Effects of corruption on the construction industry

Effects of corruption on the construction industry

Construction industry accounts for one third of gross capital formation. Governments have major roles as clients, regulators, owners of construction companies. The industry is consistently ranked as one of the most corrupt; large payments to gain or alter contracts and circumvent regulations are common.

Where government is the client, attempts to counter corruption need to begin at the level of planning and budgeting. At the same time they will need to be complimented by a range of other interventions including publication of procurement documents, independent and community oversight, physical audit, and public-private anti-corruption partnerships.

Collusion retard economic growth and development by diverting resources from social-economic development activities into coffers of a few. It discourages legitimate business investment, and reduces the public resources available for the delivery of public goods and services especially to the poor.

Construction is a RMB$1.7trillion industry in China, amounting to between 5 to 7% of GDP. It accounts for a significant part of gross capital formation – a little under one-third.

Corruption is essentially destructive of public interest. A consequence of corruption is that it dramatically increases the cost of construction by undermining competition.

Corruption on residential projects means less middle and low income housing. Corruption on industrial and commercial projects means higher commercial rents, and therefore higher costs of goods and services. Ultimately the high cost of construction makes investment in building unattractive.

Corruption affects health and welfare of people when it touches the quality of construction i.e. when buildings fail to meet safety requirements and specifications due to corruption and bribery in building materials and workmanship or to bribery of public inspectors.

Collusion amongst building inspectors brings the concept of monitoring into disrepute. Moreover, some actions of building inspectors, such as delaying payments to contractors and consultants, threaten the sustainability of the construction industry and in particular, the development of emerging contractors.

In this regard, corruption undermines the promise to deliver infrastructure and empowerment to any nation. The bottom line of corrupt practices (collusion, money laundering, price fixing and kickbacks in the construction industry) is that construction costs increase and owners and tenants are footing the bill.

In general it means that corruption undermines health and competition, retards economic development, deprives buyers of goods and services of the real benefits of a healthy economy, and takes away the good character of individual and groups.

The effects of corruption as “having a corrosive impact on market opportunities and general business climate. It deters investment, curbs economic growth and sustainable development, distorts prices and undermines legal and judicial systems”.

Competent and honest contractors fail to compete, causing them to withdraw themselves from the market and the field is left for further corruption while the industry falls into disrepute.

If corruption would be stemmed at its root, then that way the socially skilled will not lose their advantage to the socially inept. And the real talents or image of good professionals in the industry will improve which will benefit the countries in the long run if China is to become top place in the world market in the next 20 years

Understand the root that contribute to the problem of corruption in the building industry

Understand the root that contribute to the problem of corruption in the building industry

• poor working conditions
• Lack of ethics or immoral principle - as seen in recent high profile case of contract for sex
• Poverty 
• High rate of uncompleted or delay in completing projects is due to corruption practices in the construction industry.
• Underpayment or insufficient compensation for professional works done. The consultant's inadequate fees is not enough to defray their expenses on the project. Or the consultants may feel that they are not professionally compensated for their expertise and design works.
• The principle of economic eg the exchange that people are paid for work they do. If wages are low people will be ready to earn extra money dishonestly and limited resources force people to pay bribes to obtain things. Lack of an open market means that a few in powerful positions can demand payment for necessary commodities.
• Economic recession

The construction industry depends on the strength of the country's economy. Economic growth is usually accompanied by a construction boom and vice versa. Notably, it is during periods of recession in the construction industry that corruption flourishes, possibly due to there being less work for contractors and intensified competition. As a result contractors may do everything possible to obtain work in order to survive. Also during recession, companies may not receive payments due to others that go under. This may cause them to resort to corruption to get back their money. (I had personally encountered such a case in my career).

However during boom times we must not discount the level of corruption existing too as emerging countries like China will see equally more corruptions as the people are emerging from being poor and would thus be hungry and greedy for more money.

• Competitive bidding

The construction industry is characterized by a large number of heterogeneous and fragmented firms engaged in intense competition. The industry is project based with the majority of projects being designed and built for a price established through competitive bidding / tendering systems.

Collusive bidding practices prevail in the construction industry especially amongst small-scale contractors who want to protect their existence. The firms will prior agree to bid at an inflated bids as normal industry practice is to award to the lowest or second lowest.

