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Hong Kong Quantity Surveying Consulting Firms in
Mainland China - Barriers and Opportunities in
the Market after Closer Economic Partnership
Arrangement (CEPA)
Presented by Joseph HC Chong, MHKIS, MRICS, RPS
(QS) Cost Manager, ISG Asia (HK) Ltd. Hon.
Treasurer, HKIS YSG Council Member, HKIS QSD 18
August 2007
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CONTENTS

• Introduction
• Background Cost Consultancy Firms in Mainland
• Background Registration of Cost Engineers in
  Mainland
• Background - CEPA
• Benefits of CEPA to Trade in Services (from
  Governments Data)
• Research Study Results

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Introduction

• Surveyors were one of the earliest Hong Kong
  construction professionals who entered the
  Mainland market.
• 1979 - the 1st Hong Kong QS firms appointed by
  the PRC Govt. for the Jinling Hotel(??????) in
  Nanjing, the 1st modern high-rise hotel

4
A comparison on roles and functions at different
stage of development in Hong Kong and Mainland
China (Cheung, 2006b)
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• BACKGROUND COST CONSULTANCY FIRMS IN MAINLAND
• ????????

6

• irregular practices such as bribery, contractors
  working without qualification and using the name
  of another enterprise to undertake projects (gua
  kao) had become common
• lead to appalling building quality and accidents
  (Lam and Chen, 2004).
• In 1996, the government published laws to govern
  the healthy development of construction cost
  consultancy units by clearly defining their scope
  of services and responsibilities.
• These units are also required to be separated
  from the government and operate as partnership or
  limited liability company.
• The new change was completed in the second half
  of 2001 and the number of construction cost
  consultancy units dropped from 6,000 to 4,000.
  90 of them separated with the government and
  registered as limited liability companies
  (Cheung, 2002).

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Articles 3, Measures for the Administration of
Project Cost Consultancy Enterprises, Order of
the Ministry of Construction (No.
149)????????????(?????149? )

• project cost consultancy enterprises are defined
  as enterprises providing professional
  consultancy services with respect to the
  determination and control of the investments in
  construction projects and the project costs
• ????????,??????,??????????????????????????????

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Article 20, Measures for the Administration of
Project Cost Consultancy Enterprises, Order of
the Ministry of Construction (No.149)

• The scope of their businesses includes
• (1) Compiling and examining construction project
  proposals, investment estimates for feasibility
  study as well as project economic evaluation
  reports
• (2) Compiling and examining cost estimates of
  construction projects, and carrying out the
  project cost analysis and control, such as the
  comparison and selection of design schemes and
  optimization of designs
• (3) Determining the contract sums of construction
  projects (including compilation and checking of
  bills of quantities, pre-tender estimate and
  quotations for bidding) determining and
  adjusting the contractual prices (including the
  variations and claims), construction payments,
  and compiling and examining final accounts upon
  completion(4) Carrying out consultancy about
  construction cost dispute and related
  arbitration and(5) Providing information
  services with respect to project costs

???? ???????????? (?)??????????????????????????
?????? (?)?????????????,???????????????????????
?????????? (?)???????????(?????????????????????
????)??????????(???????????????????)??????,??????
??(?)?????????? (?)?????????????????
(?)???????????? ????????????????????????????????
??????
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• Except that quantity surveying consultancy firms
  in Hong Kong also prepare tender documents and
  carry out tender assessment, the scope of service
  of Hong Kong quantity surveying consultancy firms
  are very similar to the project cost consultancy
  enterprises in Mainland.

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Classification of Project Cost Consultancy
Enterprises

• categorized into 2 grades (instead of 3 as in the
  past) Grade A and B
• ???????????????????
• Grade A consultancy enterprise may engage in the
  project cost consultancy business for all kinds
  of construction projects
• ??????????????????????????????
• Grade B enterprise can only engage in projects
  which cost less than 50 million RMB
• ??????????????????5000????????????????????????
• Up to 2006, there are more than 4,000 cost
  engineering consultancy enterprises with
  qualification, where 894 of them possess Grade A
  qualifications (Yang, 2006).

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Criteria for Grade A and Grade B project cost
consultancies (Article 9 and 10, Measures for the
Administration of Project Cost Consultancy
Enterprises. Order of the Ministry of
Construction (No.149)
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• BACKGROUND REGISTRATION OF COST ENGINEERS IN
  MAINLAND

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Article 3, Administrative Measures for Certified
Cost Engineers, Order of the Ministry of
Construction (No. 150)???????????

