Guide
The Department of Housing and Urban-Rural Development of Sichuan Province recently announced an extension of the validity period for construction engineering enterprise qualifications.
If your qualification certificate was originally valid until December 31, 2021, or if it expired between January 1, 2022, and June 30, 2022, the validity will now be extended until June 30, 2022.
Your current qualification certificate remains valid and can still be used for bidding and construction activities during this extension period.
From the date of this announcement, applications for qualification extensions expiring before June 30, 2022, will temporarily not be accepted.
According to a previous notice from the Ministry of Housing and Urban-Rural Development, qualification renewals were scheduled for the end of 2021. However, Sichuan Province’s extension until June 30, 2022, suggests that the introduction of new qualification standards may be postponed until next year.
1. Why Has the Qualification Reform Policy Not Been Released Yet?
In November 2020, the Ministry of Housing and Urban-Rural Development issued a reform plan for the construction engineering enterprise qualification management system. The plan emphasizes revising and renewing qualification standards to ensure a smooth transition, with a one-year grace period. After this period, a simplified certificate renewal process will be implemented, allowing new certificates to be issued based on the equivalence between old and new qualifications without re-evaluation.
As of early November, the industry has yet to receive the long-awaited “new qualification standards” and “detailed reform rules.” Despite repeated inquiries, officials have announced another extension of the qualification validity for one more year. Enterprises planning to upgrade can proceed as usual, but concrete details remain pending official notification.
Qualifications serve as the entry threshold for the construction industry, determining how many companies can participate and compete.
A high threshold limits entrants, benefiting established firms by reducing competition and allowing them to secure larger shares of projects.
Conversely, a low threshold invites more participants, intensifying competition and shrinking available market shares, especially amid changing market conditions and uncertain prospects.
One major goal of this reform is to lower entry barriers. The scale of this change is unprecedented and could have far-reaching consequences. For example, the number of active construction companies nationwide rose from 70,061 in 2010 to 116,000 by the end of 2020, with about 92% holding second- or third-level qualifications.
Therefore, challenges ahead are inevitable.
2. Is It Worth Upgrading Qualifications Now?
Higher-level qualifications act like intangible VIP cards. Enterprises with special-grade or first-class qualifications enjoy significant advantages in bidding.
According to official data from the China Construction Association, by the end of 2018, 6,782 enterprises held special or first-class qualifications, representing only 7.11% of all qualified companies nationwide. However, these enterprises accounted for 62.32% of the industry’s total output value and secured 70.33% of newly signed contracts. (Data for 2019 and 2020 have not yet been released.)
As a result, many companies rush to upgrade their qualifications. After the reform, these enterprises will be able to conduct business without restrictions, likely increasing their market presence.
Key changes after the reform include:
- The original 10 professional special qualifications have been consolidated into comprehensive construction qualifications, allowing general contracting across various industries and construction levels.
- The former first-level qualification remains a first-level qualification but without limits on the scale of contracted business.
Regarding special qualifications, there are no restrictions on the scope of business post-reform. While this seems advantageous, it intensifies competition. Previously, companies needed multiple special qualifications to operate freely in certain sectors; now, holding just one special qualification allows bidding across 10 industries.
This opens these industries to all top-tier enterprises, increasing competition and reducing the certainty of winning bids in previously dominant sectors. The question remains: would you support such adjustments or prefer to maintain the status quo?
3. Impact of Lowering the Threshold for Third-Level Qualification Enterprises
The lowered threshold may lead to a surge of new third-level qualified enterprises entering the construction market soon. Existing third-level companies will face:
- Increased competition, making it harder to secure projects.
- Greater industry homogenization, making it difficult to stand out.
- Bidding wars driven by lowest-price offers, reducing profit margins.
To address these challenges, companies should proactively prepare by focusing on differentiation through specialization, expanding beyond the housing construction market, and adopting digital management practices to standardize processes and improve efficiency.
Next, we provide a brief overview of recent industry qualification data to clarify current trends.
Recent Industry Data
1. As of July 21, 2021, there were 915 national special qualifications held by 720 enterprises, including:
- 506 special qualifications for general construction contracting, accounting for 55.3%.
- 164 special qualifications for highway engineering general contracting, representing 17.92%.
- 117 special qualifications for municipal public works general contracting, making up 12.97%.
2. On September 17, 2021, the Ministry of Housing and Urban-Rural Development published expert review opinions on construction enterprise qualifications. Among 45 applicants for special-grade qualifications, 26 were approved—all for highway engineering general contracting.
There has been a sharp increase in “highway special grades,” while the pass rate for “housing construction special grades” has significantly declined:
- In 2018, 132 special qualifications were granted: 40 for highways, 69 for building construction.
- In 2019, 49 were granted: 33 for highways, 11 for building construction.
- In 2020, 33 were granted: 14 for highways, 10 for building construction.
This shift reflects a clear industry restructuring. The “two new and one major” sectors (new infrastructure, new urbanization, and major transportation and water conservancy projects) are poised for substantial growth.
Industry Ecosystem Changes
The profound impact stems from changes in the industry ecosystem. The current structure resembles a pyramid, with top-tier and first-tier enterprises at the top and second- and third-tier enterprises below, operating within qualification limits.
Post-reform, qualifications will be categorized as comprehensive, Class A, and Class B, creating a more flattened structure. Although total numbers remain similar, Class B enterprises will represent over 90%, with more than 110,000 companies eligible to undertake projects within the same scope.
Additionally, upgrading qualifications may become easier. The Ministry’s notice states that except for comprehensive qualifications, approval authority will be delegated to provincial and lower authorities. This means provincial housing and construction departments will approve Class A (Level 1) qualifications, easing the upgrade process for many second-level companies.
Moreover, the comprehensive strength of construction industries will vary significantly by province. With provinces empowered to approve Class A qualifications, many are implementing policies to support the growth and strengthening of leading construction enterprises.
Several major provinces have outlined strategies for enterprise development:
- Support comprehensive and Grade A general contracting enterprises to grow stronger (from small to strong).
- Encourage professional contracting enterprises to specialize and refine their focus.
- Promote alliances, mergers, equity swaps, and mixed ownership reforms to transition enterprises from single-specialty to comprehensive operations.
In short, regions with strong support, strategic locations (such as city clusters or central cities), and favorable business environments will see substantial development.
Considering these factors, significant changes in the construction market are inevitable over the coming years, signaling a long-term major adjustment.
Recommendations
- Special-grade enterprises should leverage the new comprehensive qualification policies to diversify into related fields.
- First-level qualification enterprises should compete actively for special-grade qualifications.
- Second-level qualification enterprises should aim to upgrade promptly.
- Third-level qualification enterprises should seek to expand their business scope.
- Encourage design and construction firms to apply for each other’s qualifications where policies allow and adopt engineering general contracting as a development model.
Those who can accurately anticipate and adapt to these trends will thrive and reinvent themselves. Conversely, companies that remain complacent and resist change risk losing competitiveness and eventually being left behind by the industry.
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