The construction industry has its own characteristic methods of project procurement, which are different from other industries. Contractors and consultants obtain their work through open or selected tendering, or by negotiation. These processes may also prove to be competitive in so far as contractors and consultants fear that their chances of being awarded a particular contract are zero. It is at this point that ideas of corrupting the tender-award/decision making parties arise.

What's so wrong with our education system

 Parents today are anxious about their children's education to the extent of being paranoia and damaging to their children's wellbeing. They see scoring good results as a mean to an end. They push, pull, punish their children through rigorous studies, tuitions, school works thinking in doing so it will help their children score good marks in examination.

Today I just heard of one exasperated parent recounted how her daughter was reported as a slow learner, poor in academics by her preschool teacher. But she proved them wrong after her daughter emerged to be otherwise.

I share my experience as I have been there and through all the experiences as a student from primary to tertiary education. I never did well in my examination in my primary to polytechnic except for mathematics which is an innate gift, the rest just managed a C or P3 score despite studying very hard. But to the surprise of many who knew me and with unbelief that I would emerged as top student in my late 40s when I studied for my degree.
Did I studied till overnight as some of my classmates did, no, in fact I went to bed at about 10am and woke up just in time to sit for my papers.
So what's the secret and how did an average or below average student like me beat all students, part-time or full time campus students all over the world from Dubai, China, Malaysia, the West countries to come up top.

So what's so wrong with our education system. I think it has to do with our leaders. Our leaders are not able to see clearly what's so wrong. After all they are also victims of the education system. They strived hard in their studies and many were scholars themselves. So how would they be able to see what's wrong with the education system.

Even one executive director of a national body told me that my part-time degree course is not recognized as it is only a one year course whereas the campus full time 3 year course is recognized by the national body. See how warped their thinkings are. How could a similar course be viewed differently. What is the logic. Actually they failed to see that there is different between a student who has no industry experience and one who is a matured student with 20 years of experience before she took her degree. How I managed is because I already understand the full aspect of the course studies and taking the degree is like writing a biography of  my work experience. That's why I was able to do it with speed and ease whereas my younger classmates had to struggle and can barely finished even 60% of 3 questions examination that required 12 pages of writing in 2 hours. Moreover I am gifted in this profession. I did not go to school to learn, it is all innate.

Our education system is too obsessed with ranking even at preschooler education now. And they thought that once our educators are trained they are qualified to rank a student. You see knowledge kill, too much knowledge destroy a student. Children have very high ego. Once their egos are bruised it destroyed them...their confidence, motivation to study, their self esteem. And it takes years to repair a damaged child.

What I am saying is it is absolutely nonsensical to rank a child. It is alright to expose a child to all studies but it is not necessary to excel in every study. You only have to find your one gift, talent to excel in life. They can find that out after they try all the subjects. Once they know their talents and choose a course that suit their gift they will excel effortlessly. Children in preschool, primary to secondary 1 and 2 age should be a time of building on their social, character, emotional, physical well-being. Hard study should only start from secondary 3 to college, polytechnic and tertiary education.
(I have not touch on how to study to excel...to be continued)

Why “guanxi” or “corruption” is rampant in the building industry

Why “guanxi” or “corruption” is rampant in the building industry

The arts of doing business in the Asian countries have always rely on “guanxi” or the art of building relationships or connections to do business. This invariably results in corruption to secure contracts.

“Guanxi” or connections is an art or wisdom practiced by the Chinese in doing business. Chinese are good at “guanxi”. It also exists in the West, in the United States, too. But in Asian countries especially China and Malaysia it's just deeper. Singapore is no exception as our leaders also believe in this principle of doing business.

These are the many real cases in my 30 years in the industry. The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

How did the Chinese cultivate 'guanxi' or connections to do business. In building industry, this is how it is practiced.

They do it in the name of so called “entertainments” such as buying expensive dinners; sending expensive gifts during festive seasons and “red-packets” or cash filled envelopes.

The contractors, suppliers and consultants usually work closely together on good relational benefits.

How it works. First the suppliers will work closely with the Architects or Designers and Quantity Surveyors engaged on the job by the Developers. As Architect and Designers usually write the specifications for materials used for the Project.

Suppliers will try to get into the book of Architects and Designers by building up a good rapport with them. They usually do it through a scheme called “under table money” for contracts secured for the project.

