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The Chinese construction Industry in the remaking since 1978. In the context of the important Reforms

Pages 128 à 145

Notes

  • [1]
    The Documents about the Second Conference of the First Representative Assembly of People’s Republic of China, Beijing, People’s Publishing House, 1955, p. 160-161.
  • [2]
    National Statistics, the Statistics Yearbook (1992), Beijing, Statistic Press, 1992, p. 148-158.
  • [3]
    Ibidem.
  • [4]
    Total value of the national production.
  • [5]
    Total value of the production of all of the national enterprises. The national and collective enterprises were the two main forms in the national economy before the Reform policy.
  • [6]
    The portion of the total productive value of all national companies for the total value of domestic production.
  • [7]
    Shen Zhihua, a Chinese historian specialized in history during the Cold War and the history of the relations between China and Russia, has contributed an article entitled “Russian experts in China (1948-1960)”, Beijing, International broadcasting Press, 2003, p. 398-403 in which he describes and explains the various elements that provoked the conflict between the two countries, then the withdraw of Russian technicians. He also concluded with stating the influence of this event.
  • [8]
    Research Center of the Documents for the Central Committee of the Communist Party of China, “Conversations between Deng Xiaoping and the other leaders of the Central Committee on the construction industry and the housing issues” in Construction Economy, 1985, n° 1, p. 2.
  • [9]
    An interview between the reporter and a witness of the realization of the epoch-making project-Chen Guangyan, who was at that time the general auditor of the bidding project. Shenzhen Daily, the 14th December 2008, consulted on the official website of Shenzhen Daily on the 23th January 2014: http://sztqb.sznews.com/html/2008-12/14/content_452071.htm.
  • [10]
    Fan Jianting, the Development of the Construction Industry and the Evolution of his organization, Shanghai, 2008, p. 92.
  • [11]
    Actual notebook of the qualification of the construction enterprises, Da Cheng Information Press, 2001, p. 626.
  • [12]
    Ren Dianxi, “Deepening the reform of the construction industry” in Construction Economy, 1987, n° 10, p. 16-18.
  • [13]
    Yao Yilin (Vice-premier of the State Council and director of the Planned Economy Committee), “Report on the plan of the development of the national economy and the society for 1983” in People’s Daily, the 25th June, 1983.
  • [14]
    China Science and Technology Information, 2000, n° 1, p. 59.
  • [15]
    People’s Daily, the 25th June, 1983.
  • [16]
    Wen Zongyu, Zhang Xiaojie, China’s Thirty-Year Reform (1978-2003), Shandong People’s Press, 2009, p. 119.
  • [17]
    Zuo Xuejin, Cheng Hangsheng, State-Owned Enterprise Governance in China: An International Comparative Perspective, Social Science Academic Press, 2005, p. 73.
  • [18]
    Liu Zuo, “Transformation from the delivery of profits to the payment of taxes in the national companies and its historical significance” in Research on the Taxes, 2004, n° 10, p. 32-33.
  • [19]
    On the 22th November 1991, the Bureau of the Construction Industry printed and distributed “Law System Project of the Construction industry”. See Yang Xinming, “On the laws of the construction industry” in Tongji University Journal Humanities and Social Science Section , Nov. 1995, Vol. 6, n° 2.
  • [20]
    Yearbook of the Construction (1990-1991), Construction Industry Press, 1992, p. 122.
  • [21]
    Cheng Siwei, Research on the Reform and the Development in China, People’s University of China, 2001, p. 198.
  • [22]
    Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, Chinese version, translated by Chong Wu, Commerce Press of China, 1987.
  • [23]
    Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, p. 6-7.
  • [24]
    The official website of CRCC, http://www.crcc.cn/g354/m1135/mp2.aspx, consulted on the 30th November, 2011.
  • [25]
    http://www.crcc.cn/g538/s1135/t20935.aspx, consulted on the 30th November, 2011.
  • [26]
    http://www.crcc.cn/g357.aspx, consulted on the 30 November, 2011.
  • [27]
    Li Jianming, The way of Success-the Best Practice of CSCEC, China Machine Press, 2013, p. 83.
  • [28]
    The financial statements published in the respective official site of the companies from 2007 to 2012.
  • [29]
    China Railway Construction Corporation Limited.
  • [30]
    China Railway Group Limited.
  • [31]
    China State Construction Engineering Corporation.

