State-run China Communications Construction Group develops ports, roads, high-speed rail and real estate. In addition to external contracts, the Beijing-based group has been investing in and operating more of its own infrastructure projects in recent years under China’s international Belt and Road campaign.
The group booked net profit of 30.5 billion yuan (US$4.28 billion) on sales of 842.8 billion yuan in 2021 – up 70% and 79% from 2016, respectively. The total value of its contracts is growing, and the group is capable of securing new deals, China Chengxin International Credit Rating said recently.
But CCCG has taken a hard hit from the credit crunch in China’s property sector, best illustrated by the debt crisis at compatriot developer China Evergrande Group, as well as sunk costs for failed projects in emerging economies.
Global economic shifts and the coronavirus pandemic have increased operational risks overseas for the core listed unit of the group, China Communications Construction Co (CCCC), China Chengxin said.
Aggressive investments in line with Chinese government policy have added to CCCG’s debts. The total debt doubled in five years to 1.84 trillion yuan as of the end of June. For comparison, Evergrande held around 2 trillion yuan in debt during June 2021.
CCCC plans to invest 280 billion yuan in 2022, 3% more than last year. The unit may need to reschedule its growing debts that result from financing new projects, China Chengxin said.
At home, the group is building a new office in Shanghai slated for completion in November 2023. But China’s stringent “zero-Covid” restrictions and lockdowns have hindered progress, including by keeping some workers away. A CCCG executive said recently that completion likely will be “pushed back to May 2024”.
CCCG was born in 2005 from a merger of state-owned port and road companies, then merged with a state property developer in 2010. Notable units include China Road and Bridge and China Harbor Engineering.
The latter’s development of the Hambantota port in Sri Lanka is seen as a poster child for “debt trap” diplomacy by Beijing – saddling developing countries with debt to pressure them diplomatically.
The group also has found itself caught in the rivalry between the US and China. Washington has effectively banned exports to several subsidiaries in 2020 for their involvement in island-building in the South China Sea.
Yet CCCG continues forging ahead on infrastructure projects abroad. Its overseas revenue in 2021 ranked third in the world among contractors, higher than any other Chinese player, according to US-based Engineering News-Record.
CCCC inked 22% more contracts abroad by value on the year during the January-June period, largely in Africa and Southeast Asia. In September, the unit announced a new road project in Rwanda and a port renovation in the Bahamas.
But doubts exist over the profitability of these projects.
“Emerging countries face a growing risk of a currency crisis as US interest rate hikes weaken their home currencies and the Russian invasion of Ukraine drives up energy and food prices,” said Takahide Kiuchi, executive economist at Nomura Research Institute, warning that some of the projects may fail.
Despite this push for overseas contracts, CCCG increasingly relies on the Chinese property market. Overseas revenue fell to 13% of the total in 2021 from a peak of 24% in 2017. Meanwhile, domestic real estate increased by roughly 6 points to around 14%.
The group’s condo development units have faced a cash crunch and other problems. CCCC President Wang Haihuai last month said that a proposal exists to merge several property-related group subsidiaries “into one”.
Wang did not comment on the details. But with Beijing urging companies involved in the Belt and Road to improve profitability and manage risks better, CCCG faces pressure to bolster overseas operations swiftly.
CCCG is interested in “stable growth” and “preventing risk”, group Chairman Wang Tongzhou said in June. CCCC’s stock price is around 35% below its recent peak in February, and it is unclear whether the group can continue to sustain its growth.