China awakes

The survey, which rates countries in terms of their growth potential, openness and profitability, also found that Shanghai and Beijing were the largest current and future individual construction markets in the world. Jonathan Harris, RICS president, fresh from a visit to China, says: "Shanghai's Pudong district is a veritable mini-Manhattan and the east and north-eastern coastlines are also ripe for development." Construction on a huge scale is about to get under way. There are plans for 230 cities, 5000 townships, 12 trunk highways totalling 100 000 km, 2600 km of railway lines and 41 regional airports throughout China.

This is part of a £500bn public investment plan in infrastructure over the next three years. China has also announced £110bn for residential real estate developments as part of its housing reform programme, according to The Chinese Building Materials Industry, a report compiled for the DETR and the China-Britain Business Council.

What is more, the boom is likely to continue. It is predicted that by 2010, 45% of China's current 1.3 billion population will be urban dwellers, compared with 30.9% in 1999. The eastern coastal region, which includes Beijing, Shanghai and Guangzhou, is the biggest growth area, followed closely by the western inland belt.

In terms of opportunities for foreign construction firms, things have never looked better. China's long-awaited entry to the World Trade Organisation, expected to take place by the end of this year, should ensure increased opportunities for foreign investment through greater clarification and openness of the market. The RICS is getting in on the act, accrediting three university courses in China and setting up offices in Beijing and Shanghai.

The UK industry is well-placed to get involved. China is the world's second-largest recipient of direct foreign investment – £373.3bn over the past 20 years – with the UK the second largest exporter of construction services after the USA. Construction minister Beverley Hughes is leading a DETR trade mission to Beijing in March to introduce construction firms to the vast potential market.

The airport sector in particular has definite potential for UK firms. Engineer Arup and architect Llewelyn-Davies have just won the contract for the 65 000 m2 international terminal in Jongqing Jiangbei, central China. The firms hope that the £200m scheme, clinched after four years of trade missions, high-level delegations and ministerial support, will lead to future contracts in China. Arup director Peter Budd says: "We are now at the point where we are the preferred bidder for the remaining 40 regional airport redevelopments in China." Gammon Construction, which is the biggest UK contractor operating in the Pacific Rim with a turnover of £670m and 2000 employees, has 10 projects on the go in China, mostly for Western firms such as IBM, Glaxo and Caterpillar. Dave Palmer, director of Chinese operations for Gammon Construction, says: "Last year, we made £40m in mainland China and we have been operating there for 19 years. The market is potentially huge and I expect to double business in the next three years." But UK firms do face obstacles. There are all the usual problems found in developing countries, such as language barriers and poor banking infrastructure, but there are also drawbacks specific to China itself.

Palmer cites red tape and the slowness of local consultants. "It can easily take six months if not longer to convert an opportunity into a project, especially when you have to work with local state-owned design institutes (a cross between architects and consulting engineers) who, although very good technically, in terms of project management, typically take twice as long as UK counterparts," he says. "It can also take up to four months after winning a contract to obtain a licence to start work." UK firms are most likely to be used for their specialist and technological skills, whereas the straightforward large-scale developments, which represent a large proportion of overall projects, are assigned to local firms.

This is a view echoed by Steve Smith, director of urban projects at UK architect Terry Farrell & Partners, which is working on plans for the £15m, 235 000 m2 Guangzhou Daily and Cultural Plaza project. He says: "Foreign architects have to focus on areas where they add value, such as prestigious, highly specialist buildings. Mass housing, hospitals and schools wouldn't necessarily go to an international consultant, as the Chinese have their own network of design and construction institutes in all major cities." Smith adds that breaking into China can be costly. "At the moment, our Chinese projects have been loss-making exercises. I am hoping to make a profit over the next three years with Guangzhou." Adrian Smith, partner at US architect Skidmore Owings Merrill agrees. "In general terms I don't think we have made any money from projects in China. We lost around £2.6m on the Jin Mao Tower in Shanghai [the world's third tallest building]. We then spent a year negotiating the contract for our next job – the Xiaman Post and Telecom Tower – just to break even. The fee was 2% on a take-it-or-leave-it basis, when it should have been 6%." The DETR/CBBC report identifies a scarcity of commercial and retail work, which has dried up since a 50% slump in lease prices and occupancy levels on office blocks in Shanghai and Beijing following the past decade's chronic overbuilding.

Another area of frustration for many UK firms is the lack of clear and open planning and bidding procedures. Unlike major projects in the UK, which are open to competitive bidding, most government-funded schemes are by invitation only. Conducted in private, outcomes tend to be known only to the company concerned, government ministers, officials and planners.

According to Gammon's Palmer: "Contracts are often seen as some form of hybrid solution to suit both parties. Also, you cannot enforce a written contract in the same way as in the UK. There is an old Chinese saying, that you start negotiating after you have signed. This places importance on continuing to maintain relations." Good personal relations can make or break a deal irrespective of financial gain (How to avoid gaffes, left). Friendship and contacts are the grounds on which the Chinese tend to assess the trustworthiness of potential business partners.

But it is a worthwhile trade-off when you consider that non-residential construction is predicted a 13% average growth rate over the next decade and the 1.3 billion population is still growing.