State-owned enterprises and central enterprises, which once symbolized stability and strength, are now deeply mired in financial difficulties amid the continuous contraction of the Chinese economy. High advance payments, indefinite returns, and other issues have plagued their engineering projects, making them a “hot potato” that engineering companies try to avoid at all costs.
On June 28, a video posted by the social media account “DeRun Media” garnered attention. In the video, a woman candidly revealed the startling transformation of state-owned and central enterprise projects. She said, “In the past, everyone scrambled to take on projects from state-owned and central enterprises through connections; now, it’s not about inability to continue, but rather the outright fear of getting involved.”
The video exposed that behind this 180-degree shift lies a complete transformation in the operating mode of these projects. Taking on such projects entails enduring a “triple lock”:
1. Layered financial traps – Contractors have to bear various upfront costs such as hefty “intermediary service fees” and “deposits” often amounting to tens or even hundreds of millions, with no clear indication of the scale of advance payments and the repayment deadline.
2. Standardized process management during execution – The general contractor unilaterally pushes for progress, promising to handle design changes with a “personal guarantee,” only to face a slew of “malicious deductions” during the settlement phase.
3. Complicated repayment processes – Approval procedures are “more numerous than the stars in the sky,” and delays are met with a variety of excuses: failed inspections today, supervisor resignation tomorrow, manager on a business trip the day after, or leadership meetings.
The video analysis further highlighted the despairing extension of repayment cycles without a bottom line. “Considering a year a generous timeframe for settling an account, while three to five years is the norm.” Under the immense gap between meager profits and high advance payment costs, it becomes evident that “it’s not about assigning work, but rather a disguised form of borrowing.”
Apart from economic pressures, complex interpersonal relationships and unwritten rules have also become unbearable burdens for companies. Industry practitioners must “overcome numerous obstacles, deal with interpersonal complexities everywhere, and give gifts on holidays and festivals without fail.” Any slight misstep results in “numerous obstacles on construction sites, hindering progress.” These hidden costs further erode the already narrow profit margins.
Recently, Netease published an article titled “Why are no companies seeking state-owned and central enterprise projects?”, revealing specific examples, with a representative case being a furniture project agent in Xiong’an New Area. Xiong’an New Area is a nationally promoted new area by the CCP.
According to reports, the company invested millions to complete the project but faced a dire situation due to delayed project payments. Despite clear contractual terms, a constant stream of issues such as process delays, personnel changes, and indirect debt accumulation led to the breakdown of the company’s financial chain, forcing massive layoffs and nearing closure.
In another tragic case, a small home decoration enterprise in Shandong went bankrupt due to being involved in a relocation housing renovation project and having the project payments withheld for three years. The business owner faced lawsuits from employees due to “unpaid wages,” leading to a complete collapse of livelihood.
The report states that under the continuous downward pressure of the Chinese economy, even state-owned and central enterprises struggle to stand alone, highlighting the chaotic situations in project operations reflecting the tense financial chains in the state-owned economic system. From being a “tempting sweet cake” to a “hot potato,” the plight of state-owned and central enterprise projects is not just an internal industry issue but a microcosm of economic contraction. Since 2023, an increasing number of engineering companies have voluntarily given up state-owned and central enterprise projects.