DEVELOPMENTS IN CHINA'S CONSTRUCTION AND HOUSING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00367R000302110001-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: May 11, 2009
• Sequence Number: 1
• Publication Date: October 9, 1984
• Content Type: REPORT

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Confidential
Central Intelligence Agency
9 October 1984
Developments in China's Construction and Housing
China's construction efforts, including housing, and developments
in its building materials industries this year have reflected both the
influence of cooperation with the West and the potential for greater
U.S. government participation in this seetor of China's economy. Pos-
sible areas for further US involvement in government-to- government
cooperation include bidding and contracting procedures for large capi-
tal projects, urban survey work, and government-managed construction,
sales, and financing of housing. Areas of discussion leading to sales
potential for U.S. businesses include prefabricated housing and hous-
ing package development. Ongoing deals and negotiations with Japanese
and Australian firms indicate a premium is placed by the Chinese on
concessionary financing linked to prospective ventures. The protocol
is thus more likely to succeed in producing governmental and technical
exchanges than in advancing U.S. business interests.
Changes in Construction Policies
The Chinese in April announced major reforms for the building industry that
attempt to create a more efficient approach to capital construction. Li Ximing,
the Minister of Urban and Rural Construction and Environmental Protection
(MURCEP),,outlined four areas of reform:
This memorandum was prepared byl Development Issues Branch, China Di- 25X1
vision, Office of East Asian Analysis. Information available as of 9 October
1984 was used in its preparation.' Comments and queries are welcome and may be
directed to the Chief, Development Issues Branch, China Division, OEA, on
EA M 84-10187
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o The introduction of bidding procedures in awarding construction projects.
Collectives and rural construction teams would be allowed to compete for
construction projects with state-owned construction organizations. Li
hopes to cut construction costs and improve productivity in the state-owned
construction companies. Special and larger projects would be exempt from
use of bidding.
o Extension of building industry activities into the countryside. Rural con-
struction has skyrocketed as peasants use the profits they earn under agri-
cultural incentive programs to build new houses. Rural housing has been
wasteful, however, both in building over valuable farmland and in its con-
sumption.of building materials. China now is promoting the development of
small towns and more standardized construction of rural dwellings to mini-
mize waste of farmland and building materials.
o Increased emphasis on contract workers. MURCEP hopes to reduce the wage
bills of many construction organizations whose demands for labor are sea-
sonal or periodic by allowing them to hire workers on contract as needed.
o Pegging total wages to the value of the job. MURCEP hopes to reduce wage
bills even further, while promoting work efficiency. In the past, total
wages were calculated using the total number of workers and the time spent
on the job, with no incentive to avoid time and cost over-runs. MURCEP
also indicated that there would be neither a minimum wage nor a cap on
earnings for construction workers.
These reforms have been experimented with to some extent in China's special
economic zones, and in Chongqing, Sichuan. A noteworthy development has been
the readiness of rural collectives to compete effectively on small- scale
projects. China claims that five million peasants are now working on urban con-
struction projects all over China. These peasant construction teams include as
many as 1,000 workers and have organized their own training classes in order to
compete against state-owned enterprises. Most peasant efforts are small-scale
and periodic in nature, but provide additional opportunities for rural employ-
ment while introducing some measure of competition and efficiency into a highly
bureaucratic and wasteful capital construction organization.
The State Planning Commission hopes to extend these reform measures to in-
clude an increasing number of state projects as China moves into its Seventh
Five-Year-Plan (1986-1990).
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Confidential
Housing Sales
One of China's greatest budgetary burdens is the subsidization of urban
housing. Rents charged to urban workers in most cases do not even cover mainte-
nance costs. The drain on the budget is too strong to allow the Chinese to ac-
celerate housing construction enough to meet present and future needs. Reform
programs in China have allowed both urban and rural workers to seek greater in-
comes through private enterprise or wage bonuses. As a result, the. level of
personal savings in China has risen tremendously. The Chinese are now selling
houses and apartments on a small but increasing scale. The introduction of
housing sales allows them to tap personal savings and make some inroads on the
costs of urban housing presently borne by the government. Over time, China is
likely to increase the proportion of housing that is sold by the state rather
than rented. Consequently, the need to better develop credit and financial in-
struments in China to deal with the introduction of home ownership will in-
crease.
