25 January 2005
PUBLIC WORKS IN CHINA: ITS VALUE AND RELEVANCE TO PUBLIC WORKS ISSUES IN SOUTH AFRICA

REPORT FOR THE PUBLIC WORKS PORTFOLIO COMMITTEE, PARLIAMENT OF SOUTH AFRICA

During the past two decades, China has invested heavily in public infrastructure as part of a national poverty alleviation program. Besides contributing to growth, this investment has directly helped reduce poverty by increasing access to services and economic opportunities. Its success can be attributed to several external and internal factors. Internally, strong political commitment at the national and local levels, effective institutional mechanisms for program management and funding, and the active participation of rural residents underpinned the process. Externally, international organisations have played an important role in providing funding and advice on improving rural transportation management and construction.

Some of China's greatest achievements since the post-1978 reforms have been its large-scale poverty reduction benefiting from government poverty reduction programmes as well as fast economic growth. Its poverty reduction policies have focussed on providing opportunities by building assets and transferring for the poor. Poverty reduction programmes have sought to raise income generating capacity of poor rural households, including investments in infrastructure, agriculture and enterprises, and rising support to human capital development.'

Examples of poverty alleviation and job creation programmes linked to public works:

• the National Targeted Poverty Reduction Programmes of 1986-1993;

• the National Plan for Poverty Reduction (known as "8-7 Plan") of 1994- 2000. and
• the New Century Rural Poverty Alleviation Plan for 2001 -2010.
• In September 1999, the Chinese government publicly announced its plan, the 'Western Development Strategy, to develop its western region, as a part of its tenth five-year plan. Programme largely consists of infrastructure projects - roads, railroads and airports - for the Western provinces that in fact comprise well over half the national territory. In addition to the job creation involved in these projects, they are intended to create a more conducive investment environment, to draw investors and employers away from the coastal areas.

• In 1986 the Chinese government established the yigong daizhen (YG) programme, which literally means public works in lieu of relief, linked work relief with public works projects to stimulate local economies and to boost incomes to alleviate poverty in rural areas' Briefly the YG programme objectives include the following:

• Investment in infrastructure projects - construction of roads and bridges, railroads and airports
• Job-creation and poverty alleviation involved in labour-intensive public works programmes
• The role-played by provincial and local government levels in the selection and identification of the priorities for development.

Departments responsible for public works and construction: Ministry of Communications Functions and responsibilities

The Ministry of Communications is responsible, amongst other things, for the:

• drafting development strategies, policies, laws & regulations and technical standards for road and waterway communications: creating development programs, plans for road and waterway transport; developing a comprehensive transport system;

• regulating the transport of major state goods and emergency passenger transport: implementing state road and waterway projects: organizing fee collection for road and waterway facilities construction and maintenance;

• ensuring the safety of water transport, etc.

Some of the Ministry of Communications' recent activities include:

In the wake of the Asian financial crisis of 1997 and the destructive floods of the summer of 1998, China launched a massive public works program, including highway construction and repair, to stimulate the economy and provide jobs for three million workers laid-off from state-owned enterprises.

The Ministry of Communications concentrated on completing a basic grid of North-South and East-West trans-provincial highways by 2000, and hoped to have 20,000 km of expressways by 2005, the second longest highway system in the world. To accomplish this, the government spent over US$22 billion in 1998 and over US$22.5 billion in 1999.

o finance the construction of roads, bridges and tunnels in the developed coastal areas, China drew up regulations to encourage the use of the BOT (build- operate-transfer) method as well as joint financing and allowed foreign and domestic companies to invest, construct and manage highways by issuing shares and company debentures.

In China's central and western regions, the Ministry of Communications preferred to rely on loans from international financial institutions and foreign governments for the construction of main trunk lines and national highways (to be completed by 2010) as well as inland waterway projects in accordance with Beijing's policy to develop the west. Due to rampant corruption in the contracting process, the MOC decided to open all key-road construction projects in the west to public bidding by qualified construction companies.

Ministry of Construction: Functions and responsibilities

After the 1998 reshuffling of its functions, the Ministry of Construction is now responsible for drafting policies, laws, and development plans related to the city, village and town planning and construction, the building industry, and municipal works. More specifically, the Ministry of Construction is accountable for:

• setting national quotas and standards for construction projects, directing housing construction and reformation of the urban housing system, managing the real estate industry, and drafting methods of economic appraisal for project feasibility studies, economic parameters, land-use targets, and cost management of construction projects;

• standardizing construction markets and overseeing market access, project bidding, and quality & safety supervision;

• directing the use of underground urban water and space, overseeing work related to fuel, heat, municipal facilities, public transit, gardens and urban greening, landscaping, and environmental sanitation, and preserving national scenic spots and historical cities;

• preparing plans for scientific and technological development and technical economic policies for related industries;

• defining educational standards and training qualifications for university construction specialties and directing training for related trades;

• managing foreign economic and technical cooperation, directing enterprises in the opening of foreign construction and real estate markets, and coordinating construction enterprises' cooperation in international contracting and labour.

