Overview
- Over the years, Hong Kong companies have earned a reputation in rapid construction of quality high-rise apartment blocks and office towers. The adoption of specialised construction techniques, such as reclamation and design-and-build methods, has made Hong Kong a regional leader.
- Hong Kong's construction industry performed well in the first quarter of 2011, with the gross value of construction work performed by main contractors in real terms amounted to HK$26.3 billion (US$3.4 billion), gaining 17% year-on-year (YoY).
- Most of the export business for Hong Kong companies comes from Asia, with the Chinese mainland taking the lead. Asia and the Middle East are also promising markets. Major services categories include project management, contracting and engineering consulting.
- The ten major infrastructure projects announced in 2007 are being rolled out in phases as scheduled, boosting Hong Kong’s construction market.
- China’s twelfth Five-Year-Plan, which was released in March 2011, shows the country’s intention of further increasing investment on the infrastructure development, offering great opportunity for Hong Kong contractors.
Industry Data
|
|
Mar-2010
|
Mar-2011
|
YoY %
|
|
Number of Construction Sites
|
1,006
|
1,053
|
+4.7
|
|
Public
|
396
|
466
|
+17.7
|
|
Private
|
610
|
587
|
-3.8
|
|
Employment
|
53,913
|
58,807
|
+9.1
|
|
Public
|
23,849
|
30,962
|
+29.8
|
|
Private
|
30,064
|
27,845
|
-7.4
|
Source: Quarterly Report of Employment and Vacancies at Construction Sites, Census and Statistics Department
Major indicators of the building and civil engineering industries
|
|
2008
|
2009
|
YoY %
|
|
Establishments
|
20,100
|
20,216
|
+0.6
|
|
Employment
|
135,990
|
135,254
|
-0.5
|
|
Gross value of construction works performed (US$ million)
|
21,074
|
20,009
|
-5.1
|
Source: Key Statistics on Business Performance and Operating Characteristics of the Building, Construction and Real Estate sectors in 2009
Range of Services
Construction activities can broadly be classified into three categories, buildings (residential, commercial, and industrial/storage/service), structures and facilities (transport, other utilities and plant, environment, and sports and recreation), and non-site activities (decoration, maintenance and repair, etc.).
The overall gross value of construction work performed by main contractors in Hong Kong (in real terms) has been rising since 2009. A strong growth of 61.1% in the value of public sector sites drove up the construction activity by 7% to HK$111 billion in 2010. As the ten major infrastructure projects are being rolled out in phases as scheduled, the demand for construction services in Hong Kong, particularly demand from the public sector, will remain high.
Gross value of construction works performed by main contractors
|
Sector
|
2010
|
2010 YoY %
|
2011 Jan-Mar
|
2011 YoY %
|
|
Private sector sites (HK$ million)
|
26,924
|
-12.3
|
6,183
|
9.3
|
|
Public sector sites (HK$ million)
|
27,470
|
61.6
|
8,165
|
40.4
|
|
Location other than sites (HK$ million)
|
45,883
|
-0.1
|
11,966
|
8.6
|
|
All group (HK$ million)
|
100,278
|
7.0
|
26,313
|
17.0
|
Source: Hong Kong Census and Statistics department
Services Providers
Hong Kong's construction industry is characterised by a small number of large local contractors, a high level of subcontracting, the presence of many overseas contractors, and a substantial number of companies being both developers and contractors.
Most of Hong Kong's construction companies are small in size, those with less than HK$10 million (US$1.3 million) in annual gross value of construction work account for as high as 97% of the construction industry. The majority of the small ones act as subcontractors to the large companies, which tend to be main contractors. There are quite a number of very big construction companies that are capable of handling projects requiring sophisticated technology and strong financial background and are expanding their business across the region.
Hong Kong contractors are experienced and highly skilled in building works. Because of the growing size and complexity of the projects, the current industry trend is to award large and complex building contracts as a single package to multi-disciplinary contractors.
There is no formal restriction for entry to the contracting business in Hong Kong. Foreign and local contractors are treated alike, and they can tender public sector projects so long as they have good track record and sufficient financial capability.
Many services professionals are involved in the building and construction industry, notably architects, surveyors and engineers.
Exports
Hong Kong's expertise in timely construction of quality high-rise residential and commercial buildings is internationally renowned and in great demand in overseas markets, especially on the Chinese mainland. The Middle East continues to be a market with high potential for Hong Kong’s construction companies. Government infrastructure plans as well as stimulus packages provide good support to construction activities in the Gulf region. Saudi Arabia, for example, the government has launched an over US$100 billion-valued stimulus package in 2011, with nearly half of the investment going to the infrastructure development. According to the country’s infrastructure report for the second quarter of 2011, the construction industry is expected to grow with an average annual rate of 4% in 2011-2015.
Major types of Hong Kong's exported services include project management, contracting and engineering consulting.