Progress to date in this area has been noteworthy. Shanghai offered 4,000
apartments for sale this year at a cost of about $9,000 each. Owners were to
pay one third of the purchase price, and their employers paid the rest. Similar
loans are to be issued in 77 large and medium cities throughout China. Housing
prices tend to be much lower outside of Shanghai: $5,000 in Shenyang, or $3800
in Changzhou will buy a similar apartment.
Quality Problems
The tremendous activity in Chinese construction in the last few years has
created some problems as well as opportunities. This year there have been inci-
dents in Hunan, Sichuan, and Fujian provinces in which theaters or other build-
ings collapsed, with loss of life and property. MURCEP has established quali-
fiying examinations for design and construction work by collectives, but some
problems are apparently emerging with unqualified bidders using falsified docu-
ments to obtain contracts. MURCEP has called for structural examinations of
buildings erected by both state organizations and collectives in recent years.
Administrative Problems
The problems described-by Shanghai's urban planners to the HUD delegation
last year have apparently led to an administrative reorganization of the Shang-
hai Municipality. This month, the satellite cities within the municipality that
surrounded urban Shanghai were placed under its direct control. A spokesman
said this would help spread Shanghai's urban population and ease communications
and housing problems. Last year, planners decried their inability to entice ur-
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ban Shanghai residents to move voluntarily to the satellite cities. This change
should facilitate efforts by the municipal government to relocate factories and
their workers out to the former satellites, where new housing has been sitting
vacant.
Survey Work
China's first urban housing survey will begin later this year, examining
the amount, quality, and utilization of houses in more than 280 cities, 3,000
county towns, and other industrial and mining areas. Undertaken jointly by
MURCEP and the State Statistical Bureau, the survey will help urban planners
prepare urban development plans and make rational use of urban land. Survey
completion is expected by June, 1986. Methods and procedures have not been de-
scribed.
Rural Housing
In addition to the reforms spelled out by Li Ximing regarding standardiza-
tion of rural housing, China has set up a national company to supply complete
sets of the materials needed in rural house building. The company was set up
not by MURCEP, but by the State Bureau of the Building Materials Industry. The
company will sell materials, and also contract to build and sell houses. The
Chinese hope this company will provide an improved and less wasteful channel of
building materials supplies to rural areas.
Housing Construction Research
In December 1983, Beijing established the Beijing Housing Construction Re-
search Society, an academic institution that is to conduct research on the eco-
nomics of housing construction and act as consultants to the municipal govern-
ment. The society will also study information and research results related to
housing construction both at home and abroad. Members of the society include
Yang Zhenyang, Lu Yu, Su Xing, Zhang Bo. Li Zhun and others. We have no further
information on its activities to date.
Areas of Possible Cooperation
HUD's experience in administration of urban construction and housing may be
of use to the Chinese, both in the administration of the reforms described above
and in the activities of new organizations and companies described. The empha-
sis of reforms on using bidding procedures to award construction contracts may
increase Chinese interest in U.S. experience with such procedures. Efforts to
sell homes and provide credit instruments for these sales may also spur efforts
to tap American expertise. Construction quality problems could provide an op-
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portunity to discuss both building standards and bidders' qualification
procedures and standards. We have no information regarding China's methods of
collecting and analyzing data for its first urban housing survey, but the Chi-
nese may be amenable to exchanges or joint participation in this area. Finally,
construction research efforts, even at the municipal level, appear accessible to
foreign involvement and may provide points of departure for future protocol ac-
tivity. While some of the developments described above are not directly related
to MURCEP, Li Ximing may be amenable to securing the participation of these re-
search organizations or construction companies in further protocol activity.
Developments in Commercial Possibilities in China's Construction
Japanese and Australian firms have concluded important deals this year with
China in construction and building materials. On September 17, a contract was
signed between the China International Trust and Investment Corporation (CITIC)
and the Shimuzu Construction Company Ltd. of Japan. The contract is for the de-
sign of a 50-story building with 32,000 square meters of office space and 270
apartments, to be built near the embassy area of Beijing. It will be part of a
complex including 4 to 9 story apartment buildings. The Chinese expect the de-
sign to be completed in three to five months and hope to have the whole project
complete by 1987.