The contractors in order to get selected to tender for the job will too try to get into a good relationship with the Architect and Designer as they can have a say in the selection process though many a times the Developer would decide on the short list of contractors to tender for the project.

It also benefit the successful contractor to be on good relationship with Architect so that they can influence the Architect to change specifications or construct method to cut price and the savings is shared between them.

The tenderer may also collaborate with the Architect or Designer to make up the tender price by certain percentage of say 10% to cover them when successful.

So how can we do business without “guanxi” or corruption

Build a new set of rules will not work. Make these things more open, transparent, and, in this way, more free, equal and fair.

I am an advocate for a win-win solutions among industry players. The only solution is to create a new kind of level playing field, where everyone benefits from an unfair arrangement by exploiting it equally.

Some people are real masters at corruption, and some aren’t. I hope to create an awareness so as to help the weak ones advance and take away the cream from the experts.

In other words: Fight fire with a smart and balance cost benefits designs, and corruption with sensible win win solutions where everybody walk away being a winner instead of current situation where the biggest pie of profit go to Developers and smaller or nil profit to contractors and suppliers.

The approach reflects the chances of curbing corruption, in the absence of independent monitoring agencies.

Corruption is growing all the time and had been just part of the system for decades and people are growing richer in China and South Asia.

Transparency or anti-corruption is necessary to stem the fire of rapid corruption.

If it wanted to control corruption, the various parties must understand that it is futile to employ audit professionals or institutional or countries pressure to suppress it. The various parties should understand that it is not a win win solution for them and that they should work together and want to do it.

Yet, far from fearing corruption, officials and businessmen “are afraid if you are not corrupt. They want you to be corrupt. If you don’t join in, if you want to be a good person, then you highlight their badness.”

The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

Because of government's involvement, corruption in China is very serious and very rampant but under control.

Corruption is morally ugly. It also increases costs.

A society that relies on guanxi to get things done is a scary place.

When guanxi becomes stronger than rules, it’s dangerous to everyone. Why? Because if you use your guanxi, I’ll use my guanxi, and in the end the price of everything rises. When there are no rules, then everything is a competition, and those with more power win.

As China’s economy expands and becomes globalized, I think it’s going to grow.

Everyone knows that 10 years ago, success was 30 percent guanxi and 70 percent talent. Today, to succeed, you can reverse the ratio. Seventy percent guanxi and 30 percent talent will do.”

Someone wrote : Had I remained a bureaucrat, I’d definitely have become corrupt. The reason is simple, virtually everyone offered bribes. “You can resist temptation once but not a hundred or a thousand times.” 

Ugly Procurement Practices in Singapore, China, Hongkong

Why “guanxi” or “corruption” is rampant in the building industry

The arts of doing business in the Asian countries have always rely on “guanxi” or the art of building relationships or connections to do business. This invariably results in corruption to secure contracts.

“Guanxi” or connections is an art or wisdom practiced by the Chinese in doing business. Chinese are good at “guanxi”. It also exists in the West, in the United States, too. But in Asian countries especially China and Malaysia it's just deeper. Singapore is no exception as our leaders also believe in this principle of doing business.

These are the many real cases in my 30 years in the industry. The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

How did the Chinese cultivate 'guanxi' or connections to do business. In building industry, this is how it is practiced.

They do it in the name of so called “entertainments” such as buying expensive dinners; sending expensive gifts during festive seasons and “red-packets” or cash filled envelopes.

The contractors, suppliers and consultants usually work closely together on good relational benefits.

How it works. First the suppliers will work closely with the Architects or Designers and Quantity Surveyors engaged on the job by the Developers. As Architect and Designers usually write the specifications for materials used for the Project.

Suppliers will try to get into the book of Architects and Designers by building up a good rapport with them. They usually do it through a scheme called “under table money” for contracts secured for the project.

The contractors in order to get selected to tender for the job will too try to get into a good relationship with the Architect and Designer as they can have a say in the selection process though many a times the Developer would decide on the short list of contractors to tender for the project.

It also benefit the successful contractor to be on good relationship with Architect so that they can influence the Architect to change specifications or construct method to cut price and the savings is shared between them.

The tenderer may also collaborate with the Architect or Designer to make up the tender price by certain percentage of say 10% to cover them when successful.

So how can we do business without “guanxi” or corruption

Build a new set of rules will not work. Make these things more open, transparent, and, in this way, more free, equal and fair.