1Today, China Railway Group Limited and China Railway Construction Corporation Limited, the two biggest construction companies in China are also in term of capital the two biggest world-wide; and alongside, a third company: China State Construction, whose power is rapidly growing, is about to take the third place. But if today China holds a strong position on the construction sector, the path that led this public sector to its current position in the economic sphere was not easy, and as the country had been struck by numerous periods of political, financial and social crisis over the last century, it is safe to assume that the development of the construction industry encountered many subsequent obstacles.

2After the declaration of the foundation of The People’s Republic of China in 1949 by Mao Zedong, the construction industry suffered a serious “draw back”, because of the dreadful influence of the newly acquired state ideology on the economy. After decades of under usage, the renewal of this long since stagnant industry only came with the arrival of a new leader: Deng Xiaoping, whose reforms were to propel China to a whole new economic rank. The reforms among the public enterprises consisted in altering the planned economic system, giving more liberty to the construction enterprises and to the research for more financial resources through stock market. However, in spite of numerous economic reforms and the recent ascent of giant firms as China Railway Group Limited and China Railway Construction Corporation Ltd, the remains of an outdated economic system stayed considerable.

Two major historical periods for the construction industry: the period of Mao Zedong and the period of Deng Xiaoping

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]

Table 1
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]

Source: « Statistics of the Chinese construction industry », Beijing: China Statistics Press, 1988.

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.

Application of the adjudication system

9Initially, the great majority of the Chinese companies depended directly and almost entirely on the government (which was in control of both the offer and the demand) and remained that way until July 1981 when, for the very first time in Chinese history, the city of Shenzhen invited bids from all the qualified Chinese companies to build its International Commercial Centre, taking example on his close and rich neighbour: Hong Kong [9]. Ever since, in Shenzhen, 90 % of the construction has been realized by the bidding system [10]. The indisputable success of Shenzhen has made the city a strong model for the rest of the country, and the bidding has been extended outside of the territorial limits of China, welcoming foreign capitals. Thus, in 1982, a Japanese company (Taisei Corporation) had been selected as main bidder for the project of the construction of the Lu Bu Ge hydroelectric power plant located in the Yunnan province, and thanks to this new way of funding, the total cost of the construction had been reduced by 46 % and the totality of the work completed 120 days before the planned deadline. [11]

Reform of the management system

10The government, which had taken charge of the offer and demand, was the real head of many construction enterprises; however, certain cities like Shenyang took the initiative to reorganize their structure themselves, including the recruitment system, from 1983. The city government carried forward a market-oriented reform by creating the General Corporation of Construction incorporated from the Construction Bureau, supervised and coordinated by the Construction Committee which is attached to the government. [12] After a short period proving that the experiment was a success, the rest of the country also started to imitate and try the new method.

Introduction of a classification system

11From 1984, the Construction Service prepared to initiate a reform towards the management of the qualification and classification of the enterprises and all enterprises were then divided in four categories in terms of their ability and size.

Table 2

The classification and qualification of the construction companies in 1985

number of the companiesPercentage (%) of the totality of the companies
First class4881,1
Second class7121,6
Third class39278,6
Forth class1366730,0
Under fourth class2675658,7
Total45550100,0

The classification and qualification of the construction companies in 1985

Source: Xiao Tong (dir.), « The Construction industry in Contemporary China », Beijing, 1988, pp.397.