The Japanese have also announced plans for a joint venture with China to
construct what appears to be the housing and hotel complex described above.
Seventeen Japanese companies set up a joint company in August to work toward a
joint venture with the Chinese to build an 80 million dollar. office/apartment/
hotel complex in Beijing, scheduled for completion in 1987.
The Japanese have also been actively exploring construction opportunities
in Shanghai. In May 1984 the Nomura Securities Co. Ltd. held a Shanghai Invest-
ment Seminar in Tokyo, open only to Japanese firms, to solicit Japanese invest-
ments in urban development projects in Shanghai. The two main speakers were Liu
Jingji of the Shanghai Investment and Trust Corporation, and Huang Wenpin of the
Shanghai Minxing and Hongqiao Development Cor oration. No investments resulting
from this seminar have as yet been observed.
The Australians and Japanese have both been involved in China's building
materials industries this year. On August 29, the Australian firm BHP Company
Ltd. signed a A$ 48 million contract with Chinese trade representatives to build
a cement plant in Fujian Province. BHP will design, manage, and supply machin-
ery and equipment for the 2000 ton/day cement clinker production plant at Shun-
chang, scheduled for completion in 1988. A mixed credit finance package was ar-
ranged for the project, including Australian Export Finance and Insurance
,Company funds and Australian Development Assistance Bureau Funds. Last week,
imported Japanese equipment was turned over to China at its largest cement
plant, in eastern Hebei Province. The plant has been in trial production this
Confidential
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year and will eventually produce 1.55 million tons of high-grade cement per
year.
Chinese press reports in recent months have highlighted the progress in
their building materials industry. According to the Economic Daily, China has
set up buidling materials bases in several major cities to produce prefabricated
concrete rmmnnnents, plaster, glass, and thermal insulating and fireproof ma-
Airport Development
The Chinese recently sought FAA contacts to exchange technical data on air-
ports in order to improve management and communications standards. The request
came from Sun Jingao of CAAC Beijing Regional Administration. The request might
indicate that U.S. airport specialists may want to consider contacts outside of
MURCEP, possibly arranged through MURCEP, for further discussions or exchanges
regarding U.S. participation in China's airport improvements. A July Guangdong
Province Work Report indicates an interest on the part of the province to expand
its airports.
U.S. Commercial Potential
One problem with furthering U.S. commercial expectations via the protocol
with MURCEP is the nature of the Chinese bureaucracy. MURCEP may not be the
proper point of contact for many US ventures, and the bureaucracy may work
against MURCEP successfully lining up interested US firms with the proper con-
tacts.
The Chinese might well be interested in examining not only U.S. building
material technologies, but packaging of home kits, like U.S. log home kits, and.
prefabricated housing, in order to better address their problems with rural
housing. The management or organization of these industries would probably be
of more interest than the technologies or materials used in American homes. In-
terest would be more likely to lead to visits and exchanges rather than commer-
cial contracts.
A perusal of successful deals with the Chinese this year suggests that
United States' firms compete at a disadvantage because of a lack of concession-
ary financing and low interest rates. Firms hoping to conclude deals
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with the Chinese in construction or in the building materials industries will
have to offer the Chinese a unique product or product package to offset Japanese
and Australian financing of their international deals. The implication here is
that U.S. firms are more likely to be competitive in providing engineering and
consulting expertise that is demonstrably better or different from that avail-
able elsewhere.
Confidential
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SUBJECT: Developments in China's Construction and Housing
Distribution:
Housing and Urban Development
1 - John M. Geraghty, Office of International Affairs
Office of U.S. Trade Representative
1 - William Triplett, Director for East-West and Non-Market Economy Countries,
U.S. Trade. Representative
Central Intelligence Agency
1-DDI
1 - Executive Director
1-NIOEA
1 - D/OEA
1 - Research Director
1 - Chief, CH/D
1-
1-
1-
2 - OCR/ISG
1 - C/PES
1 - CPAS/ILS
1 CH/FOR
1 - CH/DEF
1 - CH/DOM
1 - CH/DEV
5 - .CPAS/IMC/CB
Confidential
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