to poor communication and misunderstanding between parties and that the difference in technical practice is the major cause for the problem (Song 1999). Market Risk The ‘‘inadequate forecast of market demand’’ was ranked as one of the major risks in the survey. One typical example
he development of golf courses in China where some joint several practical examples in managing risks in the Chinese ures have invested a lot of money but with little inc ome It seems that such demand is very limited in the current Chi- nese market. In the forecast of market demand, more consid- Cooperation with Government Offices ration should be given to the number of players availabl rather than the number of golf courses allowed to be built. To operate a Sino-foreign joint venture in the Chinese con Local protectionism"is also presented as a major market struction industry, it is important to cooperate and maintain risk. A competitive tendering approach has not yet been fully good relationships with local government. A large contractor established in the Chinese construction. In fact, a significant from he Kong formed a cooperative joint venture with number of domestic construction organizations is state-owned, local state-owned company for developing a multifunction building in Shanghai. Upon the completion of two-thirds of that supervise and at the same time protect these organizations. the project, the government proposed to extend a ramp for an Fig. 2 shows the hierarchy of state-owned construction organ- would result in blocking the entire shop-front of the building izations. As many state-owned firms have little competitive- facing the ramp extension. However, because the joint venture ness in the market largely due to the management bureaucracy and the overstaffing burden developed over the last several established a good relation with the local government, the ne decades under the planned economy, the government has to gotiation led to a relocation of the ramp. Consequently, not help them to survive by assigning them certain jobs and lim only would the shop-front of the building not be blocked, but the value of the building also would be enhanced because the normally issue various regulations limiting the opportunities new ramp improved the traffic flow of the location for external organizations such as joint ventures to tender for Proper Risk Allocation in Contract local projects. Joint ventures are still restricted to certain kinds of projects such as the foreign-invested projects and the World Proper contractual arrangements determine who is more ca Bank projects. While this system is currently under reform, it pable of controlling various specific risks. Generally,the local will take a significant period of time before a full competition partner in a joint venture has all the knowledge about the local system is in place. The partial competition practice causes the environment including resources, technology, policies, and le poor transparency in the tendering process, and a joint venture gal practice. It has proven effective to allocate risks at the can easily lose in such competiti operational level to the local partner. A joint venture was a power plant with a capacity of 2 x 150 Mw lo PRACTICAL RISK MANAGEMENT STRATEGIES Southwest China. The project included the main coop contract power purchase agreement (PPA). emented by The principles of risk management have been well devel- three other contracts ctively with the e ped. Typical risk management strategies include risk transfer, Procurement, and Construction(EPC)contractor; the operation risk retention, and reduction. While these principles are appl d maintenance(O&M)contractor; and the fuel supplier. The cable in general, the following discussions intend to provide organization structure of the joint venture is shown in Fig.3 Foreign company Investor 100%6 Investment vehicle > Jo Insurance policy Insurance ventu company EPC Contractor rlO&M Contractor Fuel Supplier FIG. 3. Structure of Contractual Relationships in Joint Venture 80/JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001
80 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 FIG. 3. Structure of Contractual Relationships in Joint Venture is the development of golf courses in China where some joint ventures have invested a lot of money but with little income. It seems that such demand is very limited in the current Chinese market. In the forecast of market demand, more consideration should be given to the number of players available rather than the number of golf courses allowed to be built. ‘‘Local protectionism’’ is also presented as a major market risk. A competitive tendering approach has not yet been fully established in the Chinese construction. In fact, a significant number of domestic construction organizations is state-owned, belonging to either central or local