China’s Rail and Construction Sectors in Transition: Cyclical Woes or Structural Headwinds?

China’s rail and construction sectors are at a crossroads, grappling with the dual pressures of declining coal demand and the nation’s aggressive decarbonization agenda. For investors, the question is whether these challenges are cyclical—temporary dips in demand—and thus manageable, or structural—long-term shifts that threaten the viability of traditional business models. This analysis examines the sustainability of two key players: China Railway Group (CREC) and Daqin Railway, through the lens of their financial performance, strategic responses, and alignment with national energy transition goals.

China Railway Group: Navigating Cyclical Downturns with Strategic Diversification

CREC, a cornerstone of China’s infrastructure expansion, reported a 8.2% year-over-year revenue decline in 2024, with net profit dropping 18.3% to EUR 3.92 billion [4]. While these figures signal cyclical headwinds—likely tied to reduced public infrastructure spending and economic slowdown—CREC’s strategic pivot toward renewable energy projects suggests a proactive response to structural shifts.

The company secured a $1.13 billion contract for Saudi Arabia’s Diriyah masterplan in 2025, integrating green energy components like district cooling systems [3]. Additionally, CREC procured 3 GW of TOPCon solar modules, aligning with China’s 14th Five-Year Plan goal of 33% renewable electricity by 2025 [3]. These moves position CREC to capitalize on the global infrastructure renaissance, particularly in the Belt and Road Initiative (BRI) markets.

However, CREC’s gross profit margin fell to 9.5% in 2024, and EBITDA declined 5.5% to EUR 9.21 billion [4]. While these metrics reflect short-term margin compression, the company’s focus on overseas projects (targeting 30% of revenue by 2025) and renewable energy diversification indicates a long-term strategy to mitigate domestic coal dependency [3].

Daqin Railway: Structural Risks in a Coal-Dependent Model

Daqin Railway, China’s largest coal transporter, faces more pronounced structural challenges. Despite a 2% revenue growth in H1 2025, its net profit plummeted 29.8% year-over-year, driven by a 20% projected decline in coal demand by 2025 under national decarbonization policies [1]. The company’s 80% coal freight revenue dependency exposes it to irreversible shifts in energy consumption, as renewables are expected to supply 51–52% of China’s power mix by 2030 [3].

Daqin’s margin resilience—11.55% net profit margin in H1 2025—outperforms the industry average of 9.2% [1], but this is a temporary buffer. The company’s diversification efforts, including a $500 million investment in logistics and renewable energy transport, currently contribute less than 20% of total revenue [2]. A 1–1.5 billion yuan share buyback program aims to stabilize investor confidence, but success hinges on geopolitical stability and policy alignment [2].

Structural risks are compounded by China’s coal power transition. While coal remains critical for energy security, strategies like flexibility retrofits and carbon capture are reducing its carbon intensity [6]. For Daqin, the path forward requires scaling non-coal freight to 30% of revenue—a target that remains unquantified in its current strategy [2].

Energy Transition: A National Imperative with Global Implications

China’s energy transition is accelerating, with renewables surpassing coal in installed capacity in 2024 [5]. The 14th Five-Year Plan’s emphasis on cross-industry integration—transportation, manufacturing, and agriculture—creates opportunities for companies like CREC to lead in green infrastructure [4]. Meanwhile, Daqin’s role in coal logistics is increasingly at odds with national goals, such as a 30% carbon emission reduction by 2030 [1].

The Belt and Road Initiative (BRI) offers a potential lifeline for both companies. CREC’s Diriyah project and Daqin’s BRI freight ambitions align with China’s push to export renewable energy expertise [3]. However, geopolitical tensions and debt sustainability concerns in BRI partner nations could undermine these strategies [5].

Conclusion: Cyclical Adjustments vs. Structural Realignment

For CREC, the decline in 2024 revenue appears cyclical, with strategic diversification into renewables and BRI projects offering a buffer against long-term coal dependency. Its alignment with national energy goals and financial discipline (EBIT of 41.48 billion CNY in 2025) [3] suggest resilience.

Daqin Railway, however, faces structural headwinds. Its coal-centric model is incompatible with China’s decarbonization trajectory, and current diversification efforts are insufficient to offset declining demand. While margin management and BRI freight growth provide short-term stability, the company’s long-term sustainability depends on aggressive scaling of non-coal revenue—a challenge that remains unmet.

Investors must weigh these dynamics carefully. CREC’s strategic adaptability offers a compelling case for long-term growth, while Daqin’s structural risks demand cautious optimism. In an era of rapid energy transition, the ability to align with national priorities—and pivot swiftly—will define the winners and losers in China’s rail and construction sectors.

Source:
[1] Daqin Railway's H1 Profit Decline: A Mispricing [https://www.ainvest.com/news/daqin-railway-h1-profit-decline-mispricing-opportunity-warning-signal-2508/]
[2] Daqin Railway's Throughput Trends Signal Shifts in China's Energy Landscape [https://www.ainvest.com/news/daqin-railway-throughput-trends-signal-shifts-china-energy-landscape-2507/]
[3] China's New Renewable Energy Plan: Key Insights for Businesses [https://www.china-briefing.com/news/chinas-new-renewable-energy-plan-key-insights-for-businesses/]
[4] China's Ascendancy in the Global Energy Revolution [https://www.officialenergyasia.com/chinas-ascendancy-in-the-global-energy-revolution/]
[5] China Surpasses 2030 Renewable Energy Goals Years Ahead of Schedule [https://www.renewableinstitute.org/china-surpasses-2030-renewable-energy-goals-years-ahead-of-schedule/]
[6] Decoding the coal-power transition in China [https://rmi.org/insight/decoding-the-coal-power-transition-in-china-facts-challenges-and-opportunities/]