I am an advocate for a win-win solutions among industry players. The only solution is to create a new kind of level playing field, where everyone benefits from an unfair arrangement by exploiting it equally.

Some people are real masters at corruption, and some aren’t. I hope to create an awareness so as to help the weak ones advance and take away the cream from the experts.

In other words: Fight fire with a smart and balance cost benefits designs, and corruption with sensible win win solutions where everybody walk away being a winner instead of current situation where the biggest pie of profit go to Developers and smaller or nil profit to contractors and suppliers.

The approach reflects the chances of curbing corruption, in the absence of independent monitoring agencies.

Corruption is growing all the time and had been just part of the system for decades and people are growing richer in China and South Asia.

Transparency or anti-corruption is necessary to stem the fire of rapid corruption.

If it wanted to control corruption, the various parties must understand that it is futile to employ audit professionals or institutional or countries pressure to suppress it. The various parties should understand that it is not a win win solution for them and that they should work together and want to do it.

Yet, far from fearing corruption, officials and businessmen “are afraid if you are not corrupt. They want you to be corrupt. If you don’t join in, if you want to be a good person, then you highlight their badness.”

The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

Because of government's involvement, corruption in China is very serious and very rampant but under control.

Corruption is morally ugly. It also increases costs.

A society that relies on guanxi to get things done is a scary place.

When guanxi becomes stronger than rules, it’s dangerous to everyone. Why? Because if you use your guanxi, I’ll use my guanxi, and in the end the price of everything rises. When there are no rules, then everything is a competition, and those with more power win.

As China’s economy expands and becomes globalized, I think it’s going to grow.

Everyone knows that 10 years ago, success was 30 percent guanxi and 70 percent talent. Today, to succeed, you can reverse the ratio. Seventy percent guanxi and 30 percent talent will do.”

Had I remained a bureaucrat, I’d definitely have become corrupt. The reason is simple, virtually everyone offered bribes.

“You can resist temptation once but not a hundred or a thousand times.” 

How to do business in China, Singapore without “guanxi”

 Why “guanxi” or “corruption” is rampant in the building industry

The arts of doing business in the Asian countries have always rely on “guanxi” or the art of building relationships or connections to do business. This invariably results in corruption to secure contracts.

“Guanxi” or connections is an art or wisdom practiced by the Chinese in doing business. Chinese are good at “guanxi”. It also exists in the West, in the United States, too. But in Asian countries especially China and Malaysia it's just deeper. Singapore is no exception as our leaders also believe in this principle of doing business.

These are the many real cases in my 30 years in the industry. The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

How did the Chinese cultivate 'guanxi' or connections to do business. In building industry, this is how it is practiced.

They do it in the name of so called “entertainments” such as buying expensive dinners; sending expensive gifts during festive seasons and “red-packets” or cash filled envelopes.

The contractors, suppliers and consultants usually work closely together on good relational benefits.

How it works. First the suppliers will work closely with the Architects or Designers and Quantity Surveyors engaged on the job by the Developers. As Architect and Designers usually write the specifications for materials used for the Project.

Suppliers will try to get into the book of Architects and Designers by building up a good rapport with them. They usually do it through a scheme called “under table money” for contracts secured for the project.

The contractors in order to get selected to tender for the job will too try to get into a good relationship with the Architect and Designer as they can have a say in the selection process though many a times the Developer would decide on the short list of contractors to tender for the project.

It also benefit the successful contractor to be on good relationship with Architect so that they can influence the Architect to change specifications or construct method to cut price and the savings is shared between them.

The tenderer may also collaborate with the Architect or Designer to make up the tender price by certain percentage of say 10% to cover them when successful.

So how can we do business without “guanxi” or corruption

Build a new set of rules will not work. Make these things more open, transparent, and, in this way, more free, equal and fair.

I am an advocate for a win-win solutions among industry players. The only solution is to create a new kind of level playing field, where everyone benefits from an unfair arrangement by exploiting it equally.

Some people are real masters at corruption, and some aren’t. I hope to create an awareness so as to help the weak ones advance and take away the cream from the experts.

In other words: Fight fire with a smart and balance cost benefits designs, and corruption with sensible win win solutions where everybody walk away being a winner instead of current situation where the biggest pie of profit go to Developers and smaller or nil profit to contractors and suppliers.