• Certified cost engineers is defined in the
  Administrative Measures for Certified Cost
  Engineers as persons who have obtained the
  practicing qualifications of certified cost
  engineers of the Peoples Republic of China by
  passing the national examination for the
  practicing qualifications of cost engineers or by
  getting the qualification certification or
  obtaining the mutual certification of
  qualifications, and have obtained a registration
  certificate of cost engineer of the Peoples
  Republic of China according to these Measures,
  and are engaging in engineering cost activities.
• ???????,??????????????????????????????,???????????
  ???????,????????,????????????????????(????????)???
  ??,??????????????

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• Article 20 No certified cost engineer may commit
  any of the following acts(1) Not performing the
  duties of the certified construction cost
  engineer(2) Extorting, accepting bribes in his
  practice or seeking other interests, which are
  not stipulated in the contract(3) Resorting to
  commercial bribes in his practice(4) Signing
  engineering cost documents such as those
  containing any false record, misleading statement
  or serious omission(5) Permitting someone else
  to practice engineering cost-related business in
  his own name (6) Practicing concurrently in two
  or more entities(7) Undertaking any engineering
  cost-related business in his own
  name(8)Altering, selling, leasing, lending or
  illegally transferring his qualification
  certificate, registration certificate or
  practicing seal to others by any other
  means(9)Any other act prohibited by any law,
  regulation or rule.

• ???? ?????????????? (?)????????????
  (?)??????,?????????????????????
  (?)???????????? (?)??????????????????????
  (?)????????????? (?)?????????????????
  (?)??????????????? (?)????????????????????????
  ???????? (?)????????????????

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• Article 34 Where a person, without obtaining a
  qualification certificate, violates these
  Measures due to engaging in engineering cost
  activities in the name of a certified cost
  engineer, the engineering cost documents he has
  signed shall be invalidated, and he shall be
  given a warning, be ordered to stop the violation
  and be fined 10,000 yuan up to 30, 000 yuan by
  the construction administrative department or any
  other relevant department of the local peoples
  government at the county level or above. ?????
  ???????,?????????????????????????,??????????????,?
  ????????????????????????????,????????,????1????3??
  ?????? 

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Steps for Registration of Cost Engineers

• Obtain the academic registration
• Passing national examination for cost engineers
• Obtain Registration through the Ministry of
  Construction
• hired by a cost engineering consultancy
  enterprise or a firm related to construction,
  survey and design, construction, tendering agent,
  project supervision, or construction cost
  management.
• undertake 60 hours of continual professional
  development (CPD) training, including compulsory
  and elective courses during each registration
  period (4 years)

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• Up to 2006, there are 75,000 registered cost
  engineers in the Mainland (Yang, 2006).

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Criteria for Joining Cost Engineering
Qualification Examination (Yin, 2004)
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• BACKGROUND CEPA

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BACKGROUND

• CEPA is the first bi-lateral free trade agreement
  signed by the Mainland and Hong Kong
• Eliminate trade barriers between the 2 markets
• lowering the thresholds which are high to Hong
  Kong companies
• Ensure economically interlocked
• CEPA measures are above and beyond the WTO
  commitments (opened its service industries to all
  foreigners since December 11, 2006).

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Chronology of CEPA (ISD 2006c HKTDC 2004 and
2006)
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Benefits of CEPA to Trade in Services (from
Governments Data)

• LC Paper No. CB(1)1849/06-07(04) LEGISLATIVE
  COUNCIL PANEL ON COMMERCE AND INDUSTRY MAINLAND
  AND HONG KONG CLOSER ECONOMIC PARTNERSHIP
  ARRANGEMENT (CEPA) IMPACT ON THE HONG KONG
  ECONOMY
• Published by Commerce, Industry and Technology
  Bureau June 2007

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GENERAL IMPACT OF CEPA

• number of persons engaged in Hong Kong due to
  CEPA at around 35 000 persons at end-2006
• about 1 of the total employed persons
• accounting for around 12 of all the new jobs
  created since mid 2003

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Survey respondents overall opinion on the
benefitsof CEPA to the Hong Kong Economy ( of
total)
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• Trade in Services
• 74 of the responding companies considered CEPA
  beneficial to the Hong Kong economy
• 47 considered CEPA beneficial to their own
  industries.
• Respondents from the banking services,
  accounting, auditing and bookkeeping services,
  and legal services accorded the highest
  recognition to CEPA for benefiting their
  industries and their establishments.
• cumulative amount of additional capital
  investment rose to HK4.8 billion by 2006,
  representing an increase of 380 over two years.
• As at end 2006, 1 021 Hong Kong Service Supplier
  (HKSS) applications were approved with 1 697 HKSS
  certificates issued. Services areas most commonly
  applied for include transport and logistics
  services, distribution services, advertising, and
  construction services.