The Ministry of Construction was delegated to oversee housing construction for people left homeless by natural disasters, plan urban and rural housing development, oversee construction of new urban centres, and maintain quotas in construction engineering.

1. Problems in the construction industry

China's construction market took off in 1992 as its economy heated up. By 1996, activity was five times higher than in the 1980s. Unfortunately, the rapid growth exacerbated already existing problems in the construction industry, such as poor planning, lack of advanced technology, and ineffective investment mechanisms.

Many of the structures built during the boom period were substandard, leading to press reports of sinking highways and collapsing buildings, bridges, and dykes. Some reasons for poor quality were bad designs and weak management.

Inadequate construction credit, delayed loans to contractors, and high taxes led to low working capital for construction, which in turn led to the use of cheap materials. And cost cutting in the pursuit of profit made matters worse.

Furthermore, developers rushed projects to meet client demands. Poorly trained rural migrants made up two-thirds of all construction workers and under-qualified developers resorted to bribery to win construction contracts. The contract bidding system, in place since 1984, was flawed as well, allowing for ambiguity in bidding documents, procurement procedures, and qualification requirements.

Many projects were done without engineering consultation. Such consultation was introduced in 1988, but the principles introduced were not really followed. According to the China Daily, consultants and construction workers often schemed to save money by ignoring quality; the fact that both groups served under the same administrative authority helped facilitate this.

The MOC took the heat for these problems. In 1996, the ministry attempted to save its reputation by launching a campaign to inspect new buildings that cost over US$120,000 to build and to punish fraudulent builders. It set up hot lines to hear housing complaints, encouraged radio and TV stations to identify substandard buildings, pushed through a new national building code, and required the use of high-standard construction materials. It required that at least 25 percent of apartment buildings be modeled after high-standard pilot residential quarters.

The MOC also tried to establish a national program to train project owners, engineers, managers, and technicians, and to initiate a responsibility system so that certain players would be held liable for problems and defects in quality.

In April 1999, the MOC announced that it would not approve new construction projects for independent contractors for the rest of that year. This was meant to consolidate the excessively large size of the construction workforce (110,000 companies, 34 million employees) and reduce shoddy construction.

But resolving the problems proved difficult, according to a World Bank report, especially since the MOC was not in a position to act as the lead agency coordinating all construction activities. Moreover, the regulatory framework was incomplete, and a number of confusing legal issues remained. As there was still no way to make construction equipment readily available to contractors, the MOC was too busy resolving issues concerning the supply of construction materials to serve as an effective regulator and supervisor. The MOC had not yet enforced a quota system, by which construction prices, adjustment factors, and profit margins would be determined.

Ministry of Construction's recent activities
1. Increased expectations for the new "pillar industry"

The MOC's priorities for China's Ninth Five-Year Plan (1996-2000) included urban planning and infrastructure development, improvement in water supply and wastewater treatment facilities, expansion of public transportation, improvement of urban heating facilities, expansion of urban greening, the creation of more national parks, and building of more economy housing.

In 1996, the government designated the construction industry a "pillar industry" meaning the state would invest heavily in it. Urban housing construction, in particular, displayed significant growth potential, especially since the contribution of the industry to the GDP (about 6 percent, according to the China Daily) was still low compared to those of developed countries. In recent years, China's investment in housing construction has accounted for 20 percent to 30 percent of the total fixed asset investment and 6 percent to 8 percent of the GDP, according to the Hong Kong Ming Pao.

From 2000 to 2010, the MOC's focus will be on residential buildings, new cities, the burgeoning rural market, and infrastructure construction.

2. Underground construction

Since China's urbanization rate was expected to reach 45 percent by 2010 with an urban population of 630 million, and since farmland is protected from urban expansion, the MOC encouraged urban planners to develop underground spaces.

New underground projects sprang up, such as public and civil engineering facilities, subways, large-scale depositories, shopping malls, and parking lots.

But due to the lack of unified planning, some of them collided with each other. Much time, energy, and money was wasted. So, in 1998, the MOC began to regulate and direct urban underground space development.

4. Related legislation
By November 1999, China had promulgated 49 construction-related laws and regulations, and the MOC revealed that 10 more laws and regulations to standardize and regulate the construction market would take effect within the year. These included Regulations on the Administration of Consultation for the Survey and Design of Construction Projects, Regulations on Urban Drainage and the Treatment of Sewage, Regulations on the Administration of Work Safety for the Construction Industry, Standards for Urban Residential Construction, Standards for the Design of Urban Residential Construction, and Standards for Earthquake-Proof Construction Design. The MOC was also drafting a Housing Law to standardize housing construction.