The approach reflects the chances of curbing corruption, in the absence of independent monitoring agencies.

Corruption is growing all the time and had been just part of the system for decades and people are growing richer in China and South Asia.

Transparency or anti-corruption is necessary to stem the fire of rapid corruption.

If it wanted to control corruption, the various parties must understand that it is futile to employ audit professionals or institutional or countries pressure to suppress it. The various parties should understand that it is not a win win solution for them and that they should work together and want to do it.

Yet, far from fearing corruption, officials and businessmen “are afraid if you are not corrupt. They want you to be corrupt. If you don’t join in, if you want to be a good person, then you highlight their badness.”

The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

Because of government's involvement, corruption in China is very serious and very rampant but under control.

Corruption is morally ugly. It also increases costs.

A society that relies on guanxi to get things done is a scary place.

When guanxi becomes stronger than rules, it’s dangerous to everyone. Why? Because if you use your guanxi, I’ll use my guanxi, and in the end the price of everything rises. When there are no rules, then everything is a competition, and those with more power win.

As China’s economy expands and becomes globalized, I think it’s going to grow.

Everyone knows that 10 years ago, success was 30 percent guanxi and 70 percent talent. Today, to succeed, you can reverse the ratio. Seventy percent guanxi and 30 percent talent will do.”

Had I remained a bureaucrat, I’d definitely have become corrupt. The reason is simple, virtually everyone offered bribes.

“You can resist temptation once but not a hundred or a thousand times.”

Tendering Practice in Singapore
Tendering is not a total fullproof way to ensure value and transparency in procurement.
(This I will illustrade later in a later blog giving examples through my work experience)
Procurement is not just about products but services or even property developments. It is important for companies first to understand the right culture and then value, then will they be able to do the right things in the right markets for the people and country.

Town councils are set up to manage HDB estates. The managing agents for various estates have since been sourced out to external parties.  These managing agents too need to be regulated with proper transparency through tendering to procure the most effective, efficient agent to manage the estate. And each managing agent should be secured on say; 5 years term on a fixed rate (conservancy fees). Upon expiry it should be subjected to re-tender or review by the estate committee for extension.

Many town councils have their own building, whether through leasing from HDB or otherwise. Take for example one town council, they lease the hall to a  comnunity centre  for use as a badminton hall and events. Is the TC leasing to them at market rate? Are the revenues collected from use of badminton hall and events justified the market rate? Isn't town council accountable to the estate owners how they use the fund.
If you do the sum I am sure it is not, as utilization rate for badminton use is probably at 50% or less. Events are held at the hall less frequently, less than 10 events per year. Can the TC better utilize their facilities as these are accounted for and thus affect the balance sheet. Though the comnunity centre lease the hall for badminton and as comnunity centres  are meant for the community at large including those staying in the private estates. Is there not conflict of interests as town counci'l's fund belongs to estate owners

Are Property in Singapore, Hongkong and China heading for Bust?

Tuesday, August 21, 2012

Are Property in Singapore, Hongkong and China heading for Bust?

Are  Developers Colluding to Push Up Prices, Rendering Control Measures Futile? What are the underlying causes for persistent and rapid price rises in Singapore, Hongkong and China’s property market and what are the possible causes that could lead to a reverse course.

What have caused China’s property prices to rise incessantly? Apart from the demand factor, there are four other factors that have caused dogged upward movement in prices:
Let's study China market in relation to Singapore and Hongkong

Singapore

The property market has exploded partly due to the babyboomers' offsprings entering the market and partly due to sudden influx of foreigners, PRs etc. The massive liquidity from printing of money that cause value of money to go down, inflation to shoot up, interest rate to hit rock bottom, and thus asset class becomes a valuable solution. The casinoes is another compelling factor for foreigners to speculate on our market.

Let me illustrade :

In 1980 say there were 400,000 household of average 6 children per household.Population then will be around 2.4 million Let assume 1 out of 6 remains single and the other 5 got married with average 2 children, that work out to 2.5x400,000 = 1 million new household with 2 million childrens. These childrens are now in the age group of 10s to 30s. Say 50% are married or going to get married. We will have 500,000 new household entering property market. The demands for flats will be a whopping 1 million over the last 10 to the next 10 years. is apart from foreigh buyers, new citizens and PRs. Even our government were caught off guard with this exploding demands

China

(1)  Demands - China is different from Singapore as they have one child policy in the last 30 years But China has one billion population. Say there are 4 persons per household, that gives us 250million household or 250 million childrens in their 10s to 40s. The demands for flats will be a whopping 125millions over the last 10 to the next 10 years.

