27 Dec 2018
Hong Kong: A Global Bridge for Mainland Construction Companies
Interview with Iris Ying, Director of Shanghai Construction Overseas Engineering Ltd
Mainland Construction Sector: Modernising and Globalising
Construction is one of the sectors of the Chinese economy that has benefitted most from four decades of rapid economic reform and growth. Indeed, the number of construction companies in China has mushroomed, reaching 88,074 in 2017.  Despite state-owned companies still dominating the sector, many believe they can ill-afford to be complacent. Of the 65 Chinese construction companies on the Engineering News-Record (ENR)’s 2017 Top 250 International Contractors list, nine are privately-owned. In light of this, in order to stay competitive, state-owned companies should be aiming not just to expand but also to improve. They need to adopt the modern, globalised management and business practices in use abroad and make good use of the financial services available offshore to help develop their projects. In particular, Hong Kong’s construction industry practices, its global connections and its financial services could be instrumental in helping China’s state-owned construction companies develop.
SCOE: Play an Active Role in Hong Kong
Shanghai Construction Overseas Engineering (SCOE) is the Hong Kong subsidiary of the Shanghai Construction Group (SCG). It is an approved contractor for public works in Hong Kong and has undertaken a number of civil engineering, building engineering and interior decoration projects. It also played a key role in the construction of the Hong Kong sections of the vehicular and pedestrian bridges crossing the Shenzhen River, part of the soon-to-be-opened Liantang / Heung Yuen Wai Boundary Control Point Project.
Its parent company, the SCG, is a leading state-owned construction company on the mainland. It has been responsible for many of China’s landmark buildings, including the Canton Tower, the National Exhibition and Convention Center in Shanghai and the Shanghai Tower. As well as its work in mainland China, Hong Kong and Macau, the SCG operates in more than 30 countries and territories in south-east Asia, Africa and the Americas. It has also participated in projects in many countries along the Belt and Road Initiative routes, such as National Highway 6 in Cambodia.
Hong Kong and Mainland Construction: Key Differences
Hong Kong is a densely-populated city with a well-developed construction industry. For its part, the SCG sees the territory as an important offshore base. This is largely because, as Hong Kong’s system is more in line with global construction industry standards than that of the mainland, it can act as an international information centre for the company. The rules and practices of Hong Kong’s construction industry are largely modelled on those of the UK and are relatively similar to the industry norms found in a number of other countries, such as the US and Australia.
One major difference between the construction industries in Hong Kong and mainland China is with regard to the role and responsibilities of architects. In Hong Kong, architects oversee construction projects, while on the mainland, architectural firms are largely responsible for construction plans and project designs. Project supervision and construction management are the responsibility of dedicated supervisory bodies. In Hong Kong, a unique system – “authorised persons” – is in place, which sees said accredited individuals granted responsibility for supervising the progress of individual construction projects. In line with this, they sign the relevant certificates and bear legal responsibility for the projects. 
As a result, architects in Hong Kong have greater power over their projects than their mainland counterparts, while the scope of their work is also broader.  As a contractor, then, SCOE is obliged to work with architects under the supervision of building consultants. Noting that this had initially come as something of a shock, SCOE Director Iris Ying said: “When we first joined the ranks of architecture firms in Hong Kong, we really felt there was a world of difference between our two different systems.”
Culture shock aside, mainland construction companies can learn how to comply with internationally-accepted practices in terms of specifications and contracts by undertaking projects in Hong Kong. A key difference in Hong Kong, for example, is that, in addition to Chinese, English is used in the legal documents relating to construction projects. It’s for this reason that the SCG seconds staff to Hong Kong, allowing them to learn, in an actual work environment, the differences between the practices favoured in the city and those normally adopted on the mainland. This applies not only to language, but also to standard industry practices and contract stipulations. In this way, the company can use its Hong Kong platform to prepare construction specialists to work in many of the overseas markets.
Hong Kong: Helping SCG Go Global
Hong Kong’s professional services sector provides strong support to the SCG in its drive to go global. According to Ying, international construction projects are mainly awarded to contractors via a bidding process. In order to make a successful bid, the SCG needs accurate market information, an area where having the appropriate overseas connections may prove essential. In particular, Hong Kong’s international law firms have excellent overseas connections, allowing them to provide accurate risk assessments, due diligence checks and other services to the SCG when it’s looking to make overseas expansion decisions.
The wide range of professional services available in Hong Kong work to the advantage of the SCG and its local subsidiary in other ways too. Rather than having to engage the services of one large international law firm every time they need support, they can use the different service providers depending on what each situation requires. This is useful because the degree of complexity involved often varies from one scenario to the next.
As the world’s largest offshore renminbi trading hub, Hong Kong is also an important financing centre for the SCG. Hong Kong’s free movement of funds facility makes it the ideal place for fund transfers, while its transparent and open business environment is very attractive to foreign funds, which makes financing costs far more competitive.
A few years ago, the SCG raised several hundred million US dollars through the issuance of corporate bonds in Hong Kong. Although Ying emphasised that the SCG was not planning to publicly-list in Hong Kong any time soon, she does believe it is important to establish suitable connections which could be put to use should that time ever come. For her part, she sees Hong Kong’s unparalleled advantages when it comes to the provision of financial services as a key element in meeting the SCG’s strategic objectives of internationalising and modernising its operations.
At present, many mainland businesses, especially state-owned enterprises, are looking to strengthen their international connections, adopt modern business concepts and improve efficiency in order to stay competitive. Accordingly, the SCG sees the internationally-compliant business and regulatory regime of Hong Kong’s construction industry, its globally-renowned professional services sector and its excellent access to financial services as essential if it is to meet its own long-term aims.
Stressing the importance of the company’s Hong Kong connections, Ying said: “While Hong Kong’s construction market is without doubt much smaller than that of the mainland market, its high degree of internationalisation and its global standing make it an indispensable testing ground for any mainland company looking to venture overseas.”
 Source: National Bureau of Statistics.
 An “authorised person” refers to (a) an architect, (b) an engineer; or (c) a surveyor in the Register of Authorised Persons under Section 3(1) of the Buildings Ordinance.
 Source: A comparative study of the scope of work of architects in Hong Kong and Mainland China, jointly compiled by the University of Hong Kong and Tsinghua University, November 2009 (《香港與內地建築師在工作範疇上的比較及研究綜合報告 (比較部份)》).