governmental departments that supervise and at the same time protect these organizations. Fig. 2 shows the hierarchy of state-owned construction organizations. As many state-owned firms have little competitiveness in the market largely due to the management bureaucracy and the overstaffing burden developed over the last several decades under the planned economy, the government has to help them to survive by assigning them certain jobs and limiting the entry of external competitors. Provincial localities normally issue various regulations limiting the opportunities for external organizations such as joint ventures to tender for local projects. Joint ventures are still restricted to certain kinds of projects such as the foreign-invested projects and the World Bank projects. While this system is currently under reform, it will take a significant period of time before a full competition system is in place. The partial competition practice causes the poor transparency in the tendering process, and a joint venture can easily lose in such competition. PRACTICAL RISK MANAGEMENT STRATEGIES The principles of risk management have been well developed. Typical risk management strategies include risk transfer, risk retention, and reduction. While these principles are applicable in general, the following discussions intend to provide several practical examples in managing risks in the Chinese environment. Cooperation with Government Offices To operate a Sino-foreign joint venture in the Chinese construction industry, it is important to cooperate and maintain good relationships with local government. A large contractor from Hong Kong formed a cooperative joint venture with a local state-owned company for developing a multifunction building in Shanghai. Upon the completion of two-thirds of the project, the government proposed to extend a ramp for an existing bridge that was adjacent to the project. This proposal would result in blocking the entire shop-front of the building facing the ramp extension. However, because the joint venture established a good relation with the local government, the negotiation led to a relocation of the ramp. Consequently, not only would the shop-front of the building not be blocked, but the value of the building also would be enhanced because the new ramp improved the traffic flow of the location. Proper Risk Allocation in Contract Proper contractual arrangements determine who is more capable of controlling various specific risks. Generally, the local partner in a joint venture has all the knowledge about the local environment including resources, technology, policies, and legal practice. It has proven effective to allocate risks at the operational level to the local partner. A joint venture project was a power plant with a capacity of 2 3 150 MW located in Southwest China. The project included the main cooperative contract power purchase agreement (PPA), supplemented by three other contracts signed respectively with the Equipment, Procurement, and Construction (EPC) contractor; the operation and maintenance (O&M) contractor; and the fuel supplier. The organization structure of the joint venture is shown in Fig. 3
The US$290,000,000 project offered to a Sino-foreign The proper understanding of this risk profile is essential in joint venture with 20 years of cooperation period. The foreign order for joint venture to take proper risk management strat party controlled over 50% of the shares. The major terms in egies. The investigation of several practical risk management the cooperation contract included"investment amount: 35% strategies demonstrates effective examples of adopting risk equity, 65% shareholder's loan","equity internal rate of re- management principles properly. They provide useful refer- turn not less than 15%, interest rate for loan not less than ences to other joint ventures or those overseas firms who are 10%,"preemptive amortization for the investment by foreig lanning to operate their businesses in China. The analysis and party":10 years payback period", "local partner being re- findings in this paper also present valuable data for the Chi sponsible for the extra costs due to the construction risks in- nese government and local partners to have an in-depth un cluding delayed time, poor quality"; and"local partner assum- derstanding of the risk environment to the operation of Sino- ing all operation and maintenance risks to ensure that the foreign joint ventures. Such understanding is very important operation hours of 5,000 per year minimu for implementing further effective measures to ensure the right The joint venture also bought insurance against the risk of direction of future development and create a more attractive breaching the contract by either party. Through such contrac- market to overseas construction professionals tual arrangement, the local partner, who was in severe shortage of capital, secured the capital needed, and the overseas party APPENDIX. REFERENCES ecured its interests as wel Flanagan, R, and Li, s.R.