Defying gravity?

10 May 2011

Stimulus spending in China drove the country's equipment market up more than +50% last year to some 460000 machines - more than the rest of the world combined. It was another year of startling growth for a market that has almost defied forecasters' expectations for the last decade - ten years ago the Chinese equipment market was only about one tenth of the size it is today.
But as history often shows, steep growth is often followed by steep falls. Is this something that worries Caterpillar?
"It's something we watch very closely," said Mr Levenick. "China will not defy the laws of economics and the cycles of our industry. A worry is that you have a whole generation of people in China who have never experienced a real downturn. They may think the market can only go one way, but sooner or later they're going to get a surprise.
"You see a state economy converting to a market economy within a generation. Essentially the Chinese equipment business was a wheeled loader market a decade ago and we were there with world class excavators. Now the bigger Chinese manufacturers are moving into excavators, but they're not building commodity level machines like they did with wheeled loaders. That's a very interesting point. They are coming in at I'd say the low end of world class.
"The growth is hard to believe, I don't know if anyone would have predicted it, but it is what it is and we have to react to that. You really have two levels of business in China. You have a word class industry and you have the local production, but we try to play in both, which is why we bought SEM [wheeled loader manufacturer Shandong Engineering machinery] as well as manufacturing Caterpillar products. At some point you could expect them to converge, but it's anyone's guess when that will be."

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