Stagnation in Mao’s era

3The year 1949 marks the beginning of a whole new (and troubled) era for most of the Chinese citizens who had been, twice, deeply afflicted during the Sino-Japanese War (1937-1945) and the Civil War (1945-1949), and equally a totally new era for the Chinese construction industry.

4To understand the general state of the construction industry at this time, it is important to consider what the priorities of the government were. When, in September 1954, the vice premier minister Li Fuchun declared in the first Five-year Plan (1953-1957) “The socialist industrialization will be the major mission for our country during its passage (to modernization), the development of the heavy industry takes precedence in the central part of the socialist industrialization.” [1] The message was clear. The priority was to be put almost entirely on infrastructures made for the development of heavy industries and the construction sector was simply ignored. The main reason for such a decision lies in the fact that in the mind of the Chinese leaders, the former, as it was meant to serve the interest of the heavy industry, was thus deemed “productive”; and the latter was negligible simply because it was considered as being a costly sector. The lack of understanding of the overall operation of the economy and this questionable concept of unbalanced repartition led the whole economic policy to a rather unstable situation. The communist government’s plan gave a fresh impetus to the heavy industry from 1950s to 1960s, thus the share of the heavy industry in the total economic activity ascended from 36.2 % to 54.0 % [2], but the share of other industries including the construction industry stayed stagnant or even descendent (from 50.3 % to 28.3 %) [3]. The industry of construction as opposed to the heavy industry thus stayed inert and underdeveloped.

Table 1

Total value of the production in the construction industry (1957-1965) (in billion of yuan) [4] [5] [6]

year 1957 1958 1959 1960 1961 1962 1963 1964 1965 V14 11.8 20.2 23.5 24.8 9 7.4 9.7 15.1 17.7 V25 7.9 13 16.5 19.4 6.6 3.6 4.7 6.4 7.5 percentage6 67 64 70 78 73 49 48 42 42

Total value of the production in the construction industry (1957-1965) (in billion of yuan) [4] [5] [6]

5Table 1 demonstrates that during the second Five-Year Plan, the construction industry experienced a rapid development, whereas at the end of the plan, that is to say from 1961 to 1962, a significant chute happened mainly because of the unbalanced economic system. This downward tendency was aggravated when, due to major ideological disaccord and friction between China and USSR, Russian technicians and experts were pulled out from China, and more than 200 working sites left unfinished [7]. However, from 1961 until the launch of the Cultural Revolution, there was a slow recovery not only for the total value of the production of all of the enterprise but also for that of the national enterprises. What else can we learn from this figure ? We can tell that the national enterprises were without doubt in a position of monopoly in an industry which occupied in most cases more than 50 % of the annual value of the production. This tendency lasted until 1963, when the national part among those enterprises began to decrease. Three principles were engaged to restructure the construction industry: transform (certain national enterprises), reduce (the number of workers) and separate (the national enterprises in different areas). Owing to this policy, the recovery was realized gradually from 1964 to 1965.

Reforms in Deng’s era

6However, this relative recovery was soon brutally interrupted by a nationwide political and social crisis: the Cultural Revolution. Considering the lack of reliable data, the general economical stagnancy of this time and the opaque leaden covering the whole historical period (which is making it relatively difficult to treat), a choice has been made, and therefore in this paper we will let the period of the Cultural Revolution aside and jump directly to an era of industrial and economic renewal.

7Nevertheless it is still possible to determine what the general tendency was, and thus in accordance with the ideological climate of the period, until the return of Deng Xiaoping in 1978, a new policy that tried to correct the left-handed policy was applied. The fourth April 1980, Deng announced the general principles concerning the direction to be taken for the development of the construction industry: “The construction industry will allow us to make money, to raise the national revenue and to save money. If this industry can be well developed, we can solve the problem of unemployment and satisfy the needs of the residents not only in the cities but also in the countryside.” [8]And then, consequently, construction industry was considered as an industry worthy of investment. With the guidance of this policy, a reform was carried out towards the market economy. The best example is the approval from the city government of Shanghai to the self-management of Construction and Engineering Bureau in 1980.