5. Foreign participation
In order to become globally competitive, the Chinese actively sought out foreign involvement. The Chinese hoped to benefit from foreign firms' capital, advanced technology and design ideas, management expertise, and experience. But to protect and promote domestic construction firms, the MOC initially stipulated that foreigners wanting to set up engineering contracting firms, real estate development firms, construction consulting firms, or engineering cost- consulting firms had to find a Chinese partner. They were encouraged to bid for joint contracting and subcontracting work, but could not bid on most domestic construction projects.

Foreign firms were restricted to doing preliminary design work, which had to be approved by a Chinese design institute. They were also allowed only to participate in engineering consulting for foreign funds. As the government began to open up more opportunities for foreign investment in 1998, foreign investors became interested in developing advanced real estate construction systems and components, building new residential housing, and renovating existing buildings.

They also took an interest in the water supply, waste management, and transportation sectors. The MOC urged smaller Chinese construction enterprises to use foreign investment for technical upgrades. Larger enterprises were to use foreign investment to adopt advanced management techniques, which would enable them to become investors and managers themselves.

In April 2000, the MOC allowed wholly foreign-funded engineering design and consulting firms to offer consultation services for advanced technology projects and environmental engineering.

State Development Planning Commission (SDPC)
Functions And Responsibilities
After the reshuffling of its functions in 1998, the SDPC is now responsible for:
- devising strategies and annual, medium- and long-range plans for national economic and social development, setting targets and working out regulatory policies to coordinate the development plans of major industries, and determining an appropriate growth rate;

- balancing total societal demand and supply, determining the resource shares allotted to different sectors, mapping out plans for resource development, distributing productive forces with a view to ecological protection, rationalizing the national economic structure and coordinating regional development;

- analyzing data from financial and monetary departments and assessing the domestic and international economic environments to learn of and forestall inauspicious trends, and recommending policies for taxation, interest rates, exchange rates and certain prices;

- setting the total size of fixed asset investment, planning distribution of major development projects, specifying those projects' funding allocations and guiding their use of foreign loans;

- devising strategies, goals, and policies for the optimal structures for utilizing foreign capital in order to facilitate the balancing of international payments and rationally manage foreign debt;

- formulating pricing policies, regulating the general price level and the prices of major state-controlled commodities and standardizing fees;

- balancing imports and exports in line with domestic and international demand, planning the importation and exportation of major farm produce, managing state grain reserves, regulating the market to guard against shortages and surpluses;

- coordinating the approach to problems in the development of science, technology, education, culture, health, national defense and overall economic and social development and promoting the industrial applications of research;

- reforming the financing, planning and pricing mechanisms along market lines.

Current Activities

The SDPC is the 1998 reincarnation of the State Planning Commission. Lately it has been drafting China's Tenth Five-Year Plan, which will guide economic and social development from 2001 to 2005. The plan will adhere to six principles: pursuing economic efficiency while maintaining rapid growth and increasing reliance on science and technology; granting market mechanisms a greater role in development; harmonizing economic development with population growth, natural resource exploitation and environmental protection; redressing regional imbalances by developing central and western China: and balancing reform and opening up with the protection of state economic safety.

To attract foreign investment, the SDPC plans to simplify the procedures for approving foreign investment; open up the service sector to foreign investment; grant more authority to local governments to approve foreign-funded projects; work to ensure a fair and competitive market order by punishing price-related violations; weed out corruption in the construction sector through a new bidding law; and abolish random fees on foreign firms.

The SDPC has been stimulating domestic demand and boosting growth through increased spending on infrastructure, technological upgrading, environmental protection and R&D; reforming the financial sector and encouraging financial institutions to expand consumer credit; supporting medium- and small-sized enterprises and reforming their property rights to share-holding or joint stock cooperative systems; improving the business environment for development zones by expanding domestic markets to make up for losses caused by a drop in foreign capital and exports; and promoting exports and the stability of the Renminbi exchange rate.

In addition, the SDPC has been reducing farmers' burdens through decreasing levies for education, medical care, marriage registration, family planning, house building, electricity and telephone use; boosting incomes through a social welfare system for mid- and low-income households and through unemployment benefits and poverty alleviation programs; boosting the development of small cities to reduce the flow of migrant labor and alleviate pressure on major cities; creating jobs through public works programs; and commercializing the education and housing sectors and enrolling more students.

Conclusion:
In motivating for the study tour to the People's Republic of China, the Committee should consider looking at what aspects of the Chinese government's programmes and policies that are relevant for South Africa; but more specifically