PROTECTIONISM in the mainland construction industry has restricted the activity of foreign players in the China market, a Hong Kong contractor says. Hip Hing Construction director Stewart Cheng Kam-chiu said the mainland construction industry was not yet fully open to foreign contractors as China favoured local firms. ''There are restrictions on foreigners' participation in China. That is why only a small number of foreign contractors have entered the market,'' he said. Mr Cheng said foreign contractors were not allowed to undertake construction contracts in China on their own, but only through joint ventures with local partners. Alternately, they could take up the role of project manager for a contract and then sub-contract various construction work to mainland contractors, he said. ''A foreign contractor can be a project manager only if half or more of the capital involved in the project is foreign funds,'' he said. Mr Cheng said there had been no reforms in the construction industry even though China was moving towards a socialist market economy from a centrally planned one. The current tender system in China, based on official guidance rather than market fundamentals, could not reflect market reality, he said. State-run construction contractors used to undertake various construction works for the Chinese Government. Official guidance placed all local contractors on an equal footing, and competition was not a matter of concern. But with an increasing number of construction projects in the private sector, or joint venture developments, competition is now growing. Mr Cheng expected that mainland contractors, usually big in size and with heavy payrolls, would adopt more flexible ways by dividing the workforce into smaller units specialising in different areas. This would subsequently help foster the emergence of a sub-contractor system in China's construction industry, he said. Hip Hing Construction, 59 per cent owned by New World Development, was among the first batch of foreign contractors entering China, and it has established joint-venture contractors in Guangzhou and Shanghai.