8From then on, the reform in this industry spread all over the country and four distinct steps were put in practice by the government.

A new atmosphere in the economy

15The liberalization of the market, direct result of Deng Xiaoping’s politics, had created a new atmosphere in the Chinese economy, and gradually, the government tended to withdraw from the market control. However, the prices fixation system was not taken in consideration by the leaders and the market had been opened without really letting the price fluctuate freely in the market in terms of the offer and the demand. Yao Yilin gave the general direction of the economy with his principle “the economy ought to rely mainly on the planned economy and secondarily on the market economy” [15]. However, all the companies continued to increase their prices arbitrarily, which has led on term to a massive national inflation which spread from the east to the west, and from cities, to countryside.

16After that, a system called “two-rail system”, destined to stabilize the prices was finally implemented, so, the prices were “oscillating” according to both: orders from the administration and the companies’ self-decisions. In a first time, this system permitted to initiate a transition from “fixed prices” to “market prices”, but in a second time this transformation of the system also became the cause of a growing anxiety among the population, who feared a sudden and important rise of the prices.

17This price “revolution” has led many national companies to deficit, because of two major problems: First of all, the national companies were suffering of the rise of production costs, but in the same time they still had to distribute to employees bonuses and allocations. Under these circumstances this kind of expenditures were quickly considered as a heavy burden for companies, which could simply not afford them anymore. Second of all, despite the existence of the inflation, the companies’ revenues were rarely superior to the marginal costs, a problematic situation which, shortly after, compelled some national companies to rely exclusively on state subventions [16].

18Then, the government decided to reform national companies. Due to its status of principal investor for these national enterprises, the state had a lot of influence on them, it had also the right and the power to frequently supervise and evaluate the management and administration of the companies.

19In most cases, the legally responsible agent for this kind of enterprises with public funding was (and still is nowadays) a member of the Communist Party of China, or, a high ranking official. One of the people who best represent this kind of dual power is Shi Dahua. In 1998 he was inducted into the office of president of the CRECG, and also the function of general secretary of the committee of the communist party. This, as explained above, shows the very close relationship between politics and industry. In 2007 Shi Dahua was still in charge of these two important functions [17].

The rise of the construction industry (1980-1990)

20During the period going from the first quinquennial plan to the sixth plan, the public construction investments occupied, on a national scale, a more and more important place. It is, however, during the decade going from 1980 to 1990 that the construction industry experienced its most important development.

21According to the table above, the investments oriented toward the construction industry never represented less than 50 % of the total investments. The adjudication system continued to spread across China; and in 1985, companies, both national and private, were in charge of more than 70 % of the constructions in the country. From the seventh quinquennial plan on, the construction industry started to develop at a quicker pace. Many issues induced by this uncontrollable pace of development, and the fact that a lot of people took advantage of the situation, had a considerable influence on the development and on the operation of the construction industry. From 1989 on, started a period during which the reform and the modification of the economic system began to trouble the society and the public sphere, and concomitantly the production value also started to collapse. But after 1991 the construction industry found its previous development pace back.

22From 1979 to 1984, the government with the purpose of relieving the heavy fiscal burden (taxes and charges) that had been weighting on Chinese companies (and especially the biggest national ones) for long was preparing a reform on the tax system. The difference between those two different periods (before and after the reforms), is quite notable; if before 1979 the companies only were only charged with two main taxes (only the companies had to pay taxes), after the final introduction of the new taxation system in 1984, six new taxes were added; and progressively more and more taxes were created. Thus, by 1989 we could enumerate twenty kinds of taxes, and over sixty mandatory expenditures incurred by companies [18].

23Despite the whole new level of financial attention paid to the construction sector, the management quality level remained low and mediocre. The entrepreneurs, for the most part, were mostly simple technicians, and were often lacking of “spirit of innovation” in regards of the development of new products, and also quite ignorant about the importance of exportations. Due to an unfair repartition of salaries, a great number of highly qualified employees quitted their jobs, and then in consequence, certain big companies had to face a worrying lack of executives. The profitability rate of the construction industry remained very low in comparison of that of petrochemical and tobacco industries.

