On top of increasing labor spending, Chinese companies have been absorbing the rising cost of raw materials and equipment. For example, the price of cement increased by 16%, to 332 RMB per ton, in China in 2011, according to an annual industry pricing report by WeFore Group, a Chinese-based research firm.

Costs of equipment and other materials, such as steel, have also gone up, the report says. The price instability adds to cost risks for Chinese companies working internationally because of their mostly exclusive supply chain for materials and equipment. 

“Most Chinese construction companies working overseas are doing so through government-to-government aid programs, and part of their brief is to purchase Chinese-made construction equipment,” says David Phillips, managing director at ">Off-Highway Research, a construction-equipment consultant and researcher. “They buy this equipment either through specialist export houses based in China or through the export departments of the relevant Chinese manufacturers.”

Construction companies are seeking ways to diversify their material and equipment supply to dilute the risk of domestic price fluctuations. “We only purchase equipment of a special kind from sources other than from the Chinese domestic market at this point,” says Gao, “but we intend to localize our business aboard and start to localize our supply as well.”

Chinese construction companies also are seeking cheaper financing. They have long had the luxury of strong domestic funding from state-owned banks. In 2012, projects funded this way amounted to $88.9 billion, or 23% of all the overseas projects on which Chinese companies worked in that year, the CHINCA report says.

The cost of money, however, has been growing for the past few years, further burdening companies. For example, interest on a five-year loan increased to 6.55% last year from 5.76% in 2002, according to the CHINCA report. Chinese firms working globally are considering tapping further into the private lending market for better deals and more customized financing packages, CHINCA adds.