Chinese Construction Law
Chinese Construction Law
Chinese construction law is a very complex field. In this article we hope to provide a simple overview which we hope our clients may find useful.
Although China began to open up to overseas trade and investment in 1978, the construction industry was still closed to foreign investment. As the need to increase construction activity developed in the early 1990s, the government recognised the urgent need to invite private participation in the industry. On 1 March 1998, the Construction Law came into effect – this piece of legislation transformed the construction industry (CLICK HERE for the official English Version of the law published by the Chinese government; they frequently move documents around, so the link could break in which case try searching and you should be able to find it easily enough). Prior to the enactment of the Construction Law, the State Council, Ministry of Commerce, and many local and regional governments had enacted a substantial body of regulations covering a wide range of matters involving the construction industry. The Construction Law codified the basic principles of these pre-existing construction regulations and also introduced a number of new principles, such as allowing private consortiums to bid for construction projects. The Construction Law is the most important law for China’s construction industry, and has been revised several times since China joined the World Trade Organisation in 2001. It provides for a comprehensive legal system and outlines the qualifications for contractors, construction project building permits, construction contracts, tender process, construction project supervision, construction work safety management, construction project quality control, and legal liability.
The challenge for foreign construction companies is how to access the booming Chinese construction market. Although China’s economy has become increasingly open, the construction industry remains relatively protected, with most construction activity carried out by state-owned enterprises. As many as 9,000 state-owned enterprises are involved in Chinese construction, yet only 400 foreign-invested firms are registered in China. The entry of foreign construction companies into the Chinese market is heavily regulated. To carry out construction work in China, they must establish a local presence by setting up either a wholly foreign-owned enterprise (WFOE) or a joint venture. After incorporation, this Chinese legal entity must obtain a construction-grade qualification.
There are three categories of construction qualifications:
- General Contractor Qualification;
- Specialty Contractor Qualification;
- Labour Subcontractor Qualification.
The qualification grade determines the maximum size and scale of project that the foreign contractor may undertake. Qualification requirements include having a certain amount of registered capital, a minimum number of technical and managerial personnel, possessing the necessary prior experience as well as having a good overseas track record.
A number of Chinese government departments are involved in supervising the construction industry in China. The major ones are listed below:
The Ministry of Housing and Urban-Rural Development of the People’s Republic of China (http://www.mohurd.gov.cn) is responsible for licences, surveys, design, tenders and bidding. It is also responsible for the supervision of qualifications for construction enterprises in China.
The Ministry of Transport of the People’s Republic of China (http://www.moc.gov.cn) is responsible for the construction of ports, highways, waterways, airports, railways, water conservation projects and hydropower facility projects.
The National Development and Reform Commission (http://www.ndrc.gov.cn) is responsible for general macro-economic planning issues associated with the construction industry.
The Ministry of Environmental Protection of the People’s Republic of China (http://www.zhb.gov.cn) is responsible for implementing environmental policies and enforcing environmental laws and regulations that relate to the construction industry.
The State Administration of Work Safety (http://www.chinasafety.gov.cn) is responsible for the regulation of risks to occupational health and safety in construction projects in China.