(1997). International cons Controlling Technical Risk ctive of China. Chartered Institute of Buildin de UK He, Z.(1995)."Risk management for overseas construction projects. Most Sino-foreign cooperative joint ventures are project- based ventures. Project management procurement system has proven to be an effective approach for controlling technical Proc., Int. Symp China, Hong Kong Baptist University, Hong Kong, 1-6 risks in such joint ventures. A real estate project located in the Li,J. (1997). Quantitatively risk analysis in preparing tendering. "Proc central commercial district in Beijing was developed by a Symp. of Constr. Procurement Pract. in China and Hong Kong, L.Y. Sino-foreign cooperative joint venture. The project involved Shen and C, L Xu, eds, Tianjin University Press, Tianjin, China, 42 the development of a 20-story residential building, three com- mercial office towers over a three-story podium on top of a abook, China Construction Industry Publications, Beling, 230-1/ Ministry of Construction (MOC).(1997). 1996 China building industry three-level basement, and an eight-story hotel. The project had site area of 30,070 m, and the total gross completion floor yearbook, China Construction Industry Publications, Beijing, 157-158 area was 280, 000 m. The foreign party assumed the duty of overall project management and spent major efforts on cost Ministry of Construction(MOC).(1999)998 China building industry control. The main construe ntract was offered to a state- owned firm recommended by the local partner who, by agree Nian, F. L (1999). "The future development of the Chinese construction ment, was responsible for the quality of construction and tech Project procurement and contract administration, L.Y. hen, C L Xu, and H. w. Chan, eds, Tianjin University Press, Tianjin, nical program. Nominated subcontracts were made through China, 2-7 selective tendering mostly to local construction firms On the Shen, L. Y(1997). Project risk management in Hong Kong. Int J. foreign party's recommendation, the cost control consultant was from Hong Kong. The foreign party in such an arrange hen, L.Y., and Fan, XJ(1994)."Construction market for overseas ment assumed the role of project manager, and the local part- contractors in China(Shanghai). Proc., 21st Anmu. Meetings of CIB ner assumed the role of construction manager responsible for Working Commission W-55 Build. Economics, Hong Kong Polytechnic all technical risks. The entire project was successfully com Lee, K.H(1998)." Overview of Chinese government to attract BOT investment. J. Hong Kong Surveyor, Hon g,9(1),48-5 CONCLUSIONS Song, w.G.(1999). The impacts of competitive practice on the devel opment of the Chinese construction industry. Project procurement and With assistance of a practical survey, this paper has syste contract administration, L. Y. Shen, C. L. Xu, and H. w. Chan, eds. matically examined major risks affecting the Sino-foreign con- Tianjin University Press, struction joint ventures. The risk significance index developed State Planning Commission(SPC).(1997). "Regulation on the manage in this paper, supported by examining real risk cases, provides of tax and fee items for the ts.Beijing Real Estate, No. 1, Beijing, 18-19. ffective insight and clear picture of the risk profile in- Walker, A, and Flanagan, R (1987). China-Building for joint ventures volved in the joint venture businesses in Chinese construction Levett Bailey Chartered Surveyors, Hong Kong. JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT JANUARY/FEBRUARY 2001/81
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 / 81 The US$290,000,000 project was offered to a Sino-foreign joint venture with 20 years of cooperation period. The foreign party controlled over 50% of the shares. The major terms in the cooperation contract included ‘‘investment amount: 35% equity, 65% shareholder’s loan’’; ‘‘equity internal rate of return not less than 15%, interest rate for loan not less than 10%’’; ‘‘preemptive amortization for the investment by foreign party’’; ‘‘10 years payback period’’; ‘‘local partner being responsible for the extra costs due to the construction risks including delayed time, poor quality’’; and ‘‘local partner assuming all operation and maintenance risks to ensure that the operation hours of 5,000 per year minimum.’’ The joint venture also bought insurance against the risk of breaching the contract by either party. Through such contractual arrangement, the local partner, who was in severe shortage of capital, secured the capital needed, and the overseas party secured its interests as well. Controlling Technical Risk Most Sino-foreign cooperative joint ventures are projectbased ventures. Project management procurement system has proven to be an effective approach for controlling technical risks in such joint ventures. A real estate project located in the central commercial district in Beijing was developed by a Sino-foreign cooperative joint venture. The project involved the development of a 20-story residential building, three commercial office towers over a three-story podium on top of a three-level basement, and an eight-story hotel. The project had a site area of 30,070 m2 , and the total gross completion floor area was 280,000 m2 . The foreign party assumed the duty of overall project management and spent major efforts on cost control. The main construction contract was offered to a stateowned firm recommended by the local partner who, by agreement, was responsible for the quality of construction and technical program. Nominated subcontracts were made through selective tendering mostly to local construction firms. On the foreign party’s recommendation, the cost control consultant was from Hong Kong. The foreign party in such an arrangement assumed the role of project manager, and the local partner assumed the role of construction manager responsible for all technical risks. The entire project was successfully completed. CONCLUSIONS With assistance of a practical survey, this paper has systematically examined major risks affecting the Sino-foreign construction joint ventures. The risk significance index developed in this paper, supported by examining real risk cases, provides an effective insight and clear picture of the risk profile involved in the joint venture businesses in Chinese construction. The proper understanding of this risk profile is essential in order for joint venture to take proper risk management strategies. The investigation of several practical risk management strategies demonstrates effective examples of adopting risk management principles properly. They provide useful references to other joint ventures or those overseas firms who are planning to operate their businesses in China. The analysis and findings in this paper also present valuable data for the Chinese government and local partners to have an in-depth understanding of the risk environment to the operation of Sinoforeign joint ventures. Such understanding is very important for implementing further effective measures to ensure the right direction of future development and create a more attractive market to overseas construction professionals. APPENDIX. REFERENCES Flanagan, R., and Li, S. R. (1997). International construction: A perspective of China. Chartered Institute of Building, KingsRide, U.K. He, Z. (1995). ‘‘Risk management for overseas construction projects.’’ Int. J. Proj. Mgmt., Exeter, U.K., 13(4), 231–237. Hung, Y. (1997). ‘‘Response to risks in the property investment in China.’’ Proc., Int. Symp. on Marketization of Land and Housing in Socialist China, Hong Kong Baptist University, Hong Kong, 1–6. Li, J. (1997). ‘‘Quantitatively risk analysis in preparing tendering.’’Proc., Symp. of Constr. Procurement Pract. in China and Hong Kong, L. Y. Shen and C. L. Xu, eds., Tianjin University Press, Tianjin, China, 42– 53. Ministry of Construction (MOC). (1997). 1996 China building industry yearbook, China Construction Industry Publications, Beijing, 230–231. Ministry of Construction (MOC). (1998). 1997 China building industry yearbook, China Construction Industry Publications, Beijing, 157–158, 698–703. Ministry of Construction (MOC). (1999). 1998 China building industry yearbook, China Construction Industry Publications, Beijing, 598–620. Nian, F. L. (1999). ‘‘The future development of the Chinese construction industry.’’ Project procurement and contract administration, L. Y. Shen, C. L. Xu, and H. W. Chan, eds., Tianjin University Press, Tianjin, China, 2–7. Shen, L. Y. (1997). ‘‘Project risk management in Hong Kong.’’ Int. J. Proj. Mgmt., U.K., 15(2), 101–105. Shen, L. Y., and Fan, X. J. (1994). ‘‘Construction market for overseas contractors in China (Shanghai).’’ Proc., 21st Annu. Meetings of CIB Working Commission W-55 Build. Economics, Hong Kong Polytechnic University, Hong Kong, 119–134. Shen, L. Y., and Lee, K. H. (1998). ‘‘Overview of Chinese government policies to attract BOT investment.’’ J. Hong Kong Surveyor, Hong Kong, 9(1), 48–52. Song, W. G. (1999). ‘‘The impacts of competitive practice on the development of the Chinese construction industry.’’ Project procurement and contract administration, L. Y. Shen, C. L. Xu, and H. W. Chan, eds., Tianjin University Press, Tianjin, China, 26–31. State Planning Commission (SPC). (1997). ‘‘Regulation on the management of tax and fee items for the development of construction projects.’’ Beijing Real Estate, No. 1, Beijing, 18–19. Walker, A., and Flanagan, R. (1987). China—Building for joint ventures, Levett & Bailey Chartered Surveyors, Hong Kong