Initiation of the research and development system

12With the government’s willingness to put the construction industry into the market economic system, the enterprises were partially liberated from the state’s control, including their research and development units. In June 1983, the Planned Economy Committee published an announcement about the implementation of a responsibility system in the research and development system [13]. Through this announcement of a “the Scientific Research Plan”, the Chinese government granted a financial support of 1,7 billion Yuan emitted by the central government to local governments. This plan played a major role in the sixth five-year plan, and required local governments to take full responsibility for the gathering and employment of specialized experts in order to accelerate the progress of scientific and technological achievements. The plan included 38 programs and 112 topics in 8 different areas (agriculture, consumer goods industry, energy development & conservation, geology & raw material, mechanical& electronic equipments, transportation, new technology and social development). Before February 1986, 98 % of the programs had been fulfilled, 3900 scientific and technological feats put into practice with an economic benefit of 12,7 billion Yuan [14].

13After that reform, the management system became more and more efficient and organized. Flexibility was the key word, and local governments were given more liberties to cope with the management issues, while the central government had progressively started to adopt the “laissez-faire” policy.

A chaotic development

14During the immediate post Mao period (1978-1980), the construction industry knew a brutal rise and fall, brutally losing power and stability, but from the 1980s to the 1990s, it regained its strength.

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.

Table 3

the total value of the investment on the infrastructures and the construction industry

the total value of the investment on the infrastructures (in billion of yuan)the total value of the investment on the construction industry (in billion of yuan)Percentage of the total value allocated to the construction industry
1st quinquennial plan
(1953-1957)
58,8536,6862,3
2nd quinquennial plan
(1958-1962)
120,6169,0357,2
1963-196542,1926,6263,1
3th quinquennial plan
(1966-1970)
97,6055,3156,7
4th quinquennial plan
(1971-1975)
176,40101,3557,5
5th quinquennial plan
(1976-1980)
234,21146,5762,6
6th quinquennial plan
(1981-1985)
341,01236,4169,3

the total value of the investment on the infrastructures and the construction industry

Source: « Statistical Yearbook of China », Beijing, 1986.

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.

Since the beginning of the 1990s. A high-speed development

24With the seventh and eighth five-year plans (1986-1995), the government tried to enhance the industrial management by launching reforms again; regarding the construction industry, between 1940 and 1990, in totality 401 new laws and regulations (1 law, 31 administrative regulations, and 369 sectoral regulations) were voted in order to implement and also facilitate reforms. But those laws were flawed and had to be constantly improved, making the whole process progressing relatively slowly [19].

25In the period running from 1987 to the end of the 1990s, the separation of proprietary and administration was extended to the whole country. As we have seen previously, according to that system, the governmental service in charge of a contract had first to sign the contract with the company offering the best prices and conditions and then after the signature, the company was left completely autonomously in charge of the totality of the work.

26Before the launch of a second reform, many problems caused a diminution of the adjudication system’s efficiency as the majority of construction projects were not included in the adjudication procedures. Until 1989, 24 % of the total constructed surface was adjudicated; in 1990 this percentage increased to 29.9 % [20].

Graphic 1

Percentage of the surface adjudicated in China (1984-1990)

Graphic 1

Percentage of the surface adjudicated in China (1984-1990)

Source: Fan Jianting, « the Development of the Construction Industry and the Evolution of his organization », Shanghai, 2008, pp. 131-132.

27Until 1990 over 70 % of the projects could bypass the procedure, but in 1991 a series of new regulations destroyed all the obstacles for the implementation of the adjudication. And in the end of 1992 the construction service promulgated the very first official regulations (the Bid Law and the Open Tendering Law) destined to monitor and regulate the adjudication procedures.

Table 4

The percentage of the construction industry in the national economy (1991-2000)

Table 4
Year 1991 1993 1995 1996 1997 1998 1999 2000 State-Owned Enterprise 6.3 6.7 7.76 8.39 10.1 10.4 9.7 9.3 Workforce 35.8 20.7 32.8 28.6 29.5 26.6 25 23.2 Production value 46.5 37.4 38.6 35.9 36.3 33.3 32.1 30.1

The percentage of the construction industry in the national economy (1991-2000)

Source: Wang Mengjun, Yang Chengxi (dir.), « WTO and Chinese Construction Industry », Construction Industry and Materials Press, 2002, pp. 75.

