China: Building In China — Some Legal Considerations

Last Updated: 28 October 2011
Article by Nick Molan

Recent data on the Chinese construction market confirmed it as the second largest in the world, and it is expected to surpass the U.S. to take the number one spot by 2020. Since the Central Government indentified the significance of the construction industry for China's modernisation plans during the early 1980s, the industry has boomed to the point that today construction-related output is valued at US$1.4 trillion, equivalent to approximately 24 percent of China's GDP. The current strength and expected growth of the construction market is underpinned by China's rapid population growth, an accelerated trend towards urbanization, increased industrial output and the increased infrastructure and other capital needs stemming from the foregoing.

However, although China's economy has become increasingly open, particularly since China's accession to the World Trade Organization in 2001, the construction industry remains relatively protected by a combination of


Mainland China is governed by a multi-tiered civil regime which is constantly evolving at the hands of the central, provincial and municipal governments.


legal, political and economic mechanisms which must be understood and managed by foreign construction and services firms hoping to tap into this market. In this article we set out some of the legal considerations which should be borne in mind when considering the relative advantages and disadvantages for foreign construction companies of seeking to do business in China.

Legal Barriers to Foreign Construction Companies

According to the National Statistics Bureau of China, there are approximately 59,000 construction enterprises in China, but only 351 foreign firms (not including firms from Hong Kong or Macau) that have registered activity on the Mainland. Interestingly this number has been steadily decreasing since 2004, when the number stood at 386. The majority of these foreign companies are based in Beijing and Shanghai, they employ (on average) approximately 300 people, and realised a combined total profit in 2009 of almost US$350 million.

However, focusing on wholly foreign-owned companies can be misleading, given that (as a general rule) foreign companies must team up with a local partner (either in joint venture or by creating a special purpose company) to be eligible to work in the Chinese market. This obviously involves a degree of risk, both in selecting a suitable partner and forming a cohesive working unit with that partner on an ongoing basis. Nonetheless, it also reflects a general underlying symbiosis between foreign companies, whose strength often lies in their technical and management know-how, and local companies, whose strength often lies in their manpower, local knowledge and connections.

A key exception to this general prohibition on foreign construction companies operating in China in their own right is that foreign firms may be awarded contracts for construction projects financed by foreign governments, international and multilateral organizations (most notably, the World Bank and the Asian Development Bank) or foreign companies. This is generally a good fit, given that in scope and technicality these projects are often complex, which provides sophisticated foreign contractors with an advantage over their lower cost domestic competitors for such work.

Legislative Framework

Mainland China is governed by a multi-tiered civil regime which is constantly evolving at the hands of the central, provincial and municipal governments. The following laws passed by the central government are of particular significance for the construction industry (and apply equally to local participants, foreign companies and foreign/local joint ventures):

  • The Contract Law of the PRC, notably Chapter 16 which defines a construction project contract to include survey contracts, design contracts and project construction contracts. Chapter 16 also sets out certain general principles for tendering, contractual terms, supervision and inspection of the site and works, and remedies;
  • The Construction Law of the PRC, which regulates construction licensing, contracting, supervision of construction projects, occupational health and safety, project management and quality regulation; and
  • The Invitation and Submission of Bids Law of the PRC, which standardizes the procurement process (including bid invitation and submission) for projects with a bearing on public interest, including large-scale infrastructure and public utility projects, and projects which are funded by the Chinese government, foreign governments or multilateral organizations.

In addition to these laws of general application, there are a number of laws which have been prepared by the Ministry of Construction (the Central Government Ministry which has general oversight for construction activities and the construction industry in China) specifically targeting foreign firms operating in China.

These include:

  • The Regulations on Administration of Foreign Invested Firms;
  • The Regulations on Foreign Invested Construction and Engineering Firms; and
  • The Regulations on the Management of Foreign Funded Urban Planning Service Enterprises, each of which seeks to reconcile the general construction laws described earlier with various laws governing foreign investment in China, including the Sino-Foreign Equity Joint Ventures Law and the Wholly Foreign-Owned Enterprises Law.

The above represents a sample of the major legislation which is likely to apply to a foreign-owned construction company doing business in China. It is important to remember, however, that behind this are a significant number of further laws, regulations, directives, issues papers and memoranda issued by different levels of China's bureaucracy which must be considered in reaching a decision about whether to participate in a particular project. However there is a growing number of law firms and other specialist advisers, both inside China and elsewhere, who are able to assist companies in navigating this complex field.

Standard Form Contracts

As with many jurisdictions, standard form contracts have been introduced within the Chinese construction industry to improve the efficiency of the contract negotiating process and to manifest certain generally accepted principles about the way business is done in the market.

Foreign contractors generally draw comfort from the fact that FIDIC conditions of contract have been widely used in China for the delivery of major construction projects for a number of years now. It is important to recognize, however, that the FIDIC form is primarily used for projects financed by foreign governments, international and multilateral organizations or foreign companies.

For projects procured by the Chinese public sector or state-owned enterprises, there are a significant number of Chinese standard form contracts, and their use in a project may be influenced by the industry in which the project is situated or the nature of the procuring entity. The most important general form of construction contract is the Model Conditions of Contract for Works of Building Construction, released by the Ministry of Construction and the State Industrial and Commercial Administration Bureau in 1991 and re-issued in a revised second edition in 1999. This general form of agreement and related forms are constantly being revised and refined with reference to prevailing international trends and developments in relevant laws.

Most recently, the National Development and Reform Commission released draft versions of the Standard Project Design and Construction Main Contractor Bidding Documents and the Simplified Standard Construction Project Bidding Documents (which are basically simplified versions of the Standard Documents for Tendering of Construction Projects issued in 2007). The public consultation process regarding these drafts closed at the end of December 2010, and many had been expecting final versions to be released in the first half of this year. However, at the time of writing this article, these were yet to be published.

In addition to the forms of contract published by the government bodies identified above, many other public bodies and state-owned companies have also created standard conditions of contract for their works, including (by way of example) the Ministry of Water Conservancy, the Ministry of Electricity and the State Industrial and Commercial Administration Bureau.

To Build or Not to Build?

The Chinese economy has become synonymous with boundless enthusiasm and potential, and few people challenge the fundamental role which the construction industry has played and will continue to play in the future of that growth.

This article has discussed some of the preliminary legal issues which a construction enterprise should consider when deciding whether to pursue business opportunities in China. Of equal importance will be considerations regarding the economics and commerciality of such opportunities, cultural constraints to doing business in China and the organizational fit (in the case of a joint venture structure) within an enterprise's broader structure. That said, in light of prolonged economic difficulties in more familiar markets, it may be timely for skilled foreign construction companies to consider a foray into China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.