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 200180 / 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 Chi￾nese market. In the forecast of market demand, more consid￾eration 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 organ￾izations. As many state-owned firms have little competitive￾ness 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 lim￾iting 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 devel￾oped. Typical risk management strategies include risk transfer, risk retention, and reduction. While these principles are appli￾cable 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 con￾struction 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 ne￾gotiation 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 ca￾pable 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 le￾gal 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