Report Industry Investment Rating - There is no information provided regarding the report industry investment rating. Core Viewpoints of the Report - Since the first stage of the current round of debt resolution, the orders and revenues of sample construction enterprises related to local government projects have decreased, and the collection and turnover efficiency have deteriorated. Especially, local construction state - owned enterprises with a high proportion of local government projects face relatively large short - term solvency pressure. - In the second stage of the current round of debt resolution, under the background of optimizing the central - local debt structure and establishing a long - term mechanism for preventing and resolving local government debt risks, it is expected that the overall demand structure of the construction industry will continue to adjust, and the credit levels of construction enterprises will diverge more significantly. [2] Summary According to Relevant Catalogs "One - Package" Debt Resolution Policy Review - Since 2014, China has promoted multiple rounds of local government debt resolution. The first round from 2014 - 2018 mainly included incorporating existing debts into budget management and "explicitizing" them through the issuance of replacement bonds, with a total issuance of about 12.2 trillion yuan of local government replacement bonds. The second round from 2019 - 2020 focused on the debts of counties and districts with weak fiscal strength, using replacement bonds to resolve the implicit debts of pilot counties, issuing 157.9 billion yuan of local government replacement bonds. The third round from 2020 - July 2023 used special refinancing bonds to replace local implicit debts, and some regions carried out pilot projects to eliminate implicit debts, with a cumulative issuance of 612.8 billion yuan of special refinancing bonds for implicit debt replacement and over 500 billion yuan issued in Beijing, Shanghai, and Guangdong for implicit debt elimination. - The current round of debt resolution started in July 2023. The central government put forward a "one - package debt resolution plan" with the core idea of "preserving the stock and controlling the increment". A series of policies such as "Document 35", "Document 47", "Document 14", "Document 134", and "Document 150" were successively introduced, covering aspects such as defining support policies, tightening bond - issuing policies for urban investment enterprises, controlling government investment projects, and guiding the orderly exit of financing platforms. - In 2024 - 2025, policies such as increasing the local government debt limit to replace existing implicit debts, emphasizing compliance in debt resolution, and clarifying the specific path for urban investment entities in key areas to exit the government financing platform were introduced. The policy framework involves four key dimensions: differential control of new financing, restriction of project investment scope and scale of urban investment platforms, specification of bond - issuing approval processes, and standardization of the mechanism for lifting financing restrictions after the exit of urban investment entities from the government financing platform. The debt resolution policy has shifted from emergency response to systematic governance. [4][5][8] Impact Path of the Current Round of Debt Resolution on Construction Enterprises Demand Side - Construction enterprises are highly dependent on local governments on the demand side. Local government - related projects, including infrastructure projects, urban renewal projects, and public service projects under the PPP model, have long accounted for a major share of construction enterprises' contract amounts. As of the end of June 2025, among 74 sample bond - issuing construction enterprises, 26 had an average proportion of local government - related projects in new contracts over the past three years of more than 70%, and from 2022 - 2024, the proportion of new local government - related contracts in the total new contracts of sample enterprises was between 36% - 43%. - The current round of debt resolution has led to a significant decline in construction demand in areas related to local government investment. It has imposed dual constraints of hierarchical control and policy regulation on local government investment, and squeezed the traditional infrastructure funding sources of local governments. In high - risk debt areas, new government investment projects are restricted, the approval cycle of some projects is extended, and some projects are suspended or postponed. For PPP projects, relevant policies have restricted project promotion. In addition, the decline in land transfer income, the adjustment of the use structure of special bonds, and the restart of land reserve special bonds have all affected traditional infrastructure funding. [12][13] Cash Flow Side - Construction enterprises are highly dependent on local governments on the cash flow side. Their accounts receivable are highly concentrated in the government and urban investment platforms, and they often need to advance a large amount of funds for government - related projects. The PPP projects carried out with local governments over the past decade have also occupied a