China to cool, but it is still the hot market

02 May 2008

According to some observers, there is more construction activity in China today than in the rest of the world put together. The country is believed to devour 54% of the world's concrete and around 36% of the world's steel. The construction and demolition industry employs around 45 million people (the total population is 1.2 billion).

Construction equipment, not surprisingly, is also big business in China. Sales of wheeled loaders, for example, could reach a cool 105000 in 2005 while in 2004 around 30000 hydraulic excavators were sold making China the biggest single market in the world.

The Bauma China exhibition itself was twice the size of the inaugural event in 2002 and visitor figures reached around 50000, up from around 25000 in 2002. D&Ri's publisher, KHL, had a booth in Hall 5 and received hundreds of visitors and expanded the magazine's circulation into China significantly.

But, back to the market itself. One of the major factors that will influence the market over the next few months, and perhaps years, will be the government's recent economic measures targeted at cooling the capital equipment market. The cooling measures are designed to limit spending power and they have already had a significant effect on the sales of construction equipment in China.

Sales growth reached record levels in the first quarter of last year at around 70% but the government's mid-year action is likely to reduce the annual growth in 2004 to more like 15%. Sales growth this year (2005) is expected to stagnate with just modest growth over the following few years.

Such pressures will undoubtedly lead to serious consolidation within the construction and construction equipment sectors. It is a real possibly that some equipment manufacturers will collapse under the economic pressure, but it is perhaps more likely that a number will be bought by either domestic or international producers.

For those contractors and equipment producers that survive, however, the relatively tough times ahead are likely to make them much stronger and leaner. There is also likely to be a serious shift in business focus from turnover to profit.

One sector that is bucking the rapid slowdown trend is the crane market. It is estimated that around 13000 mobile cranes will be sold in China over 2004 - that is up from around 10000 in 2003. But the forecast for 2005 shows only a slight decline to around 12000 units, which, considering the government's severe economic cooling measures, is thought to be a very positive performance.

Market research specialist, Off-Highway Research (OHR), describes the mobile cranes sector in China as “one of the most promising sectors”. Market growth this year will be around 30%, but this will dwindle next year, not only because of the economic slow down, but because of the high level of mobile crane sales made over the past two years - cranes sold in 2002 to 2004 now account for around 50% of the total mobile crane population in China.

Interestingly, there is also a shift in the lifting capacity profile of mobile cranes in China. As the re-development of China continues, spurred on by the massive re-development connected with the Beijing Olympics, the size of construction projects has increased significantly. This, in turn, has led to an increased demand for cranes of more than 50 tonnes lifting capacity. According to OHR, this shift towards larger mobile cranes will continue and the market share of heavier capacity cranes will grow over the coming years.

The demolition attachment sector, judging by the huge number of manufacturers at Bauma China, is also in good health and the crushing and screening producers were also well represented. Along with large numbers of international producers there were also many domestic manufacturers displaying their wide ranges of demolition equipment - all with an eager eye on the export market.

Some Chinese manufacturers are already exporting equipment. A number of producers have machines with CE marks for the European market and some are exporting to Latin and North America. Although volumes are extremely small at the moment, there seems little doubt that Chinese manufacturers will build on their export business over the next few years.

Mr Wanh Min, chairman of XCMG (Xuzhou Construction Machinery Group), one of the largest crane and construction equipment manufacturers in China, said recently that the expansion of export markets is crucial to the future success of the US$ 2.4 billion-a-year company. Already the company has exported products to more than 40 countries around the world and it is dead set on building a recognisable international brand.

Mr Min said that XCMG would be looking to channel more money into R&D and improve its technology while at the same time buying or establishing new operations overseas in order to create a new purchasing, service, sales, and production network.

XCMG has already entered into joint ventures with a number of the industry's top names and, like many Chinese manufacturers, is now aiming to capitalise on that investment by expanding its customer base across the whole world. Product quality, distributions channels, aftersales services networks and much, much more needs to be put in place, but there seem little doubt that Chinese manufacturers will become a feature of the world's construction equipment scene.

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