Hong Kong Exports of Construction Services
|
|
2006
|
2007
|
2008
|
2009
|
|
Value (US$ million)
|
267
|
346
|
202
|
138
|
|
Share of total service exports (%)
|
0.4
|
0.4
|
0.2
|
0.2
|
|
YoY growth (%)
|
-14.5
|
29.6
|
-41.5
|
-31.7
|
Source: Report on Hong Kong Trade in Services Statistics, Census and Statistics Department
Industry Development and Market Outlook
New momentum in public infrastructure
In the Chief Executive’s Policy Address in October 2007, ten major infrastructure projects were announced, some of which have had their details published and tenders released, thereby driving up local construction activities. Below is a summary of the ten infrastructure projects:
|
Project
|
Description
|
Value
(US$ mln)
|
Target commencement
|
Target completion
|
1. South Island Line(SIL) |
- Linking Admiralty to the Southern District on Hong Kong Island
|
927
|
2011
|
2015
|
2. The Shatin to Central Link (SCL) |
- Connecting the northeast New Territories and Hong Kong Island
|
6,254
|
2012
|
2018/ 2020
|
3. The Tuen Mun Western Bypass and Tuen Mun Chek Lap Kok Link |
- Linking up Deep Bay in Shenzhen, the northwest New Territories and Hong Kong International Airport.
|
Over 2,500
|
2010
|
2016
|
4. The Guangzhou- Shenzhen-Hong Kong Express Rail Link |
- Linking up the national rail network of the Chinese mainland
- Connecting West Kowloon to Shibi, Guangzhou
|
6,885
|
2010
|
2015
|
5. Hong Kong- Zhuhai-Macau Bridge |
- 29.6 km-Bridge with 6 lanes
- Linking up Hong Kong, Zhuhai and Macau.
|
Over 5,410
|
2010
|
2016 or later
|
6. Hong Kong- Shenzhen Airport Cooperation |
- A dedicated rail link between Shenzhen Airport and Hong Kong International Airport
|
n.a.
|
n.a.
|
n.a.
|
7. Hong Kong- Shenzhen Joint Development of the Lok Ma Chau Loop |
- Lok Ma Chau Loop, an area near the Hong Kong-Shenzhen border
- Working with Shenzhen authorities to develop the area
|
n.a.
|
n.a.
|
n.a.
|
8. West Kowloon Cultural District (WKCD) |
- The flagship art and culture development in Hong Kong with aims to provide a platform to enhance arts education and cultural exchange and cooperation.
|
Over 2,769
|
n.a.
|
n.a.
|
9. Kai Tak Development Plan |
- An area consisting of former Hong Kong airport and its adjoining parts,
- To be developed into an area for commercial, residential, recreational, tourism and community uses together with supporting infrastructure
|
Over 16,000
|
2009
|
2013 / 2016 / 2021 (In 3 phases)
|
| 10. New Development Areas (NDAs) |
- purposes of land use include housing, employment, high value-added and non-polluting industries
|
n.a.
|
n.a.
|
2019 (first phase)
|
Source: various press and government sources
Apart from the ten major infrastructure projects, the HKSAR government has also forged ahead with other works, such as Operation Building Bright and Revitalising Historic Building. In addition, the further development of Hong Kong International Airport, including the construction of the proposed third runway, is under discussion, according to the HKIA’s Master Plan. As a result of these projects, the employment condition in the construction industry has improved significantly, with the unemployment rate in the industry down to recent 4.5% from the post-tsunami peak of 12.8%
In the Budget 2011/12, the Hong Kong government estimated total public spending on infrastructure to go up by 45% YoY to HK$58 billion (US$7 billion) for the fiscal year ending 31 March 2012.
Infrastructure projects in the region
Many Asian countries need to upgrade their basic infrastructure such as road networks, port facilities, and housing. The rise of Asian consumerism has also led to rising investment in modernising their retail distribution channels. Shopping malls are springing up in many Asian countries, typically India, Indonesia, the Philippines, Thailand, Malaysia and Vietnam. Hong Kong construction companies are actively seeking opportunities in these markets. Luks Group, for example, engages in cement production and property development in Vietnam.
The Middle East is another market which has attracted some Hong Kong companies, with many projects won in many Middle East countries. Hip Hing Construction has won contracts in Abu Dhabi’s (the capital city of the UAE) carbon-free city Masdar, as well as contracts in Dubai to construct a 72-storey residential building called HHHR Tower together with Al Ahmadiah Contracting & Trading. Paul Y, was awarded the contract worth US$77 million to build the 54-storey Arraya Office Tower in Kuwait. Another Hong Kong construction company, Chun Wo Development, with initial investments in two residential projects in Abu Dhabi, also entered the Middle East market.