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most of the certificates issued are for the
transport and logistics services and the
distribution services.
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Difficulties encountered when setting up business
in theMainland under CEPA (HKSS holders only)
Note () Respondents might report one or more
difficulties and the sum of percentages
might exceed 100.
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• How about Quantity Surveying?

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Statistics on Application for Certificate of Hong
Kong Service Supplier (HKSS) (as of 28 February
2007) (TID, 2007a)
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Statistics on Application for Certificate of Hong
Kong Service Supplier (HKSS)
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CEPA Provisions regarding QS

• Quantity surveying consulting firms with Hong
  Kong Service Supplier (HKSS) Certificates, are
  allowed to set up wholly-owned construction
  engineering cost consulting enterprises on the
  Mainland since 1st January 2007. Also, their
  performance in both Hong Kong and the Mainland
  will be taken into account during qualification
  assessment (under Supplement III to CEPA) (TID
  2006a, 2006b and 2007b HKIS 2006).
• Hong Kong quantity surveyors can join the cost
  engineer accreditation examination in the
  Mainland if they could fulfill the entry
  requirements (under CEPA II) (HKSS is not
  required) (TID 2007b).

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• CY Leung, Chairman of Coalition of Professional
  Services said, there are not more than 1,000
  quantity surveyors working in consulting firms
  and only 8-10 quantity surveying firms in Hong
  Kong are capable to set up wholly-owned
  enterprises. Most of them have already set up
  representative offices there, but now they can
  formally set up companies (SCCA, 2006).

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Profiles of Interviewees

• Directors of 6 QS firms and 2 QSD Past Chairmen
  interviewed
• All have links with Mainland clients and
  professional firms
• Cooperation 8 to 28 years
• Set up JV/ strategic alliance
• Clients requirements or license problem
• Stamps required for tenders
• 30-50 fees from Mainland projects

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Changes after CEPA
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Professional Services Offered by Hong Kong QS
Firms in Mainland
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Opportunities for Hong Kong QS Firms
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Barriers for Hong Kong QS Firms
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Licensing/ Registration

• Cost Engineer Registration
• academic qualification - assessment for
  reciprocity recognition of academic qualification
  through an interview
• China experience
• get personal file registrations (????)
• qualification working permit (?????)
• social security numbers tax implication
• employed by cost consultancy firms with
  qualification

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Licensing/ Registration
Path to set up project cost consultancy firm
set up local project cost consultancy enterprise
(Grade A or B)
CEPA
HKSS Cert.
HK Company
HKSS Code
Other criteria e.g. years of experience, no. of
registered cost engineer, capital
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Licensing/ Registration

• Project Cost Consultancy
• HKSS Code
• Company Structure (HK) Company vs (China)
  Company
• Experience (HK) Company vs (China) Company
• Registered Cost Engineers
• Small firms
• Chicken and egg problem
• 60 of Capital Contributors have to be Registered
  Cost Engineers
• Upgrading from Grade B to Grade A

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Coping with Qualification Problem

• set up a representative office or consulting
  company, and partner with a project cost
  consultancy enterprise/ tendering agent with
  qualification to stamp the documents if necessary
  (Chung, 2004a). A percentage of fees will be
  shared
• register through project-by-project basis
  (project license) from Municipal Construction
  Commission (??)/Ministry of Commerce (Chung,
  2004a).
• form a joint venture with a local enterprise to
  overcome some of the difficulties regarding
  qualification certificate requirements (Chung,
  2004a Cox, 2006). However, in the past Hong Kong
  QS firm could form a Grade A joint venture with a
  local cost consultancy firm with Grade A
  qualification. Now, they can only form a Grade A
  joint venture if both companies have Grade A
  qualifications.

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Enhancing Marketability
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Next Stage of CEPA
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Laws governing cost engineer qualification and
foreign participation in China
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Conclusion

• CEPA is not as effective as stressed by the
  government to help QS
• Interview results show that most HK QS firms did
  not observe any positive change for their
  business after CEPA
• Luckily many QS firms had found new room for
  developing their new business and they optimistic
  about their business in the coming 3 years
• Many obstacles still exist after implementation
  of CEPA in particular registration matters
• QS firms are advised to establish an
  international brand, maintaining their integrity,
  promote the concept of total cost management to
  the govt and clients etc.

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THE END