The Chinese construction industry from the perspective of industrial organization

The Chinese construction industry has been growing rapidly since China launched a reform of its national economic system from a centrally planned economy to a socialist market economy in 1978. Nevertheless, its development over the past decade or so suggests that it faces serious difficulties during its transition to a market-oriented system. In particular, the profit rate for the industry is lower than that of typical market economies and continues to decline. Meanwhile, the percentage of unprofitable firms has been growing since the early 1990s. The primary objectives of this study are to identify options for improving the development of the Chinese construction industry by means of an analysis based on industrial organization theory. This research investigates the market structure of the Chinese construction industry in terms of concentration ratios, the Herfindahl index, firm size distribution by employment, the Lorenz Curve, and the associated Gini coefficient; and the results for Chinese contractors are compared with those for contractors in the US, the UK, and Japan. A questionnaire survey and personal interviews were conducted in major cities in China to investigate the primary objectives of various Chinese construction firms and the strategic behavior that they have adopted to achieve the stated objectives during this dynamic transformational period, with particular attention being given to profit strategy, project procurement strategy, pricing strategy, factors for winning a bid, competition method, factors affecting project management, growth strategy, and unfair competitive activities. The performance of the Chinese construction industry is analyzed by means of indicators that measure productivity, profitability, quality of construction product, and technological advances. The important factors contributing to the industry's poor performance were found to be (a) inappropriate market structure, (b) problems with internal firm operations, and (c) unfair competition. To address these problems and improve the competitiveness and effectiveness of the Chinese construction industry, both nationally and internationally, a variety of policies is suggested, and each of these suggestions is supported by proposed actions for implementation by either the government or the industry itself.