China State Construction revenue falls 12% as payables top 1 trillion yuan

China State Construction Engineering Corp (601668.SH) saw revenue fall 12% year on year in the first half, while the amount owed to subcontractors and suppliers rose by 20%, exceeding 1 trillion yuan for the first time.

Its interim report showed operating revenue of 975.8 billion yuan (about HK$1.13 trillion), down 12.0% year on year, while net profit attributable to shareholders fell 24.3% to 23 billion yuan (about HK$26.7 billion). Payables stood at 1.100261 trillion yuan (about HK$1.28 trillion), up 20.16% year on year and approximately 102.8 billion yuan (about HK$119.4 billion) from the end of 2025, when they stood at about 997.5 billion yuan. Mainland media analyses of the interim report said the increase was mainly due to longer payment cycles for subcontracting work and purchases. (Hong Kong dollar figures are converted using the central parity rate for the Hong Kong dollar against the yuan published by the China Foreign Exchange Trade System on September 18 — HK$1 to 0.86062 yuan — and are for reference only.)

The report also showed net cash outflow from operating activities of 28.46 billion yuan in the first half, compared with 82.84 billion yuan in the same period last year, while its debt-to-assets ratio was 77.1%. Trade receivables rose by about 44 billion yuan from the end of 2025 to 459.6 billion yuan. Contract assets increased by about 130.4 billion yuan to 719.4 billion yuan.

Policy tightening in parallel

On September 10, the General Office of the State Council issued a notice on strengthening measures to address payment difficulties faced by small and medium-sized enterprises (State Council General Office Document No. 24 of 2026). It called for a monitoring mechanism for large companies’ arrears, with particular attention to “large companies with substantial payables and ample cash assets”, and urged large companies to limit their longest payment terms for SMEs to 60 days.

At a policy briefing held by the State Council Information Office on September 14, Pei Renquan, an official from the Financial Supervision and Operational Evaluation Bureau of the State-owned Assets Supervision and Administration Commission, said central state-owned enterprises would take the lead in three areas. They would avoid defaulting on payments and ensure that any defaults were “dynamically cleared”; make fewer payments through bills and pay more in cash, treating cash payments to SMEs as a “hard requirement” and banning the issuance of “payment instruments” with terms of more than six months; and lead efforts to break unreasonable industry rules and practices. Pei said SASAC had required central SOEs to pay SMEs in cash since 2024.

It is worth noting that the notice specifically refers to large companies with both substantial payables and ample cash assets. China State Construction, however, still recorded a net operating cash outflow in the first half, so it remains to be seen whether the two conditions apply simultaneously.

Revenue falls while payables rise

According to data compiled by mainland financial media, payables at four other central construction SOEs were approximately 807.2 billion yuan for China Railway Group (601390.SH; 0390.HK), 603.5 billion yuan for China Railway Construction Corp (601186.SH; 1186.HK), 434.1 billion yuan for China Communications Construction Co (601800.SH; 1800.HK), and 402.7 billion yuan for Metallurgical Corp of China (601618.SH; 1618.HK). Together with China State Construction, the five companies had combined payables of about 3.35 trillion yuan, a figure close to Chongqing’s 2025 gross domestic product of 3.38 trillion yuan. The former is a stock figure on balance sheets, while the latter represents output over an entire year, so the comparison is only an indication of scale and should not be treated as a direct equivalence.

In terms of turnover days, mainland media estimates put China State Construction’s payable turnover at about 200 days, compared with roughly 337 days for China Railway Group, 263 days for China Railway Construction and 438 days for Metallurgical Corp of China. Industry data show that receivables turnover days for construction companies that issued bonds in 2025 increased by 21 days year on year, while payable turnover days rose by 41 days to 270 days. Payable turnover among A-share-listed construction companies generally exceeds 180 days, with leading central SOEs showing no significant deviation from industry norms. Mainland analysts have noted that the growth in payables at construction SOEs has outpaced revenue growth for the past three years.

A built-in mismatch in payment timing

Construction projects can last one to three years, while major infrastructure projects may run for more than five years. Payments by project owners are made in stages: 70% to 80% of the value of completed work is paid during construction, with the balance payable only after completion and settlement audits. A further 3% to 5% is retained as a quality guarantee deposit and is not settled until the two-year defects liability period ends. From the start of construction to full payment, the process usually takes three to five years.

