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Silk Road paves way for heavy industry

China Daily | Updated: 2016-12-05 07:28

Silk Road paves way for heavy industry

Workers adjust mechanical parts at a loading machine production plant of Guangxi Liugong Group Co Ltd in Liuzhou, the Guangxi Zhuang autonomous region. [Photo/China Daily]

Finally signs of life emerge in a sector suffering sales collapse after 2011

After five years of falling revenue, forecourts overcrowded with unsold machinery and idle factories, China's push to build a modern-day Silk Road is fueling a recovery for the country's heavy equipment industry, according to executives from many companies gathered in Shanghai in late November.

Construction equipment makers-a proxy for China's infrastructure, resources and construction sectors-suffered a plunge in sales after 2011, as commodity prices collapsed.

Industry sales in China peaked that year at $35 billion, according to consultancy Off-Highway Research. This year they are estimated at $9 billion-the worst sales level in more than a decade.

But speaking at a crowded biennial industry show last week, executives from machinery makers said that in the third quarter of this year there were finally signs of life. They now expect growth next year for the first time since 2011, as a glut of used equipment ages, the industry works through accumulated inventory and companies benefit from ambitious government projects.

Overall, demand for excavators in China jumped by 50 percent in September, while sales of earth-moving and road-making machinery, a major beneficiary of the Silk Road effort, turned positive after five years of losses, according to Off-Highway.

"We've seen fairly significant signs of bottoming and turning around," said David Beatenbough, a vice-president of Guangxi LiuGong Machinery Co Ltd, one of China's biggest construction machinery manufacturers, where he oversees research and development.

"We're seeing quite a bit in rail, some in roads ... and a little bit in traditional real estate," he said.

China has estimated the Belt and Road Initiative could add $2.5 trillion to the nation's trade in the next decade, making it critical to the post-financial crisis turnaround-and the benefit is seen going well beyond machine makers.

Chinese President Xi Jinping's initiative includes a drive for an integrated economic area through Central Asia, West Asia, the Middle East and Europe, based on new infrastructure-such as roads and railways and increased trade links.

Official data have shown broader signs of stabilization in China's economy, driven by billions of dollars in government spending and a property boom in major cities, even as private investment and exports remain weak.

Beijing-it is seeking to cushion the impact of the country's slowest growth in 25 years-has accelerated approvals, sent officials to probe stalled projects and encouraged private investors to play a bigger role in infrastructure-building.

Earlier last month, the country's top economic planner said it had approved 2.97 trillion yuan ($429.3 billion) worth of projects in the first 10 months of the year, 2.9 percent higher than the amount approved over the same period last year.

Infrastructure spending is entering a growth phase globally, led by the ambitious plans to rebuild the United States under President-elect Donald Trump and including Britain, which recently freed up an extra 23 billion pounds ($28.6 billion) to invest in rail, telecoms and housing infrastructure-all good news for machinery makers.

It is still early days in the recovery. For example, US heavy equipment maker Caterpillar did not have booths at the Shanghai show this year-a contrast with 2012, when it filled a hall with a 12,000-square-meter display.

But after one of the grimmest years in decades, other signs are rosier. Beyond Shanghai, John Deere, Japan's Komatsu and others have given cautiously positive outlooks in recent weeks. And Caterpillar itself last week reported a third consecutive month of sales growth in Asia, driven by China, and said it sees growth ahead in 2017-if the Chinese government support for projects continues.

Most see growth in other parts of Asia too, as Chinese construction firms go into Southeast Asia or Pakistan. A weak yuan-it has fallen 6 percent against the dollar so far this year-will also make Chinese companies more competitive internationally.

"Business confidence is coming back ... and (firms) are starting to see some good results," Karin Sun, Beijing-based senior consultant at Off-Highway Research, said in reference to China.

Chen Dewei, vice-general manager of excavator and wheel loader maker Fujian Jingong Machinery in southern China, said his company has been able to trim inventories to what he called a "reasonable" level. He said it planned to spend a few hundred million yuan in January to open a factory in Jiangsu province, north of Shanghai, that will increase its manufacturing capacity by 30 percent.

The facility, initially planned in 2011, had been mothballed amid the industry slump.

"From our company's perspective, this industry is slowly warming up ... our new products have also performed well in the last few years providing us with the conditions we need to open a northern base," he said.

Still, many are wary about predicting the strength of the recovery. Even a recovery, said one executive at Shandong Lingong Construction Machinery, will not be the same as before: "Chinese companies are smarter now, we won't manufacture in large quantities like last time."

Liugong's Beatenbough was among those taking a cautious view.

"Some of us have been in the industry long enough in other parts of the world where we've seen recoveries start before, and then fade away to nothing," he said.

Reuters

 

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