Market structure of the construction industry of China

The Chinese construction market is, and will continue to be, attractive to construction firms of the world. When China joins the World Trade Organization, many foreign contractors can enter the construction market. This confronts the Chinese indigenous construction firms with unprecedented challenges. Due to the deep-imprint of the traditional planned economy, the industrial structure of construction has been severely distorted in China, which results in excessive competition and low profitability. This paper investigates the industrial structure, the market distribution, and the size concentration of firms using concentration ratios, Lorenz curve and Gini coefficient. The Gini coefficient is found to be 0.196, reflecting a very low concentration of firms in the construction industry. The paper also studies the contributing factors to such a structure, including capital requirements, product differentiation, legal barriers, scale of economies and exit barriers, which lead to the phenomenon of low concentration. Finally some recommendations for restructuring the industry such as raising entry barriers and lowering exit barriers are proposed.