(2)   Economic power - The chinese are moving up the economic ladder due to huge investments that have flowed into China over the last few years. Businesses are flourishing, so are workers' salary that have moved up by 50% or more. This has fuel the demands from mid to luxury end market.

(3) Manipulation and collusion - Property price rises bring extra profit to developers. No doubt developers are the major pushing force behind the housing market. Most developers’ gearing ratio is 75 percent. That means only one-quarter of the total investment fund is the developer’s equity, while the remaining three-quarters are borrowed funds. For every price rise of 1 percent, the developer’s return on equity will grow 3 percent.

Another point is that in a rising market, even when a project is completed, a developer can choose not to sell out the completed units all at once if they expect future price appreciation will be greater than their carrying cost. They will simply hold on to the units, thereby squeezing the available supply, to maximize their return.

There are a number of prodigious developer groups who are known to manipulate the property market by collusion, enabled by their dominating market shares. Unless something can be done to restrict their market shares, none of the cooling measures such as raising interest rates and other administrative controls like regulating land grant procedures is going to be effective. As long as they can exercise dominance in the market, they can easily pass on to consumers any additional costs like interest rate cost and land cost.

(4) Grafts and Corruption - Local government officials are prone to take a rising property market as a sign of economic prosperity. Besides, it also brings them higher tax revenue and other grey area income. So they would only be happy to see an upwardly mobile property market. We have seen in the news how large developers receive favors from government officials to win lands.

So what would cause the property market to reverse gear :
(1) If some drastic negative economic fundamentals surface, like an abrupt rise in long-term real interest rates or dramatic changes in the tax system, these could cause the property market to tank. However, given the serious lag in reforming China’s tax system, all the various taxes that have been introduced as cooling measures are in fact useless as such.

(2) Relaxing land supply may apply some pressure on prices in the short term. In big cities like Beijing and Shanghai, the increase in land supply in 2006 was seen as an effective coolant. However, in the coastal cities where land is becoming very scarce, this measure is simply not workable.

(3) Experience shows that short-term restrictive measures like tightening monetary supply, directly taxing speculators and some price rise capping measures can have a cooling effect. However, such measures cannot be effective over the long term, as these would be off set by people’s natural expectations of price appreciation.

To make a final judgment on the causes of property price rises and falls would be crucial to improving and regulating China’s property market and preventing a financial crisis. The most urgent thing to do now is to establish a high quality research institution to collect and analyse all relevant data.

Generally speaking, it appears that all the property price huge rise causes are due to low interest rate, huge money flow and high economic growth. However despite all cooling measures prices are resilient except for China 2nd & 3rd tier cities where prices have crashed up to 30%. Based on this observation, we can conclude that property prices will be flat or with 10-20% downward bias in the next 10 years.

 

August 21 2012

“关系”Guanxi - Do we really know the roots meaning of this word

“关系” “Guanxi"  literally means "relationships",  and is usually use in the Chinese business world. It is also understood as the network of relationships among various parties that cooperate together and support one another.
The Chinese businessmen mentality believe in exchanging favors, which are expected to be done regularly and voluntarily, if one is to function effectively in Chinese society.

In China it is the right "Guanxi" that makes all the difference in ensuring that business will be successful. By getting the right "Guanxi", the organization minimizes the risks, frustrations, and disappointments when doing business in China. Often it is acquiring the right "Guanxi" with the relevant authorities that will determine the competitive standing of an organization in the long run in China. And moreover, the inevitable risks, barriers, and set-ups you’ll encounter in China will be minimized when you have the right “Guanxi” network working for you. That is why the correct "Guanxi" is so vital to any successful business strategy in China.

How relationship is established in China
Although developing and nurturing the "Guanxi" in China is very demanding on time and resources, the time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often more much more valuable, especially in the long run, and when you’re in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). 

The wrong education on "Guanxi"
And yet educations, businesses, governments advocate their staffs, counterparts, students to pay close attention to the importance of Chinese network or  "Guanxi", thinking that it can indirectly link them to new acquaintances and information resources, thus helping them to develop other right "Guanxi" they need. Not knowing that it actually poison wrong value on their minds. Many of  the young professionals have invariably and unconciously drunk in the evils of the roots of "Guanxi" into their character, i.e. corruption

"Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. 