Purchases of building materials, labour subcontracting and equipment rental, however, require continuous outlays during construction. The gap between collections and payments is therefore filled by using funds from upstream parties. The widespread adoption of the engineering, procurement and construction model has further amplified the lag: after winning a contract, a central SOE may allocate design, civil works, installation and procurement to hundreds or even thousands of downstream companies. A one-month delay in payment by the project owner can mean a delay of one and a half to two months in payment by the main contractor to subcontractors. The trillion-yuan level of payables is mainly the result of the time lag inherent in the construction business model, combined with slower upstream collections, rather than the “malicious withholding” of payments by any single company.

The more immediate pressure comes from upstream. The main clients of construction SOEs are local governments, local government financing vehicles and property developers. Local government finances have come under pressure in recent years, restrictions on LGFV debt have tightened, and the property sector has undergone a deep adjustment, weakening clients’ ability to pay. Market data show that the combined receivables of the seven major construction SOEs exceeded 1.47 trillion yuan at the end of 2025. The industry operates on an implicit “collect before paying” logic: when upstream payments do not arrive, payments to downstream companies are delayed.

Why suppliers are willing to wait

The response to extended payment terms differs between central SOEs and private companies. For suppliers, accepting longer terms from a central SOE means trading time for certainty: payment may be slower, but the risk of bad debt is lower. Private companies have weaker credit backing, so suppliers are reluctant to offer them similarly long terms. When industry demand is weak, small and medium-sized suppliers commonly accept payment terms of three to six months, or even longer, to secure stable orders.

The longer the payment period, the more interest-free funding a central SOE obtains from upstream suppliers. Some analysts have roughly estimated that extending payment terms by 30 days could save a leading central SOE tens of billions of yuan in financing costs, although this is an estimate rather than official data. But construction industry net profit margins are generally below 3%, while margins at many building materials and labour services companies are below 2%, according to mainland analysis. Rising funding costs make it harder for these companies to remain viable, lengthening the chain of inter-company arrears.

Policy limitations

The notice sets out specific arrangements for payment instruments. The maximum term for electronic payment certificates will be cut to six months. Electronic payment certificate platforms may not issue new certificates with terms exceeding six months, while banks and commercial factoring companies may not provide financing for such certificates. Large companies that use commercial bills or electronic payment certificates to extend payment terms indirectly will be subject to enforcement action for abusing their dominant position. The most direct effect will be to narrow the scope for using bills to extend payment periods in disguise, bringing the payment term shown on paper closer to the actual term.

The notice also provides supporting measures. Large companies that make notable reductions in the duration and volume of payables will receive greater support for loans and bond issuance. Banks will also be encouraged to support large companies in replacing payables with financing, allowing them to make cash payments to SMEs promptly.

However, the source of central SOEs’ payments is the collection of money from project owners. If financial pressure on local governments and the property sector does not ease, simply requiring central SOEs to pay faster will concentrate the pressure on their own cash flows. Supply chain finance, including asset-backed securities, factoring and payment confirmation certificates, can provide SMEs with liquidity earlier, but it is only a financial buffer and cannot remove the underlying cause of the disrupted flow of funds.

What to watch next

• The gap between the growth rates of receivables and payables: This is a direct signal of whether financial pressure across the industrial chain is easing at both ends.
• The pace of local government special-purpose bond issuance and completed infrastructure investment: Upstream funding relief usually starts here.
• Overdue rates for commercial bills in the construction industry and the volume of supply chain ABS issuance: These indicate the stress on SMEs’ cash flows and the extent of financial-sector intervention.
• Disclosure rules for listed companies: The notice calls for more detailed rules requiring listed companies with payables above a certain level to disclose their main payment methods, average payment terms, and the issuance of commercial bills and electronic payment certificates. The head of the Listed Company Supervision Department at the China Securities Regulatory Commission, the mainland regulator rather than Hong Kong’s Securities and Futures Commission, also referred to the matter at the briefing.

The trillion-yuan payables of construction SOEs are not simply a matter of corporate morality. They reflect the combined effects of the construction business model, the broader funding environment and the companies’ position in the market. The policy has drawn a clearer line around the rules, but whether the collection ecosystem improves will ultimately depend on whether the upstream flow of funds can be restored.