China Railway Group Limited

35This company has gone through almost all of the contemporary economic history of China. Founded in March 1950, it had then a very official and governmental name: the General Bureau of Construction and Design, which was at that time a branch of the Railway Department. In 1958, the bureau was merged with other services and became from then on the General Bureau of the Railway Infrastructures. Until 1989, the bureau remained under government’s control, his role was mainly to organize the programs of the constructions, based on the state’s need. In addition to that, a nationwide reform gained all the country. This bureau, regarded as the responsable of the domain indispensible for the economy, launched its first steps with Deng Xiaoping’s great Reform. It was then renamed as General Company of the Railway Construction (the 1^st July of 1989). Meanwhile, the reform encountered very thorny difficulties. During two years (1990-1991), the construction industry had to fight with an economic stagnation that was spreading all over the country. With the recovery of the national economy, the industry found its elan. In May 2003, the Bureau was part of the National Resources Committee.

36At the gate of the 21^st Century, with the success of the great Reform and thanks to the government’s support, this bureau was seated among the biggest national enterprises. In September 2007, the company was engaged in a movement of innovation, moreover, « Company Laws» was there carried out, then we could see the establishment of CRGL (China Railway Group Limited). The company was organized in accordance with the principles of modern enterprises, but the company’s investments consisted mainly of national capitals. The large national companies followed the same pattern. At the very beginning, the government insisted on owning one hundred percent of the Group’s shares which depended mainly or entirely on government’s financial aids. With the aim of developing business internationally, the Group, that is to say the government, agreed to raise funds in the capital market. In December of the same year, the Group was listed in Shanghai and Hong Kong’s stock market.

37Its specialties:

38The Group specializes in several areas, including construction works, exploitations and designs, consulting services, equipments for construction sites, manufacturing machinery. It also manages investments and constructions of railway and highways. Exploiting mines and exchange of materials are also parts of its business.

39Nevertheless, its main activity is the construction of railways. From 1950, the group has participated in the construction of the main lines in China, including the Railway Xizang -Qinghai, which is the highest railway in China in terms of altitude, the Chengkun line is one of the most complicated projects from a geological point of view and the Jingjiu line (Beijing to Kowloon) which links the south of China to the north. Until today, the group managed to build hundreds of lines, for a total distance already exceeding 500,000 km, representing about two thirds of railways build in China before 2007, and 22,600 kilometers of power lines.

40Inside the company, the organization is regulated in accordance with to the “Company Law” which is dating back to the post Reform Deng Xiaoping’ governance period. We can therefore say that the CRGL is a company with the characteristics of a modern enterprise. Besides the Shareholders’ Meeting and the Board of Directors, the company is engaged in a well-organized management framework. In addition, subordinate offices are in charge of strategy, equipment, international affairs, R&D, human resources etc.

China Railway Construction Corporation Ltd.

41China Railway Construction Corporation Ltd. (CRCC) is one of the biggest and the most powerful companies both in China and worldwide. In a ranking made by the magazine “Fortune” in 2010, the company held the 133^rd place among the 500 most influential companies of the world, and the first among the 225 largest companies in terms of their contracts. Until the end of 2009, the company total assets represented about 283 billion Yuan with net assets over 54 billion Yuan. In the same year, it signed a number of contracts for a value of 601 billion Yuan and of nearly 60 billion Yuan for overseas contracts. It realized around 356 billion Yuan of profit and paid approximately 20,8 billion in taxes. In any case, the CRCC is the most important enterprise for the Chinese economy.

42Holding the 8^th place among the 500 largest Chinese enterprises, the CRCC (a former branch of the army: “the railway army” (Tie Dao Bing) which was in charge of the construction and maintenance of railways in order to transport military materials during the war and the construction of railways during peacetime), possesses over 500 qualifications in various sectors such as the construction of highways, roads and bridges, tunnels, hydraulic stations and houses. With the support of the government, it managed to develop a complete network, including: scientific research, planning, investigation, design, implementation supervision and maintenance, as well as investment.

