The Chinese government failed to pay nearly 90 billion Renminbi yuan (about US$10.9 billion) for government-funded construction projects by 2002, said a report by an inspection team under top legislature.

A report on the implementation of Construction Law was submitted to the fifth session of the 10th National People's Congress (NPC) Standing Committee Monday by an inspection team sent by the NPC.

Investors of construction projects across the country owed a total 336.5 billion yuan (US$40.8 billion) to construction companies by 2002, the report said.

Some 39.6 percent of the money in arrears took place in real estate projects and 26.7 percent in government-funded construction projects, it added.

Late payment for construction has become prevalent in the industry and is worsening, the report said.

"Defaulting payment for construction companies has greatly damaged the government's image," said Li Tieying, head of the inspection team and vice-chairman of the NPC Standing Committee.

Meanwhile, many construction companies also failed to pay their employees, most of whom are migrant workers from rural areas, the report said.

It suggested that the State Council launch an inspection nationwide and come to a solution in next three years.

"Backroom operations" are also "prevalent and hard to dig out" in the industry, the report said.

Construction companies usually sign back-room contracts with developers offering discounts during the bidding.

The back-room contracts, known as "black contracts," have lowered the quality of projects, the report added.

Bribery and corruption occurs during the bidding, approval process, and equipment and material buying. "One-third of the lawsuits regarding bribery were within the construction industry in recent years," the report said.

The Chinese government should first streamline the management of government-funded projects and punish back-room activities, Li said.

The report proposed that the NPC Standing Committee amend the Construction Law, issued in 1997.

The present Construction Law did not clarify how to deal with the payment arrears for construction companies and lacks efficient guidelines for developers, it said.

According to the National Bureau of Statistics (NBS), the country's construction industry output value increased by an annual average 15.2 percent from 1998 to 2002 and the industry contributed to 6.6 to 6.8 per cent.

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