ONLY THE WEALTHIEST CHINESE people can afford to live in the Western-style subdivisions rising from the ground around cities such as Shanghai and Beijing. But with billions in foreign investment pouring into the country, the number of well-off Chinese is growing, as is their demand for new homes. American companies that have begun doing business in China see that demand as an opportunity for U.S. home builders, especially in managing construction projects and training the Chinese to build to U.S. standards. Builders looking to do business in China should prepare for a protracted learning curve, however. Building in Shanghai is very different from building in Sacramento, Calif.
But it may well be worth the extra effort. China is undergoing what could be the world's hottest-ever housing boom, though the exact size of this boom is hard to gauge. “There's not a defined way to count things like starts and the home sizes,” says Tim Pierce, managing director of Owens Corning Building Materials, Asia-Pacific. “So much construction goes on below the radar of the law that it's hard to get accurate numbers.” But Owens Corning and other companies gather data from a number of private and government sources, and, according to Pierce, those data support an estimated 10 million units per year.
Western-style homes, though, are still only a tiny niche market. The vast majority of new housing units will be small apartments for the millions of Chinese workers seeking employment in and around China's big cities. Pierce believes that, currently, less than 5 percent of the market, or a half-million units, are single-family detached homes, and only 10 percent of that number resemble the homes constructed by U.S. home builders. But that's still 50,000 units per year, “and it's the fastest-growing segment in the country,” says Pierce. In fact, while the Freedonia Group in Cleveland predicts that the overall housing market in China will grow at a 7 percent annual pace through 2008, Pierce estimates 15 percent annual growth in the market for Western-style homes for the next five to 10 years.
What Are They Building? At first glance, these homes look a lot like the American homes they're trying to mimic. The NAHB Research Center (NAHBRC) and the Chinese Housing Industry Association just finished the first Chinese Annual Builder Practices Survey. Kevin Mo, the NAHBRC research engineer who directed the study, says that Chinese students spent the first five months of this year surveying builders of Western-style homes in Beijing and Shanghai about the materials and building practices they used. Their findings: The typical home has 3,100 square feet of floor space in two stories, a one- or two-car garage, three or four bedrooms, and three and a half baths. The average sales price is $381,000 for a detached home and $243,000 for an attached home.
But both Mo and Pierce say that it's a shallow resemblance. Rather than wood framing, most Chinese homes are built from poured concrete with no insulating value. In terms of construction quality and comfort, they don't measure up to even an entry-level American tract home. “The homes are cold in the winter and hot in the summer. The walls crack and the roofs leak,” says Pierce.
Chinese buyers have accepted these drawbacks because, until recently, they didn't know they could do better. They were just happy to have more space. According to Mo, who grew up in Beijing, as recently as 10 years ago, the average Chinese family could expect to have only 45 square feet of living space per person. Families climbing up the income ladder saw a big home as the ultimate luxury. So what if the walls cracked?
But expectations are starting to change. There's an increasing demand for homes that are built better, with the kind of amenities Americans take for granted. “People are realizing that space isn't the only comfort,” says Pierce. “Things like central heating and cooling, acoustic performance, and thermal performance are becoming more important.”
The catch is that most Chinese buyers still want these amenities in a concrete shell. “They are used to concrete,” says Alan Chan, a Hong Kong native whose Toronto-based company, Davey International, recently started a home building operation in China. “The mentality is that if they buy a house, they want to be able to leave it for their grandchildren.”
That way of thinking creates a promising market for insulated concrete forms (ICFs). Last March, Albuquerque, N.M.–based ICF manufacturer American Polysteel started building homes that will consist of concrete in a subdivision called Shanghai Long Island Villa, located near the heart of Shanghai. “The reception has been unbelievable,” says Dave Watson, American Polysteel's national sales manager. Watson describes the pace of construction as frantic. “We were pouring concrete in the middle of the night. [Builders] operated sometimes around the clock.”
Watson says that when the Chinese code authorities first saw the forms, they were skeptical. Other concrete homes in the subdivision use conventional concrete forms with an enormous amount of bamboo shoring. “They couldn't believe foam would hold concrete,” he says. His company paired up with a Chinese partner who spent a lot of time educating builders and government officials and showing them examples of projects in the States. “Once they realized it was just a reinforced concrete wall, things went smoothly.” American Polysteel is already exploring setting up an ICF plant in China.
Alternative Building Watson's company had it easy. Because the Chinese consider anything other than concrete an alternative building system, the authorities tend to put applications to build them under a microscope.
That's what happened to Davey International's China operation, which just finished 300 homes in a Beijing subdivision called Napa Valley. (The project will total 1,000 homes when it's completed by the end of next year.) Because Davey frames with light-gauge steel, Chan says its homes require a lot more documentation than concrete structures. “You have to prove everything,” he says. “Even a single-family home needs the same calculations as if it's a high-rise, including computer simulation of wind and seismic loads.” Fortunately, China is in the process of developing a steel framing code, so Chan expects the approval process to get easier.
That's already happening for wood, according to Rose Braden of U.S. China Build, a Seattle-based government–industry partnership that promotes American building products in China. While there have been about 2,000 Western-style, wood-framed homes built in China, until recently, the country didn't have a wood-framed building code, and although you could get a permit to build wood-framed homes, you couldn't sell them. (Braden says most have been leased to Western expatriates.) That changed a year ago, when the Chinese Ministry of Construction released the Chinese Timber Structural Design Code. Later this year, it will release a wood-frame design manual outlining proper building methods.
Of course, having standards and knowing how to meet them are two different things. Most Chinese homes are built from concrete and/or stone, and most builders have built with only those materials, so people who understand wood framing are in short supply.
U.S. China Build's program is trying to change that. Since November 2001, it has brought 250 Chinese construction professionals to the United States to meet with building materials suppliers and learn about wood-frame building technologies. An additional 860 people have attended seminars the partnership held in China.
Those kinds of exchanges should help alleviate problems like the ones encountered by Modern Building Systems. The Aumsville, Ore., modular home manufacturer recently completed two homes near Beijing. “It's not hard finding skilled masons and tile workers,” says company president Jim Rasmussen. But because “virtually nothing is built out of wood,” he says, it's tough to find skilled carpenters. The company won't do any more homes in China.
A Tough Business Climate Labor woes were not the only reason Rasmussen pulled out of China. The main problem was the frustration of doing business there. For instance, while he calls China “a huge market” with plenty of potential for American companies, he cautions that you can only tap into it by building relationships with the right people, a process that can take years. “In China, everything's about connections, or quanxi. It's who you know.” The most valuable connections are local Communist Party officials: They decide who does and doesn't get land; who can and can't build.
Couple the slow pace of relationship building with the need for lots of construction in a short time and you have what Pierce calls “a dangerous landscape” in which to do business. Owens Corning has had to navigate that landscape when building manufacturing plants. While it can take a few years to get approvals, construction often can't wait that long. “You may not get your final approvals for a plant until it's been up and running for a year. Your relationships and how you handle these folks can be very important.”
The Chinese are more apt to do business with a company that's been in the country for a long time. Chan says that while Davey has only been in the home building business in China for two years, it has been building light-steel factory buildings there for a decade. “The Chinese want to see that your company is not going to disappear overnight. If you're a small business, nobody is going to buy anything from you.”
That's music to the ears of big companies such as Owens Corning, which has been active in China since the 1980s. In fact, Pierce says that his company has already talked with Chinese land developers about supplying finished homes rather than just building materials. “In our conversations with developers, they say they don't want products but [rather] systems and solutions.”
Charles Wardell is a freelance writer based in Vineyard Haven, Mass.