With its virus outbreaks under control, China's engineering and construction sector has rebounded and is once again busy and growing.
The country's major government-linked engineering and construction companies, such as China State Engineering Corp. and China Railway, posted significant year-on-year revenue increases in 2020's second quarter, reports Fitch, the credit ratings agency. Profitability is also back to pre-pandemic levels, Fitch Ratings states in a Nov. 1 report.
Infrastructure investment, the most in the world, continues, and robust new contracts are expected to sustain the momentum.
The trouble isn't all in the rear-view mirror, however. Fitch expects China's engineering and construction companies to have more difficulty managing operating cash flow because the virus has shackled growth and taken a toll on government spending. Central government tax revenue is down 9% year-on-year in the first nine months of 2020. and local government revenue has fallen off 4% for the same period.
Chinese companies working in other countries face the biggest risks, particularly those in countries where the virus still rages, writes a team of Fitch analysts.
"We believe the risk to Chinese E&C issuers may come mainly from overseas projects" and the companies that work outside the People's Republic of China, the Fitch analysts write. "We expect those issuers," such as Power Construction Corp. of China (PCCC) and China Communications Construction Co. (CCCC), to face greater challenges "in resuming work in the particular market."
Meanwhile, the debt ratings for big Chinese E&C companies remain unchanged.