Capital Chain Crisis in the Construction Industry – HKMA Should Actively Intervene to Resolve the Predicament

In recent years, the local real estate and construction industries have faced unprecedented capital chain pressures. A sluggish market and reduced project volume have tightened cash flow across the entire supply chain. The liquidity of “upstream paying downstream” has significantly declined, affecting contractors, subcontractors, and even large, reputable companies.

According to the Official Receiver’s Office, the numbers of bankruptcy petitions and compulsory winding-up petitions have continued to rise, with over 4,000 and 300 cases respectively recorded in the first five months of this year—reaching a recent high. In the construction sector, several long-established and sizable companies have been forced into liquidation due to cash flow issues, reflecting the severe financial stress and growing operational challenges faced by the industry.

Although the Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks previously launched the “9+5” SME support measures and earmarked over HK$390 billion in dedicated funds—with six major banks agreeing to offer flexible arrangements for subcontractors in the construction industry—these measures have largely remained slogans, lacking concrete implementation. Industry feedback indicates that funds have not truly reached the companies in need, and approval difficulties remain widespread. With limited room for self-rescue, cost-cutting alone is insufficient to overcome the crisis.

Given the macroeconomic pressures, it is understandable that banks are cautious in assessing industry risks. However, many banks have adopted rigid credit approval processes, failing to accommodate the unique characteristics and operational models of construction enterprises. At the same time, credit departments have raised the credit risk levels for property development and construction, reducing overall lending limits and further tightening the industry’s cash flow.

Paradoxically, some banks are increasing credit limits for already high-risk, heavily indebted companies to prevent immediate collapse and avoid provisioning losses. Meanwhile, they apply overly conservative standards to financially sound and reputable firms, tightening their credit access. As a result, some well-qualified construction companies are simultaneously facing reduced project volumes, delayed upstream payments, and pressure from subcontractors and suppliers to shorten payment terms. The banks’ approach exacerbates the situation, plunging the industry into a “quadruple blow” crisis.

This vicious cycle has made financing approvals increasingly difficult and complex, even for capable companies. The financial pressure continues to mount. For example, in 2024, the Hong Kong Construction Industry Employees General Union received complaints from around 2,000 site workers about unpaid wages, involving over HK$300 million. There are concerns that a wave of bankruptcies may occur by the end of 2025, worsening the wage arrears problem. If this continues, cash flow issues across the supply chain will intensify, and the situation of arrears of wages may deteriorate further, affecting social development and stability.

As a key pillar of Hong Kong’s economy and employment, the healthy development of the construction industry is vital to overall societal well-being. In light of current challenges, I believe the HKMA should take a more proactive role by establishing a communication platform and urging banks to set clear financing guidelines for reputable and capable construction companies. For example, lending amounts could be determined based on the total value of contracts held by each company, with simplified approval procedures.

Additionally, banks should ensure that funds lent to property developers are used to pay downstream contractors and subcontractors, enabling healthy operations throughout the supply chain. A dedicated guarantee mechanism for the construction industry should also be established to ensure that funds reach the companies in need. This would provide businesses with more room to survive during economic downturns and prevent large-scale liquidations that could impact the broader economy and employment.

As a member of the industry, we believe that only through collaboration among the HKMA, banks, and enterprises can we break the capital chain deadlock, promote the steady development of Hong Kong’s construction industry, and inject new momentum into the city’s economy.