China's construction market
Rapid urbanisation drives up China’s demand of infrastructure development. According to China’s 12th Five-Year-Plan, urbanisation is targeted to go up by 4%, reaching 51% in 2015 from 47% in 2010. With the help of the RMB4 trillion stimulus package introduced in the wake of the international financial crisis in late 2008, infrastructure development on the Chinese mainland gained growth momentum. According to the United Nations, China’s urbanisation rate is projected to reach 53.2% in 2020, and 72.9% in 2050. Infrastructure demand is likely to remain robust in the foreseeable future.
|
Indicator
|
2005
|
2009
|
Change (%)
|
|
Urbanisation rate (%)
|
43.0
|
46.6
|
8.4
|
|
Population density in cities (persons / sqkm)
|
870
|
3,147
|
261.7
|
|
Area of built districts (sqkm)
|
32,521
|
38,107
|
17.2
|
|
Length of paved roads at year-end ('000 km)
|
247
|
269
|
8.9
|
|
Coverage rate of urban population with access to tap water (%)
|
91
|
96
|
5.5
|
|
Length of gas pipelines ('000 km)
|
162
|
273
|
68.5
|
|
Length of city sewage pipes ('000 km)
|
241
|
344
|
42.7
|
|
Volume of garbage disposal (million tonnes)
|
155
|
157
|
1.3
|
Source: China Statistical Yearbook
China devoted around 9% of its GDP to public building and improvement projects during 2005-2010, compared with the respective ratios of 2.4% and 5% in the US and Europe, according to a report released by the U.S. Treasury Department and the Council of Economic Advisors. More importantly, China will continue the trend of increasing spending on infrastructure as per the country’s 12th Five-Year-Plan.
Some construction plans under the 12th Five-Year-Plan (FYP)
|
Sector
|
Budget (RMB trillion)
|
Change %
(compared with 11th FYP)
|
Detail
|
|
Transportation
|
6.2 ( US$954 billion)
|
32
|
- Length of railway track will reach 120,000 km from 91,000 km
- Length of highway network will reach 83,000 km from 74,000 km
- A new airport will be built in Beijing and total number of airports will rise from 175 to 220
- Extending the road network: 7 new freeways originating from Beijing, 9 new expressways running north to south, and 18 through-ways running east to west
|
|
Power generation and grid infrastructure
|
5.3 (US$819 billion)
|
68
|
n.a.
|
|
Low-cost housing
|
n.a.
|
n.a.
|
Building 36 million affordable apartments for low-income people
|
Source: China 12th Five-Year-Plan
The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA) (Copied from CEPA2010)
Under CEPA, construction professional services include construction design services, engineering services, integrated engineering services, urban planning and landscape design services (except overall urban planning services).
According to the Regulations on Administration of Foreign-Invested Construction Enterprises promulgated in end-2002, the application for and approval of the establishment of foreign-invested construction enterprises. However, CEPA still enjoys a number of preferential treatments compared with China’s WTO commitments.
In applying as a wholly-owned construction and engineering design enterprise, foreign service providers who have been qualified as certified architects or certified engineers in China shall not be fewer than 1/4 of the total certified professionals required under the qualification grading criteria (1/8 for a joint-venture (JV) construction and engineering design enterprise), and the foreign service providers who have the relevant design experience shall not be fewer than 1/4 of the total key technical personnel required under the qualification grading criteria (1/8 for a joint-venture construction and engineering design enterprise). Under CEPA, Hong Kong Service Suppliers (HKSS) can employ mainland registered professionals to fulfil the requirements.
In addition, for a foreign enterprise applying for a JV enterprise, the proportion of total capital contributed by mainland partners of JVs should be no less than 1/4 of the registered capital, whereas mainland partners of HKSS are not subject to the required proportion of the registered capital.
Under Supplement VI to CEPA, the Chinese mainland is committed to continuing the recognition of Hong Kong project managers employed by Hong Kong-invested construction enterprises in relation to the qualification assessment of the latter, both during the amendment and after the promulgation of the new “Standards for the Qualifications of Construction Enterprises”. Thanks to this new CEPA provision, Hong Kong project managers can expect no change in their role in projects involved or commenced before promulgation of the new standards; and after the promulgation, until the completion of the concerned projects.
Under Supplement VII to CEPA, Hong Kong professionals who have obtained Mainland's Class-1 registered architect qualification or Class-1 registered structural engineer qualification, can act as partners to set up construction and engineering design offices in the Mainland in accordance with the relevant qualification requirements, without restrictions on the ratio of the number of Hong Kong partners to the number of the Mainland partners, the ratio of the total capital contributed by the Hong Kong partners to that by the Mainland partners, or the Hong Kong partners' period of residence in the Mainland. Hong Kong professionals who have obtained Mainland's Class-1 registered architect qualification or Class-1 registered structural engineer qualification by mutual recognition, can register and practise in Guangdong.
As at 31 May 2011, there were 73 approved Hong Kong services providers in the sector of construction professional services and construction and related engineering services, out of a total of 77 applications.