28During the 1980s, the development of this industry was slow and even went through a period of negative growth between 1985 and 1990; nonetheless from 1992, all the development indicators started to rise again and the reform movement efficiency greatly increased. During the reform period all the new regulations and rules published by the state were destined to perfect the market system. In most cases, the state copied the methods from the West and adapted them to the specificities of the Chinese market.

29It is in September 1993 that the slogan “establish a system of modern companies is the new direction of the reform of national enterprises” was launched. Thirty six companies were put to the test in following and implement the ideas of the 3rd Session of the 14th Committee of the Party. During the seventh quinquennial plan (1986-1990), the reform of the construction industry encountered many difficulties: the notable increasing of the salaries, the budgetary resources stagnation, and the charges, growing even heavier, had resulted in weakening the enterprises.

Table 5

General Situation of the Chinese Construction Industry (1985-1995)

YearWorkforce
(in thousand of people)
Production value
(in billion of yuan)
National EnterprisesCollective EntreprisesCountryside Construction TeamNational EnterprisesCollective EntreprisesCountryside Construction Team
198557673348789947,520,131,0
198661733764806956,724,152,3
198761824059828866,029,365,1
198862354213854677,735,582,8
198961473901768687,940,488,7
199062103897706093,541,060,3
1991638941947250106,350,272,1
1992681247638036143,274,2112,4
1993631545579268205,5116,4206,0
1994818260199693303,4152,0295,2
1995824363199804367,0190,0363,3

General Situation of the Chinese Construction Industry (1985-1995)

Source: « Statistical Yearbook of China’s Construction Industry » (1985-1995)

30In order to give the national companies of construction a new momentum, the state finally chose to adopt a system which is referred as the “two-rail” system: on the one hand (the first rail) the system allows “the invisible hand” of the market to lead the production of the enterprises, and on the other hand the state is still largely in control of the development of those with “the visible hand” (the second rail). According to the Chinese economist Cheng Siwei, the success of this system depends on five factors: the state efficiency, enterprises activity, market regularization, surveillance severity, and assurances performances [21].

31Added to the offer and demand, the capitals market had an indispensable role for the construction companies and in order to find all the necessary capital they accepted to be traded in stock market. A mass fund with stock market is out of doubt the most efficient way to finance this industry; and accordingly the companies had to improve their management to attract more shareholders.

32However the Chinese stock market has never been a complete and “healthy” institution; and in China despite of the existence of this market, the government still own the major part of national companies’ shares. Moreover, the national companies have always been under the control of the state, relying on banks (and especially on the China Construction Bank) for funds. This policy results in a total state’s monopoly, and the mere illusion of a real concurrence.

33In order to organize and regulate the capital market, the Chinese stock market once again imitated the occidental countries, and also Honk Kong. This internationalized city became the first and the only capitalist and free market center under the mainland authority; and thus became a link between the Chinese capital market and the global market; a market through which the Chinese construction industry is making effort to face the international market and which could as allow the industry to make profits as to put it into a challenging situation.

Two leading firms

34By tracing the history and the experiences of the national enterprises, we can deepen our understanding of the development of the construction industry in China.

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 1st 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 21st 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 133rd 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 8th 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 16th 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.

Conclusion

49The Chinese construction industry has overcome countless obstacles after the foundation of the People’s Republic of China in 1949. At the very beginning, this industry was defined as an inherent part of the central government, which would accordingly entirely control both supplies and demands; a situation that could probably explain the stagnant state of the whole construction sector from the 1950s to 1970s. Viewed as a key part of the national economy, this industry was meant to spearhead economic changes and to “increase the productivity”, the main theme of Deng Xiaoping’s great Reforms. It was then decided by the authorities to progressively let the industry slide towards market economy, but not without keeping it under firm control.

