Once urban land price and liquidity fluctuate sharply, risk contagion may occur and the credit defaults event of urban construction investment company (UCIC) relying deeply on the land market may be triggered. Firstly, this paper studies the mechanism of land risk’s contagion effect on the credit of UCIC theoretically based on the balance sheet theory through three channels, namely land price fluctuation-collateral value channel, land price fluctuation-capital channel and liquidity-financing channel. Secondly, the study identifies 52 urban construction investment companies in China as research samples, and the directed acyclic graph (DAG) technology and vector auto regressive (VAR) model are employed to verify the risk contagion mechanism. The empirical results of the three channels show that: Urban land price fluctuation has significant short-term influence on UCIC’s credit defaults, and its risk contagion effects take place through land price fluctuation-capital channel signifying UCIC’s financing ability. Urban land fluctuation has significant amplificated long-term influence on UCIC’s credit defaults through the liquidity-financing channel. The contagion effect via investment, revenues and cash payment risk does not have significance.