A Record of the Construction Industry's "Cold Winter": How Are the Giants Surviving the Turbulence?
Hello, friends, and welcome to your financial news analysis. Today, we're talking about the buildings above our heads, the roads beneath our feet, and the large state-owned construction companies behind them.
If you've been following the news recently, you might have noticed a term that's been popping up frequently: "decreasing volume." In simple terms, that means there's less work to do, and it's becoming harder to make money.
The core of this article is quite straightforward: China's construction industry is going through a profound period of "pain." The days when you could make money as long as you dared to take on projects, and the bigger the scale, the safer it was, are over. In the first half of this year, the eight major state-owned construction companies (often referred to as the "Eight Great Ones") had a dismal performance. Except for China National Chemical Corporation, which barely managed a positive growth, the other seven all saw declines. Not only did they receive fewer new orders, but their revenues and profits also shrank.
But it's not just about business being tough; this is a fundamental restructuring of the industry's logic. To make it easier to understand, I've broken down this news into five key points and explained the ins and outs in plain language.
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Point 1: The "Chill" in the Numbers: Even the Giants Are Struggling
First, we need to face the harsh reality: The total volume of the industry is shrinking, and the rate of shrinkage is accelerating.
In the past few years, many thought that infrastructure projects were a surefire source of income. But the data doesn't lie:
- 2025 was a turning point: The total output value of the construction industry saw its first negative growth (-5.43%), and the amount of new contracts signed also decreased (-5.51%). This indicates that the "pie" of business is getting smaller.
- The second half of 2026 was even worse: Output value dropped by 12.71%, and new contract signings fell by 14.13%.
What are "new contract signings"? Think of them as the construction companies' "future income deposits." The contracts signed today are the basis for work next year and the year after. With 14% fewer new contracts, these companies will face even greater revenue pressures next year and the year after.
Looking at the performance of these eight giants, you can see a clear pattern of decline:
- Milder decline (single-digit percentages): China State Construction Engineering Corporation (-1.5%), China Railway Construction Corporation (-9.3%), China Communications Construction Company (-8.9%), China Power Construction Corporation (-9.7%). Although they are declining, they are relatively stable.
- More severe decline (double-digit percentages): China Railway Construction Group (-16.85%), China Energy Engineering Group (-33.81%), China Metallurgical Corporation (-24.5%). Especially China Energy Engineering Group, which saw its orders shrink by a third. This reflects not only a cold market but also a significant impact on their business models.
The only bright spot: China National Chemical Corporation. It was the only one among the eight to achieve positive growth in revenue, profit, and new contract signings. Why? Because its business is more focused on chemical engineering, which is less affected by the shrinkage in traditional housing and infrastructure projects. In other words, it has found new sources of growth.
In one sentence: In the past, the industry benefited from overall growth; now, even the largest companies are struggling, and smaller ones are at risk of failing.
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Point 2: Why Is It Getting Cold? From "Big Builds" to "Fine-Tuning and Maintenance"
Many people might wonder: Isn't the government still investing in infrastructure? Why do construction companies have less work?
Here's a common misunderstanding: Infrastructure doesn't equal "new construction."
China Communications Construction Company explained it well in the article: "It's about adjusting existing assets and shifting to new growth areas."
1. Traditional infrastructure is entering a phase of optimization: In the past, we built roads, bridges, and buildings from scratch, which meant significant growth. Now, most of the work involves repairing, upgrading, and transforming existing infrastructure—replacing old pipes, adding elevators to old buildings, and converting old factories into cultural and creative spaces. These tasks are less profitable and take longer than building new skyscrapers.
2. New infrastructure is a growth area, but it requires more expertise: The article mentions new trends like "integration of transportation and energy," "digital twin cities," and "zero-carbon parks." These require advanced technology and investment, which many traditional construction companies haven't yet adapted to.
3. The drag from the real estate sector: Although not mentioned in detail, real estate is a major part of the construction industry. The slow digestion of real estate projects has led to fewer construction orders for companies.
To put it simply: In the past, the industry was like farming new land; now, it's more like farming existing land with more effort and lower returns.
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Point 3: Where Did the Profits Go? From "Increasing Revenue, Increasing Profits" to "Decreasing Revenue, Decreasing Profits"
With fewer orders, revenue naturally declines. But what's more concerning is that the decline in profits has been much steeper than the decline in revenue:
- China State Construction Engineering Corporation: Revenue fell by 11.96%, but net profit fell by 24.34%.