50From 1990s on, the construction market went through a progress, which was reflected in the increased competition from the construction companies supported by the local governments and the privately operated companies. Therefore, based on the command of their general headquarters, the large-sized national companies tried to enlarge their business all over the country. By setting up a large number of subsidiary companies, they met a series of management problems, mainly caused by the disordered networks of the numerous branches. In order to occupy the construction market, they launched a price war with their competitors, which, ultimately, made them lose plenty of profit. If we take China State Construction Engineering Corporation for an example, we will see that during its big expansion in 2000, it realized 43.6 billion Yuan of revenue for the whole year, but only 45 million of net profit [27]. It’s at this moment that the leaders began to adjust their strategies in two ways: 1/enlarge the advantage in domestic market; 2/keep the same pace on technical process as the international level.

51In general, the construction industry in China is led by the three biggest national enterprises, as the time went by the industry changed its original direction and greatly varied its services. Now the industry has taken charge of a very wide panel of activities which goes from house building to the construction of public utilities and infrastructures, from constructions under contracts to investments, from inner market to outer markets. This diversification gave the industry a new momentum.

52From 2007 when the three most important groups began to rely on self-finance using the stock market, they were also required to make their financial statements public, which, by allowing us to consult at least a part of their accountancy, enables us to get a better perception of their financial state. The truth is, as displayed in the annual accounts, that all of them achieve almost every year a marked increase, though with few exceptions. From 2007 to 2012, their total assets had been multiplied by three and the overall operating profits multiplied at least by two. With 100 % control of the government, they have to cope with the market of free competition. Nevertheless they are not always in a dominant position with regard to the operating profit: the powerful China Railway Construction Corporation Limited encountered two weakening points in 2008 and 2010 and in a similar way China Railway Group Limited have had to face a striking decline in 2008.

Table 5

Comparison between the three biggest Chinese national companies[28]

CRCCL[29]CRGL[30]CSCEC[31]
2007
Operating revenue177,487,290,000180,506,820,000-
Operating profit4,890,820,0004,328,863,000-
Total assets156,877,780,000215,212,719,000-
2008
Operating revenue226,140,710,000234,619,283,000202,104,685,000
Operating profit4,701,750,0001,933,200,0006,705,915,000
Total assets220,101,540,000252,075,731,000204,175,139,000
2009
Operating revenue355,520,770,000345,973,619,000260,396,172,000
Operating profit8,193,530,0008,628,281,00012,725,581,000
Total assets282,990,270,000311,781,128,000296,138,555,000
2010
Operating revenue470,158,790,000473,122,221,000370,417,533,000
Operating profit9,929,570,00010,514,835,00018,790,075,000
Total assets350,265,200,000389,306,350,000397,539,119,000
2011
Operating revenue457,366,110,000459,701,343,000491,289,991,000
Operating profit9,929,570,00010,422,993,00025,371,319,000
Total assets422,982,840,000468,732,097,000513,510,191,000
2012
Operating revenue484,312,930,000482,688,400,000571,515,835,000
Operating profit10,688,190,00010,590,866,00029,381,205,000
Total assets480,661,300,000550,728,081,000651,694,165,000

Comparison between the three biggest Chinese national companies[28]

53Moreover, thanks to the experience of Honk Kong, the national construction companies were ready to enter the international economy. In 1999 the construction expenses overtook 340 billion of US dollars; henceforth China was occupying the third place in the world behind the United States and Japan. In the field of the construction industry, renovating the management system is still the principal subject of the reforms. Thus new technical are gradually introduced and the enterprise efficacy is surely enhanced. In November 2001, China became an official member of the WTO and its construction industry has now to compete with the foreign concurrence, which could bring it opportunities to improve its international competitiveness, and its own national productivity.