Roots of "Guanxi"
Though it is completely legal in their culture and not regarded as bribery in any way.  The roots of "Guanxi" actually stem from corruption. It is disguised as network relationship building, goodwill, information gathering etc but honestly it all boils down to humans' basic needs of wanting to fill the stomach first (as China came out poverty very fast) and then meeting the higher needs like flashy cars, big houses, branded goods, exotic holidays, exquisite cuisine, luxury hotels, first class travels etc that cause men to crave for more wealth through corruptions and grafts.
Therefore this kind of "Guanxi" is always very one-sided. When "Guanxi" is involved, there is a risk of obtaining an invoice of twice the amount that you bargained for.

Land use rights in China

August 21 2012

Land use rights in China 

By Brad Herrold, Lovells Beijing

China’s legal framework on property ownership and development : legislative and administrative system for property development in China, land use rights system, property development approvals process, and licensing requirements for enterprises involved in a development project.

The Legislative and Administrative System

The legislative pillars of China’s legal system in regard to land are the Law of the People’s Republic of China on Property Rights, enacted by the National People’s Congress (NPC) and effective on 1 October 2007 (“Property Rights Law”), the Law of the People’s Republic of China on Land Administration, adopted by the NPC and effective on 1 January 1999 (“Land Administration Law”) and the Law of the People’s Republic of China on the Administration of Urban Real Estate, enacted by the NPC and effective on 1 January 1995 (“Urban Real Estate Law”).

The Property Rights Law and the Contract Law of the People’s Republic of China, enacted by the NPC (as amended) and effective 1 October 1999 (“Contract Law”), govern contracts for transfers of buildings and other immovable property. The construction of buildings and other improvements are governed by the Construction Law of the People’s Republic of China enacted by the NPC and effective 1 March 1998, and a slew of other administrative regulations, rules, decrees and orders issued by the relevant departments in charge of the administration of construction quality control, environmental protection, fire protection, safety, labour and health.

The Ministry of State Land and Resources is in charge of the administration of land at the national or “central” level. Provincial land authorities are commonly referred to as the Real Property and Land Resources Administration Bureaux, while district-level authorities under each Provincial Land Bureau generally are called the District Planning and Land Administration Bureaux, or the District Real Property and Land Administration Bureaux. For simplicity, we refer to each department in charge of the administration of land at the various levels in China’s bureaucracy as the “Land Authority”.

The Land Use Rights System

There is a fundamental distinction in China between “rights of ownership in land” and “rights to use land”. All land is owned by the State or by a rural collective. Rights of ownership in land are not transferrable. By contrast, the right to use State-owned land use rights is transferrable and such land use rights can be leased or mortgaged. Provided that the land is first requisitioned by the State and, in effect, converted to state-owned land, the land use rights to collectively-owned land can be transferred, leased or mortgaged.

Land is classified in China as agricultural, construction or unused, and as a general rule only state-owned land for construction purposes may be requisitioned and used for development of commercial or profit-making real estate projects.

The State Council reviews and revises the national land use plan, i.e., it alters the classification of specific parcels of land, only once every five years. Despite frequent claims to the contrary by

developers and local government officials, provincial, municipal, district and county level governments are prohibited from issuing land use plans that are not in strict compliance with the State Council’s plan.

Generally, land use rights can be obtained only by grant or by allocation. Allocated land use rights refer to land use rights that were allocated by the Land Authority to a State-owned enterprise or other public entity for an indefinite term and without the payment of consideration.

Allocated land use rights cannot be transferred, leased or mortgaged. Granted land use rights, by contrast, involve the execution of a State-owned Land Use Rights Grant Contract (“Land Grant Contract”) between the land user and the Land Authority and the payment of a grant fee.

The grantee of properly granted State-owned land use rights to land that is properly planned forindustrial or residential use (1) may enjoy an enforceable right to use the land for a fixed term of between 40 and 70 years, (2) may use the land for the purposes specified in the Land Grant Contract during such term, and (3) subject to certain restrictions, generally is free to transfer, lease or mortgage the land use rights freely.

