Source: Yushuo Construction, Taobao Judicial Auction Network Platform, Construction Management, Kunming Intermediate People’s Court in Yunnan Province, Network Summary and Organization
Overview
In the latter half of 2021, five major construction companies—including one top-tier and four first-class enterprises—filed for bankruptcy restructuring or liquidation.
On November 3, 2021, the National Enterprise Bankruptcy Restructuring Case Information Network publicly announced the recruitment of restructuring investors for Chongqing Yuanfei Construction (Group) Co., Ltd., which entered bankruptcy reorganization proceedings on July 22, 2021. This company holds a first-class qualification in construction engineering.
On October 20, 2021, Henan Expressway Development Road and Bridge Engineering Co., Ltd., possessing 11 construction qualifications—including first-class qualifications for highway engineering and municipal public works—issued a bankruptcy reorganization recruitment announcement.
Zhejiang Yiye Construction Co., Ltd., a first-class qualified construction engineering company, announced a bankruptcy auction on September 30, 2021, with the online auction held on October 21.
China Yunnan Road Construction Group Co., Ltd., holding a special qualification for highway engineering, applied for bankruptcy reorganization on August 13, 2021.
Zhejiang Zisheng Construction Engineering Co., Ltd., a first-class qualified construction company, filed for bankruptcy liquidation on July 24, 2021, and held its first public auction online on August 28.
The common reason for these filings was the companies’ inability to repay their outstanding debts.
1. First-tier Construction Enterprise: Debt Exceeding 450 Million Yuan
On July 22, 2021, the Fifth Intermediate People’s Court of Chongqing accepted the bankruptcy reorganization application of Yuanfei Construction, as per Civil Ruling (2021) Yu 05 Po 87-1.
The company’s business scope includes first-level general contracting for housing construction projects, second-level general contracting for municipal public works, third-level professional contracting for earthwork, rock engineering, foundation and basic engineering, and second-level professional contracting for building decoration and renovation. It also holds a third-level qualification in steel structure engineering.
So far, 103 non-employee claims have been declared and confirmed by the administrator, totaling approximately RMB 450 million.
On November 3, the National Enterprise Bankruptcy Reorganization Case Information Network released a notice inviting investors to participate in the restructuring of Chongqing Yuanfei Construction (Group) Co., Ltd., with registration closing at 17:00 on December 3, 2021.
2. Henan Expressway and Bridge Company: Unable to Repay Debts
On October 20, 2021, the National Enterprise Bankruptcy and Restructuring Case Information Network announced that Henan High Speed Development Road and Bridge Engineering Co., Ltd. (hereafter “High Speed Road and Bridge Company”) was recruiting investors for pre-restructuring.
The announcement detailed that the company holds 11 construction enterprise qualifications, including seven first-class qualifications and two first-class general contracting qualifications in highway engineering and municipal public works. It controls eight external investment enterprises, six of which are wholly owned.
Why Did They File for Bankruptcy?
According to Civil Ruling (2020) Yu 01 Po Shen No. 13 issued by the Zhengzhou Intermediate People’s Court, Henan Province, Foshan Huarun Shun’an Concrete Co., Ltd. (“Shun’an Company”) had a sales contract dispute with the Expressway Bridge Company.
The announcement requires potential investors to pay a deposit of 10 million yuan to participate.
3. Zhejiang Yiye Construction: Starting Bid at 14 Million Yuan for First-Class Qualification
The Alibaba auction platform recently listed the 100% equity of Zhejiang Yiye Construction Co., Ltd., which holds a first-class general contractor qualification for construction projects. The starting bid was set at 14 million yuan, as part of bankruptcy liquidation proceedings.
Zhejiang Yiye Construction was granted first-class general contracting qualification on September 18, 2021, valid until December 31, 2021. However, it has recently faced insolvency issues due to inability to repay maturing debts.
Since its establishment, the company has not engaged in actual business operations and currently has no employees.
4. Yunnan Road Construction Group: Debt Ratio Reaches 276.8%
China’s Yunnan Road Construction Group Co., Ltd. recently applied for bankruptcy reorganization.