Notes

  • [1]
    The Documents about the Second Conference of the First Representative Assembly of People’s Republic of China, Beijing, People’s Publishing House, 1955, p. 160-161.
  • [2]
    National Statistics, the Statistics Yearbook (1992), Beijing, Statistic Press, 1992, p. 148-158.
  • [3]
    Ibidem.
  • [4]
    Total value of the national production.
  • [5]
    Total value of the production of all of the national enterprises. The national and collective enterprises were the two main forms in the national economy before the Reform policy.
  • [6]
    The portion of the total productive value of all national companies for the total value of domestic production.
  • [7]
    Shen Zhihua, a Chinese historian specialized in history during the Cold War and the history of the relations between China and Russia, has contributed an article entitled “Russian experts in China (1948-1960)”, Beijing, International broadcasting Press, 2003, p. 398-403 in which he describes and explains the various elements that provoked the conflict between the two countries, then the withdraw of Russian technicians. He also concluded with stating the influence of this event.
  • [8]
    Research Center of the Documents for the Central Committee of the Communist Party of China, “Conversations between Deng Xiaoping and the other leaders of the Central Committee on the construction industry and the housing issues” in Construction Economy, 1985, n° 1, p. 2.
  • [9]
    An interview between the reporter and a witness of the realization of the epoch-making project-Chen Guangyan, who was at that time the general auditor of the bidding project. Shenzhen Daily, the 14th December 2008, consulted on the official website of Shenzhen Daily on the 23th January 2014: http://sztqb.sznews.com/html/2008-12/14/content_452071.htm.
  • [10]
    Fan Jianting, the Development of the Construction Industry and the Evolution of his organization, Shanghai, 2008, p. 92.
  • [11]
    Actual notebook of the qualification of the construction enterprises, Da Cheng Information Press, 2001, p. 626.
  • [12]
    Ren Dianxi, “Deepening the reform of the construction industry” in Construction Economy, 1987, n° 10, p. 16-18.
  • [13]
    Yao Yilin (Vice-premier of the State Council and director of the Planned Economy Committee), “Report on the plan of the development of the national economy and the society for 1983” in People’s Daily, the 25th June, 1983.
  • [14]
    China Science and Technology Information, 2000, n° 1, p. 59.
  • [15]
    People’s Daily, the 25th June, 1983.
  • [16]
    Wen Zongyu, Zhang Xiaojie, China’s Thirty-Year Reform (1978-2003), Shandong People’s Press, 2009, p. 119.
  • [17]
    Zuo Xuejin, Cheng Hangsheng, State-Owned Enterprise Governance in China: An International Comparative Perspective, Social Science Academic Press, 2005, p. 73.
  • [18]
    Liu Zuo, “Transformation from the delivery of profits to the payment of taxes in the national companies and its historical significance” in Research on the Taxes, 2004, n° 10, p. 32-33.
  • [19]
    On the 22th November 1991, the Bureau of the Construction Industry printed and distributed “Law System Project of the Construction industry”. See Yang Xinming, “On the laws of the construction industry” in Tongji University Journal Humanities and Social Science Section , Nov. 1995, Vol. 6, n° 2.
  • [20]
    Yearbook of the Construction (1990-1991), Construction Industry Press, 1992, p. 122.
  • [21]
    Cheng Siwei, Research on the Reform and the Development in China, People’s University of China, 2001, p. 198.
  • [22]
    Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, Chinese version, translated by Chong Wu, Commerce Press of China, 1987.
  • [23]
    Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, p. 6-7.
  • [24]
    The official website of CRCC, http://www.crcc.cn/g354/m1135/mp2.aspx, consulted on the 30th November, 2011.
  • [25]
    http://www.crcc.cn/g538/s1135/t20935.aspx, consulted on the 30th November, 2011.
  • [26]
    http://www.crcc.cn/g357.aspx, consulted on the 30 November, 2011.
  • [27]
    Li Jianming, The way of Success-the Best Practice of CSCEC, China Machine Press, 2013, p. 83.
  • [28]
    The financial statements published in the respective official site of the companies from 2007 to 2012.
  • [29]
    China Railway Construction Corporation Limited.
  • [30]
    China Railway Group Limited.
  • [31]
    China State Construction Engineering Corporation.
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