significant amount of funds, and the repayment progress of PPP project financing is related to the government's payment rhythm. - The current round of debt resolution has led to a decline in the payment ability of local governments and the liquidity pressure of urban investment platforms, which has directly affected the collection of construction enterprises' project funds. The settlement and collection cycles of local government - related projects have been extended, and the proportion of progress payment has decreased significantly. In 2024, the issuance scale of urban investment bonds decreased by 17.02% year - on - year to 4.914114 trillion yuan, and the net financing turned from a net inflow of 1.144279 trillion yuan in 2023 to a net repayment of 333.294 billion yuan. In the first half of 2025, the net financing of urban investment bonds was - 178.050 billion yuan, with the net repayment scale expanding significantly year - on - year and narrowing slightly quarter - on - quarter. [16][17] Performance of the Construction Industry in the First Stage of the Current Round of Debt Resolution Newly Signed Contracts - In 2023, the newly signed contract amounts of sample enterprises in key provinces and cities related to local government projects decreased significantly due to debt resolution policies. In 2024, the overall newly signed contracts of sample enterprises related to local government projects decreased significantly, with central enterprises experiencing the largest decline and local state - owned enterprises the smallest decline. However, due to business composition, the year - on - year decline in the total newly signed contract amounts of sample central enterprises was lower than that of local state - owned enterprises. From 2023 - 2024, the year - on - year growth rates of the total newly signed contract amounts of sample enterprises related to local government projects were 2.74% and - 9.58% respectively, significantly lower than the year - on - year growth rates of the total newly signed contract amounts of sample enterprises (8.14% and - 1.07% respectively). [19][20] Revenue - In 2024, the revenues of sample construction state - owned central and local enterprises with a relatively high proportion of local government projects decreased significantly. For sample construction central enterprises from 2023 - 2024, the higher the proportion of local government projects, the lower the year - on - year growth rate of construction revenue, and the revenue growth rate decreased significantly in 2024 compared with the previous year. For sample construction local state - owned enterprises, the median year - on - year growth rates of revenues of sample enterprises with a proportion of local government projects over 70% ranked the highest and lowest in 2023 and 2024 respectively. Sample enterprises with a proportion of local government projects between 30% - 50% were mainly engaged in housing construction and infrastructure, and their construction revenues in 2024 decreased by more than 10% due to the decline in local government demand and real estate demand. [21][22] Accounts Receivable Turnover and Aging - Since 2022, the turnover speed of accounts receivable of sample construction enterprises has slowed down overall, and the turnover efficiency of local state - owned enterprises decreased significantly in 2024 due to debt resolution. From 2022 - 2024, the turnover efficiency of each group of sample enterprises showed a continuous decline, and the turnover rate of central enterprises was generally better than that of local state - owned enterprises. For sample construction central enterprises, the group with a proportion of local government projects in the range of 30 - 50% had the best performance in turnover efficiency indicators. For sample construction local state - owned enterprises, the turnover rate of the two groups with a proportion of local government projects over 50% decreased significantly, and the turnover rates of the two groups with a proportion of local government projects over 70% and less than 30% were weak in 2024, mainly affected by local debt resolution, the contraction of housing construction demand, and the lag in revenue and collection. - The proportion of accounts receivable within one year of sample central enterprises generally showed an upward trend, while that of sample local state - owned enterprises decreased overall, and the high - proportion group of local government projects decreased significantly in 2024. [23][24] Cash Flow - The sample enterprises as a whole maintained a net cash inflow from operating activities, but the coverage ratio of sales cash collection to current liabilities continued to weaken. Local state - owned enterprises with a high proportion of local government projects faced relatively large short - term solvency pressure. From 2022 - 2024, the operating cash inflow of the group of sample local state - owned enterprises with a proportion of local government projects greater than 70% continued to decline, but except for a few samples, the operating cash flow as a whole remained in a net inflow state. The coverage ratio of sales cash collection to current liabilities of sample construction enterprises continued to weaken, especially for local state - owned enterprises with