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Chinese puzzle

Cover story - China wants foreign expertise, but getting a toehold is tricky.

Bonds between the state and the construction industry in China are strong. The country's major contractors are proud to list senior staff who have gone on to prominent government positions and engineers lead the country: President Jiang Zemin and premier Zhu Rongji both trained and worked as engineers.

In the past, politicians have favoured mega construction projects as a way of creating jobs.

Now they fear that, as China embraces the open market, old and inefficient industries will go to the wall. Keeping the construction industry busy is key to maintaining high employment.

From the construction industry's perspective, close personal contact with government is vital to the realisation of projects. All schemes over £30M require central government approval.

Increasingly, municipal authorities and private developers - mainly Hong Kong Chinese and international - are taking the initiative in pushing projects forward. Good contacts can be decisive in getting the go-ahead.

Meanwhile, 20% of government contracts are negotiated or awarded directly.

Relationships are no less important to foreigners working in China, says Jiang Hua, senior economist at contractor Beijing Urban Construction Group (BUCG). Finding a local partner is seen as essential to success.

Not least, this is because formal contracts have little real value in China. 'The contract goes into the bottom drawer and you won't see it again unless it's to the client's advantage, ' notes vice president of building systems specialist Invensys, Roger Ray. Negotiations and changes are common long after contracts are signed. Everything ultimately rests on the degree of friendship and trust built up between individuals.

Foreign construction firms must register to work in China.

Partnerships are a simple way of overcoming this hurdle. It is difficult for UK firms to compete on price, but Chinese consultants and contractors are eager to draw on skills that will give them extra selling power.

Chinese clients are looking for sophistication in the design and management of complex, prestige projects that home-grown consultants cannot deliver.

Many western firms operating in China work on projects funded by international banks, which demand third party management and supervisory expertise, or work for multi-national clients who want projects executed to western standards. But under Chinese law, designs by a foreign consultant have to be approved by a local design institute - the equivalent of a consulting firm.

'Design institutes must be involved and have sway over the way a project is tackled, but have no financial accountability, ' says Ray. Chinese design codes are far more conservative than those used in Britain, Europe or the United States.

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