- China Railway Construction Corporation: Revenue fell by 7.69%, and net profit fell by 26.81%.
- China Communications Construction Company: Revenue fell by 1.16%, and net profit fell by 23.95%.
Why are profits declining so sharply?
1. Fixed costs: Construction companies employ tens of thousands or even millions of people, and their equipment and management expenses are fixed. With less revenue, these costs remain the same, squeezing profits.
2. Fierce competition and price wars: With fewer projects, companies compete by lowering their bids. What used to be a 10% margin of profit might now be just 3%, or even result in losses.
3. Declining project quality: In the past, companies chose only the best projects. Now, to maintain their scale, they may take on projects with slower payments, higher risks, and lower profits.
The management of China State Construction Engineering Corporation put it this way: "We can't change the external environment, but we can do our best." They have proposed four strategies:
- Selecting projects carefully: They refuse projects with poor profitability and poor cash flow, even if they mean smaller scale and lower profits.
- Cutting costs: They are striving to control every expense, down to the cost of a single screw.
- Eliminating inefficiencies: They are shutting down unprofitable departments and projects.
- Investing in technology: They are using digital and intelligent methods to improve efficiency and create new sources of profit.
In one sentence: In the past, the industry grew by expanding; now, it needs to manage resources more carefully. Profits no longer come from scale but from better management.
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Point 4: Cash Flow Is More Important Than Profits
In the current economic environment, cash flow is more crucial than profits.
Profits are just numbers on the books; cash flow is the actual money flowing into the company. Without it, a company can still be profitable on paper but may still fail.
The good news is that the construction industry's cash flow is improving:
- In the first half of the year, listed construction companies had a net outflow of 413.3 billion yuan in operating cash flow, but this was 86.9 billion yuan less than the same period last year.
- In the second quarter, there was even a net inflow of 35.9 billion yuan.
Why has cash flow improved?
1. Government debt repayment: Local governments are making efforts to repay the debts they owe to construction companies. Previously, local finances were tight, but now the government is promoting debt repayment, and funds are starting to flow in.
2. Self-restraint by state-owned companies: These companies are now focusing on cash flow and are more aggressive in collecting payments.
3. Seasonal factors: The construction industry typically spends more in the first three quarters and collects payments in the fourth quarter. The reduced outflow in the first half indicates improving payment efficiency.
The management of China State Construction Engineering Corporation emphasized: "Cash flow is the lifeline of a company." Their net outflow in the first half decreased by 54.4 billion yuan year-on-year, which is a very positive sign.
Risk warning: Although the situation is improving, we can't relax. We still need to see if local finances will continue to support the industry and whether the real estate sector's recovery will boost cash flow. If these two aspects fail, cash flow pressure could increase again.
In one sentence: The focus is no longer on who makes the most money but on who has the cash. The companies that survive will be those with healthy cash flows and fast payment collection.
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Point 5: Looking to the Future: Not Recession, but a "Reorganization"
Finally, let's talk about the future. Is the construction industry doomed?
Absolutely not. The construction industry remains a pillar of the national economy, but its approach is changing.
1. Shifting from "new construction" to "maintenance and renewal: There's more work in urban renewal, old building renovations, and new types of urbanization. These projects may be smaller in scale but more sustainable.
2. Infrastructure investment is shifting: The government is focusing on "six networks" (transportation, energy, etc.) and special government bonds to support these projects, ensuring funding.
3. International business as a new growth opportunity: If domestic opportunities are limited, companies are looking abroad, especially in countries along the Belt and Road Initiative. Overseas projects can help offset domestic pressures and boost international competitiveness.
3. Increased industry concentration: This reorganization will eliminate weaker and less efficient companies. Leading state-owned companies will gain more market share due to their financial strength, technology, and brand reputation.
In summary: The construction industry is not in decline; it's undergoing a reorganization based on quality, cash flow, and comprehensive capabilities.
- For individuals: If you work in the construction industry, you may need to improve your skills to adapt to digital and green trends. If you invest in construction stocks, focus on companies with good cash flows, a high proportion of international business, and clear transformation plans.
- For the industry: The era of reckless growth is over; we're entering an era of precision and efficiency. The winners will be those that are healthy, flexible, and technologically advanced.
One last thing: In a time of shrinking demand, surviving is more important than thriving, and lasting longer is even more critical. The construction giants are working hard under pressure. Let's be patient and see who will emerge from this turmoil.