Chinese construction
machinery makers are opening banks, designing tractors and abandoning core
business deals in an effort to diversify and stay profitable as China's
sputtering economy brings a sustained downturn to a once-booming market.
With domestic demand,
government investment and the housing market all weakening, growth in the
world's second-biggest economy slid to a 24-year low of 7.4 percent last year.
The head of the central bank's research bureau believes growth could slow again
this year, and all but one of China's 30 provinces have cut their 2015 economic
targets.
"It will be another
tough year for construction machinery makers as the growth of the country's
fixed asset investment continues to slow," said Shi Yang, a China-based senior
consultant with industry intelligence firm Off-Highway Research.
That's bad news for
an industry already burdened with chronic overcapacity. In 2013 China alone had
enough plant to make 420,000 wheel loaders, used to move materials around
construction sites, nearly twice global demand of 240,000 for the year,
according to Shi.
The machinery makers'
response has been to cast their net far and wide in an urgent search for new
business. Southern China-based Zoomlion, which warned in January its 2014 profit
might slump by four-fifths, has added snow ploughs, fire-fighting vehicles and
even farm tractors and harvesters to its equipment portfolio. Encouraged to
expand after Beijing fired up a $640 billion stimulus package seven years ago to
help them beat the global financial crisis, manufacturers from Zoomlion Heavy Industry Science and
Technologyto Sany Heavy Industry are stuck with a glut of unsold
equipment, factories they don't need and tumbling earnings.
China's construction
machinery association has issued a bullish forecast for domestic equipment
manufacturing growth of 5 to 7 percent for this year. But that reflects a boost
from Beijing's proposed massive 'Silk Road' infrastructure investment from
Kazakhstan to Southeast Asia.
Chinese industry
executives say they expect the domestic market to be flat at best this
year.
"Our January sales
were still down and February won't be good either because of the (Chinese) New
Year holiday," a senior executive at Shantui told Reuters, speaking on condition
of anonymity as he is not authorized to talk to the media.
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Meanwhile Shantui
Construction Machinery, China's biggest maker of bulldozers, walked away from a
deal to take control of a domestic crane-making subsidiary of U.S. construction
machinery firm Manitowoc Company in 2013 for 216.8 million yuan ($35
million).
While the move was
unusual for an ambitious Chinese firm, so were the circumstances: Shantui had
just seen its annual profit all but wiped out by the construction market
downturn.
Complicating the
overcapacity situation is a swathe of industry outsiders that spent money
building machinery making plants in the years following Beijing's stimulus
package. Those firms, from Wuliangye Group, parent of liquor maker Wuliangye
Yibin, to shipbuilder China Rongsheng Heavy Industries Group Holding, must now
also take tough decisions.
Wuliangye has halted
production at a plant in Yibin city, in southwest China, that can make 10,000
construction site excavators a year, a Wuliangye Yibin executive told Reuters.
Speaking on condition of anonymity, the executive said Wuliangye is reviewing
options for the business.
An executive at
Wuliangye Group confirmed excavator manufacturing has been stopped, but declined
further comment. "We are now transforming into a diversified manufacturer," said
Wang Xuhong, a spokesman for Zoomlion. The firm is now awaiting regulatory
approval to get into China's heavy truck business.
"If we can make it,
Zoomlion could be five or six times as big in the future and won't be so
vulnerable to a downturn in any particular sector," said Wang.
A bank, no
cranes
At southern
China-based Sany, which cut staff by around 18 percent in 2013 as the downturn
started to bite, the firm's parent group is setting up a bank in partnership
with privately owned firms. In a stock exchange filing, Sany said it sees "huge
growth potential" in banking, without disclosing details of its plans.
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