Land Grant Contracts often form documents prepared and promulgated by the Land Authority, but should be scrutinized — they often set tight deadlines for payment of the land grant fee and the commencement and completion of construction. Penalties for non-compliance can be draconian. Land Grant Contracts also contain planning parameters for the development of land and describe the location of the land, identify the type of user (residential, commercial, industrial, comprehensive) and prescribe the grant period.

Property developers in China may choose from several options to acquire land use rights, including a grant to develop a new project, the acquisition of an existing development project, the acquisition of an equity interest in an entity that holds land use rights or a lease of land use rights.

Developers rarely lease land use rights. The State is not permitted to lease land use rights for commercial developments, though land use rights may be available for lease in the secondary market, i.e., previously granted rights. Under the Contract Law, the term of a lease is not valid for more than 20 years. Instead, the term must be renewed. In addition, lessees are seldom able to successfully negotiate for the right to assign, sublease or encumber land use rights.

Land use rights may be granted by means of negotiated agreement, public bidding, auction or listing process, though a grant by negotiated agreement is no longer permitted in relation to land intended for industrial, commerce, tourism, entertainment and residential use. Instead, pursuant to the Provisions on the Assignment of State-owned Construction Land Use Right through Bid

nvitation, Auction and Quotation, promulgated by the Ministry of Land and Resources and effective 1 November 2007, such land, as well as land intended for more than one user, must be granted by way of public bidding, auction or listing on a land exchange. Land use rights granted by auction or public bidding may not be sold below a government specified minimum price rate.

Land use rights also may be obtained by transfer from the original land user in the secondary land market, and a transfer may be conducted by exchange or gift, subject to government supervision. Transfers of land use rights normally occur pursuant to a transfer agreement.

The use term obtained by the transferee of land use rights is equivalent to the remaining term of the granted land use rights at the time of the transfer.

Though ownership rights in regard to other forms of immovable property such as buildings and other improvements are regulated separately from land use rights (and, generally, different certificates are issued to evidence the ownership rights in each), Chinese law recognizes the principle of unity of title. Hence, where land use rights are granted, transferred or bequeathed, improvements to the land are disposed together with the land use rights.

Under the Property Rights Law, the creation, modification, transfer or termination of property rights in regard to immovable property, including land use rights and buildings, is effective only upon registration. To be clear, if a transfer of land use rights occurs pursuant to an enforceable transfer contract, the parties would have enforceable rights and obligations under the contract, irrespective of a failure to register the transfer. If, however, the transferor under the land transfer contract were to again transfer the land use rights to a bona fide third party purchaser and the purchaser were to register the transfer, it would be the legal owner of the land and the original transferee’s only recourse would be an action for damages under its contract.

August 21 2012
Strategic Value Management
The construction/retrofitting industry is increasingly growing at a dynamic, demanding and challenging pace. This has also resulted in a lot of conflicts, discontent and unhappiness between clients and designers. The recent case in the US where the design teams were being thrown out for consistently busting the budget by a whopping margin.

Construction projects have in the past suffered from three major problems: (1) cost overrun; (2) time overrun; and (3) quality short fall. Predicting contract prices at the design phase is a necessary, albeit a difficult task in construction design and project management. Evidence shows that projects often suffer delays and costly disruptions because of the differences between design cost predictions and contractors' bids or not meeting value for money for user of the facility.

What are the crucial task to determine why design estimates are consistently significantly lower than construction bids and what study can show how strategic value management can help to address this problem.

Strategic value management is broadly divided into three main areas; namely value management, design value management and value engineering management.

Can we devise an implementation strategies for SVM; in developing a design costing system capable of producing prices and quality design; and lastly in enhancing value for money for the facility.

Are we able to do a research to investigate the theoretical basis of SVM in order to offer improvements to current practice :
(i) To evaluate the existing approaches, the benefits and pitfalls to implementing SVM
(ii) To evaluate the available literature on SVM
(iii) To determine the extent to which theory can contribute to working designs within budget and achieving value for money in building design.
 (iv) To develop a new methodology for value management which is both theoretically rigorous and practical in its implementation.
(v) To provide guidance on the types of situation within which the new methodology is applicable.
(vi) To evaluate the application of the new methodology in a real situation.

It is hope that the industry will act to inculcate the awareness and importance of SVM in delivering design within budget and value for money within the construction/refurbishment industry. It is also hope to update practitioner and provide essential information for all parties involved in the industry.