43If we look through the Chandler’s criterias to define highly influential company, we will realize that the CRCC has all the characteristics of a leading company in this industry. In his Shaping The Industrial Century: the remarkable story of the modern chemical and pharmaceutical industries [22], Chandler refers to companies with new technologies and new management as the “first mover”. For the historian, the “first mover” companies must have in the first place the technical capacities of implement and use new scientific and technological knowledge to commercialize new technologies.

44Then the functional capacity is another essential characteristic of a “first mover”. It includes the ability to develop a certain product or a certain technique, the ability to produce new products, to maneuver large equipment, to recruit, to train and to organize workforces. It consists of the marketing capacities, meaning establishing a system of advertising, sales and distribution. Chandler finally puts emphasis on managerial capacity necessary to create and support a company. The first mover does not sell product or a new product, but it creates a system with functional capacities before its competitors, which is essential for commercializing the product in the world. [23]

45First of all, the CRCC deserves the label of “first mover” because in the enterprise itself the most advanced techniques are developed for the construction of railways, bridges, tunnels and subways as it focuses research, development and design of mechanical equipment for the maintenance of highways, construction of rails in town and equipment. CRCC is the first company in China in regards of both design and construction of railways; it holds the first place in terms of technical design and construction of high-speed trains (350 km per hour). It also participated in the construction of the first maglev line in Shanghai.

46Concerning its functional capacity, there are three aspects that define this capacity. CRCC has clarified its strategy to “enlarge its business through technological innovation” [24]. Until 2010, CRCC fulfilled 84 national and provincial programs. 170 new inventions in which 83 have reached an international level and 50 advanced to the national level. In addition, the company invested more in research and development in 2010, 8,8 billion Yuan were invested in this area, which represents a rise of 70,69 % compared to the year 2009 and of 419 % compared to 2008. To achieve the goal of “growing the business through technological innovation”, CRCC seeks to improve the training and hiring system for technician elites. Indeed, in one branch of the CRCC: the 16^th Bureau Group, whose main body consists of a large number of executives with different specialties in all fields, 11190 technicians are enrolled, equaling 58 % of the total workforce [25]. The situation remains the same in the whole group. Until 2010, technicians represented 46 % of the total of the workforce, while senior managers covered about 54 % of it. With regard to marketing and sales, the national company CRCC multiplies their activities taking orders mostly from the government. For this reason, a majority of the programs realized by the CRCC are from medium to very large, durable and expensive. For example, the construction of one of the metro lines in Beijing, from Jianguomen to Fuxingmen with 12 stations (16,1 km of distance), started in 1971, was completed in 1989 for total cost of about 1,2 billion Yuan. Without the financial support of the government, no company would be able to complete such projects.

47Concerning its managerial capacity, the structure also follows the rules of the “Company Law”, therefore, it is almost identical to that of the CRGL. 54 % of the workforce is devoted to the optimization of the production, sales and R&D, and, at the same time, to the integration of various departments in this huge enterprise [26]. The success of the company depends heavily on the “top management” (created by Chandler). Executives of the company, most of whom are members of the Communist Party (and are also the elites in the party), have for the most of them an already long experience. Chairman of the Board of Directors, Meng Fengchao, Party member, has worked in the transportation and construction for 26 years before taking his position at CRCC. He was appointed Chairman of the National Resources Committee in 2005. The director of the company, Zhao Guangfa, member of the Party for almost 40 years, has served in the railway army (Tie Dao Bing). Witness of the history of CRCC with a military origin, Zhao has worked in many difficult sites, including water diversion projects in Pakistan and the construction of the tunnels going from Qinling to Xikang in 1994 after which he was promoted to director of CRCC, a position he has been occupying since 2007.

48To conclude, the two most important companies in the construction industry in China have experienced success in many ways with the support of the government. In fact, they are part of the national resources (this is why they were put under the control of the National Resources Committee). However, although the public did not have the right to oversee the management and economic activities of these two companies before 2007, one year after being traded in the stock market, they were obliged to publish their financial statements. This may be a sign of a gradual opening and reform of the national construction companies.