a high proportion of local government projects, indicating a weakening of their collection situation as a whole. [27][28] Impact Assessment of the Policies in the Second Stage of the Current Round of Debt Resolution on the Construction Industry - The "6 - trillion - yuan" plan is expected to alleviate the squeezing of infrastructure investment funds by debt resolution. However, the decline in government fund revenues and the progress of the issuance and implementation of new special bonds have affected the growth rate of local infrastructure investment. The implementation of subsequent policies is expected to accelerate. The "6 + 4+ 2 - trillion - yuan" debt resolution plan approved in November 2024 is estimated to reduce the total implicit debt of local governments to be digested from 14.3 trillion yuan at the end of 2023 to 2.3 trillion yuan, saving about 600 billion yuan in interest expenses over five years. Although the total amount of newly issued local government special bonds in 2025 increased, the issuance progress of special bonds other than those related to debt resolution was relatively slow, and the decline in land transfer income also affected local infrastructure investment. The cumulative year - on - year growth rate of narrow - sense infrastructure investment in the first three quarters of 2025 slowed down to 1.10%, lower than 4.10% in the same period of 2024. - Under the background of optimizing the central - local debt structure and establishing a long - term mechanism for preventing and resolving local government debt risks, the central government has increased leverage, and the demand structure of the construction industry has continued to adjust. Although local government investment has been affected by debt resolution, the central government has emphasized the use of a more proactive fiscal policy. The issuance of treasury bonds and ultra - long - term special treasury bonds will support large - scale standardized projects, especially "two major" projects (major strategic implementation and key - area security capacity building). It is expected that future infrastructure investment will be more targeted at areas in line with "high - quality development" and "high social benefits", such as "two major" and new infrastructure fields. - As of the end of June 2025, the effect of the arrears - clearing action on alleviating the cash flow of bond - issuing construction enterprises was not significant. It is expected that the arrears - clearing action will accelerate in 2026, which will be beneficial to improving the cash return of the construction industry. A series of policies on arrears - clearing have been introduced, and the scope of key arrears - clearing entities has been defined. The total amount of arrears of four types of units involved in financial arrears - clearing is about 1.8 trillion yuan. Although the cash flow performance of sample construction enterprises has improved to some extent in the first half of 2025, the overall effect of arrears - clearing on cash flow is not significant. In the long run, the accounts receivable of construction state - owned central and local enterprises are expected to be recovered, and their financial statements are expected to improve. [30][34][37] Outlook on the Credit Change Trend of Construction Enterprises under the Background of Debt Resolution - The credit levels of construction enterprises will face differentiation under the background of debt resolution, and enterprises with policy resources, technological barriers, diversified and international layouts, and financial robustness are expected to dominate the market. - Enterprises with complete qualifications and diversified construction capabilities are expected to survive the cycle and develop in the long term. They can reduce risks in a single market and better cope with policy regulation and market uncertainties, and are expected to find new growth points in the field of new - quality productivity. - Enterprises with stable operation and finance are more likely to survive in the downward period of the industry. The traditional high - leverage and large - scale advance payment operation model in the industry is facing challenges, and enterprises with financial stability, sufficient capital reserves, or stable financing channels can better cope with risks and seize market opportunities. - The competition pattern will further differentiate, and regional risk differences will continue. Leading construction central enterprises are expected to maintain their competitive advantages, and state - owned construction enterprises in regions with strong financial resources or with strong competitiveness in niche markets will have better development prospects. Construction central enterprises have advantages in project acquisition, financing costs, and channels, and are expected to participate in major projects in countries and regions along the "Belt and Road". Local state - owned enterprises mainly engaged in housing construction and traditional infrastructure in regions with weak economic strength and high debt pressure will face business contraction pressure, while those in economically active and financially strong regions and enterprises with advantages in new fields will have good development opportunities. [41][42]