According to the audit report by Yunnan Jinghe Certified Public Accountants dated August 25, 2020 (Yunjinghe Audit [2020] No. J-220), as of June 30, 2020, the company’s total assets were approximately 717 million yuan, with total liabilities surpassing 1.98 billion yuan, resulting in an asset-liability ratio of 276.8%.
On August 13, 2021, the Kunming Intermediate People’s Court in Yunnan accepted the reorganization application.
In 2017, Yunnan Road Construction obtained the special grade qualification for general contracting of highway engineering, along with first-class qualifications in bridge engineering, tunnel engineering, highway pavement, subgrade, and highway traffic (including safety facilities).
5. Zhejiang Zisheng Construction Engineering: Public Auction of a First-Class Qualified Enterprise
Zhejiang Zisheng Construction Engineering Co., Ltd., registered in Taizhou City, was established on February 5, 2021, and obtained a first-class qualification for general contracting of construction projects on July 16, 2021. The company applied for bankruptcy liquidation on July 24, 2021, to the Taizhou Intermediate People’s Court.
Its first public auction on Taobao Judicial Auction platform took place on August 28. After 68 rounds of bidding, it was sold for 20.2 million yuan.
Typically, companies with special or first-class qualifications are industry leaders. So how do they become insolvent?
Common reasons for cash flow shortages in construction companies include:
- Poor creditworthiness, leading to delayed project payments.
- Low bid prices causing projects to operate at a loss.
- Contracts with low payment ratios or extended payment cycles, resulting in long-term negative cash flow.
- Delays or non-payment for change orders, claims, and additional quantities until project completion.
- Extended settlement review periods delaying fund collection.
- Prolonged project suspensions or extensions.
- Insufficient process reporting or underreporting, leading to delayed settlements.
- Poor cost control leading to waste, rework, idle labor, and high management expenses.
- Sudden, sharp increases in key building material prices like steel and concrete.
Due to these factors, construction companies often need to advance funds or resort to borrowing.
The Era of “Cash Is King”
Having cash on hand is critical. Cash flow forms the foundation for survival and growth. In today’s economic climate, cash flow often outweighs profit, and many companies face bankruptcy due to tight financing. For example, a leading university recently encountered a sudden crisis, shaking its entire supply chain.
If a company is like a person, cash flow is its blood. Facing blood loss, a company can either stop the bleeding or receive a transfusion. While transfusions can sustain life, they come with high costs and risks. Therefore, stopping the bleeding is the best strategy, and transfusions are a last resort.
First, prioritize cash flow alongside profit, ensuring maximum profit while securing timely fund collection.
For instance, Project A offers 800,000 yuan profit with 100% immediate payment after settlement, whereas Project B yields 1.2 million yuan profit but only 500,000 yuan immediate refund. Choosing Project A is advisable.
Second, control accounts receivable by setting a maximum turnover period—no longer than 60 days—and ensuring total receivables do not exceed annual revenue limits. Every company should establish strict red lines.
Regarding Advance Funding
Advance payments might force you to work for years without resolving cash flow issues. In today’s competitive industry, harsh conditions are sometimes necessary to survive.
1. Expecting Projects to Fall from the Sky
Many contractors accept projects requiring upfront funds, hoping timely payment will follow. Small advances may be manageable, but for large projects, companies often have to borrow or seek high-interest loans.
2. Hot Potatoes
After completing projects funded through loans, payments from clients are often delayed or withheld with excuses like “no time for inspection,” “temporarily no funds,” or “payment will be made next month.” This forces companies to borrow more to pay workers and cover expenses.
3. Losses Accumulate
Debt grows as interest accumulates, and despite legal action to reclaim payments, funds may be insufficient to cover loans. Many contractors thus avoid projects requiring advance funding, even if the profits appear substantial.
Currently, many small and medium developers have finished projects but cannot pay construction costs. New projects require advance funding, while some payments are delayed under audits. Construction firms must minimize risks by assessing advance payment proportions and payback periods, calculating minimum financing capacity, and ensuring adequate funds are available.
Careful evaluation and control of advance payments—matching them to financing capability and monitoring changes in contractor payment ability—are essential.
Stay calm and maintain sufficient cash flow to weather difficult times, regardless of external challenges.
Additionally, company leaders must accurately grasp industry trends and economic conditions to choose the right path and remain competitive.
What are your thoughts? Feel free to leave a comment below for discussion.
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