Q: Are there restrictions on foreign firms doing work in China or can foreigners expected to be on a level playing field with local Chinese firms?

A: There are certainly restrictions on foreign firms and their ability to do business within China. First, there are legal restrictions on the ability of foreign firms to bid and work on projects. These restrictions were outlined in an answer to a previous question that addressed required licensing. Much of the licensing restrictions are designed to protect the local construction firms from significant foreign competition. Although moving in the direction of opening up to foreign competition, China has a long way to go.

A notable relaxation of the restrictions on foreign firms occurs where certain technology or capabilities are required but not available in China. In those instances, there is much more freedom and willingness to use foreign firms who bring the required technology or capabilities. The reasons are obvious.

Second, and maybe much more important, is the cultural impact on competition in China. As with any society, local and familiar is always preferred over foreign and unfamiliar. In China, however, that natural tendency is enhanced by both the Chinese history of self-reliance and historical isolationism, as well as the government policy of favoring local firms. While these factors become less important on projects with foreign financing, they are never eliminated. Alliances with local firms who become true partners are the best, and really only, means to combat the bias in favor of local firms. Even in situations in which a foreign contractor is awarded the prime contract, alliances with subcontractors and local suppliers are still very important. Remember, winning a project is great - completing the project profitably is better.

Thanks to George J. Pierson, P.E., Esq., who is a partner at Peckar & Abramson, P.C., and director of the firm's International Construction Practice Group. His expertise includes all aspects of domestic and international construction and contract law. Previously, he was the executive vice president/legal director of Kvaerner E&C, the international engineering and construction company. His e-mail is gpierson@pecklaw.com.

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