How are the six biggest machinery manufacturers in China shaping up? Orlando Crowcroft reports
While analysts and economists were largely negative about China’s latest purchasing managers’ index (PMI), those on the construction side noted that the slight rise in activity suggested that, domestically, it could finally have bottomed out.
That’s good news for Chinese construction machinery manufacturers which, five years ago, soared so high on a building boom that followed the government’s monumental post-financial crisis stimulus package. In 2012, heavy-equipment sales dropped 40%, so a bump, however small, will be well received by manufacturers in China.
That said, Chinese PMV companies have long looked overseas for growth, encouraged – generally, at least – by a government that liked the prestige of Chinese firms taking on their European rivals.
XCMG’s acquisition of Germany’s Schwing last year, as well as Sinomach’s aggressive expansion in France, not only demonstrate that this trend is continuing, but that the old perception of Chinese goods being second rate and unreliable is a thing of the past.
And it is not just European firms that will be looking over their shoulders; US giant Caterpillar – once the gold standard for construction machinery – has seen sales plummet 44% his year, and rivals such as China’s Shantui are already doubling the US company’s production of bulldozers. Despite the ongoing fights with the US over patents and tariffs, firms like Shantui are expanding fast.
Machinery Growth
Construction was one of the worst-hit industries in the global economic slowdown, but a new report claims that the machinery market is due to bounce back now the worst of the financial crisis appears to be over.
A consultancy firm, Transparency Market Research, says that global construction equipment market is expected to reach US$192.3 billion by 2017 from US$143.6 billion in 2012, growing at a CAGR of 6.0% from 2012 to 2017.
The earth-moving equipment segment is at the forefront of that growth, it says, contributing about 43% to the total construction equipment market revenue in 2012. More generally, China is the major contributor to the global construction equipment market, accounting for 41.2% of overall sales.
This trend shows no sign of abating. The construction equipment market in China in 2012 is estimated to be worth US$59.2 billion, and is expected to reach USD 95.6 billion in 2017 at CAGR of 10.1% from 2012 to 2017. As well as that, China also holds 17% market share of the global agriculture equipment industry.
Sany Heavy Machinery
One of two Chinese construction machinery giants to make Forbes magazine’s 100 most innovative companies list, Sany Heavy Machinery has earned the moniker China’s Caterpillar, and for good reason.
Sany is privately owned by one of China’s richest men, and with a market capitalisation of US$16.6 billion and over 42,000 employees, is even ballsy enough to take on US President Barack Obama, currently fighting the United States International Trade Commission over claims of patent infringement.
But it should be the Europeans too that watch over their shoulders. Sany announced in May that its German arm was seeking US$129 million in European sales by 2015, off the back of an investment in a 250,000m2 plant in the country and a surge in local hiring. More than 80% of its 150 workers in Germany are Europeans.
The man behind the European expansion, managing director Bart Decroos, acknowledged the difficulty of countering bad perceptions in the European market, but was nevertheless upbeat about Sany’s future long term.
“All Chinese companies are facing the suspicion of low prices, and big doubts about quality of Chinese products. This is the very hindrance we have to overcome,” he told state media.
Zoomlion Heavy Industry Science and Technology
In at number 86 on Forbes’ most recent list, Zoomlion is Sany’s state-owned machinery cousin, with an estimated value of US$11.9 billion. While Sany has looked to Europe for growth, crane manufacturer Zoomlion has targeted India through a joint venture with the country’s ElectroMech.
Not content with being a market rival, Zoomlion is currently locked in a battle of words with Sany, over claims from the latter that the former spied on it and, more sensationally, orchestrated the kidnapping of the son of its chairman. Zoomlion has denied the charges, and instead claimed that Sany was in fact the one spying.
But the row illustrates a bigger issue in the Chinese construction machinery market, namely that activity in China has been slowing down and, by extension, so has demand. Bloomberg revealed last month that product returns for Zoomlion had risen to 4.9% in the last quarter of 2012, up from 0.29% in the first, as buyers struggled to make payments.
Starting out as a manufacturer of concrete pumps, Zoomlion listed on the Shenzhen Stock Exchange in 2000, and was an early trailblazer in seeking foreign acquisitions when it bought British company Powermole in 2002. In 2008, it bought Italian concrete machinery manufacturer Compagnia Italiana Forme Acciaio.
XCMG
Xuzhou Construction Machinery Group, mercifully referred to by its acronym XCMG, is the third of the big three Chinese construction machinery manufacturers.
Headquartered in Jiangsu Province – a (relatively large) stone’s throw from China’s commercial hub of Shanghai – XCMG is one the country’s most ambitious firms, with an active R&D department that has seen it set up facilities in Germany and, in 2014, the US.
A year before it listed on the Shenzhen Stock Exchange in 1996, XCMG formed a joint venture with Caterpillar, building its first manufacturing plant in Xuzhou and beginning to manufacture cranes on license from Liebherr Group.
A decade of growth saw a takeover bid mounted by US private equity giant the Carlyle Group in 2005, which bid US$375 million for 85% of the company but – in a move which demonstrates the ongoing paranoia of China’s government about losing control of its companies – it was blocked.
The year 2011 was another bad year for XCMG, which was forced to abandon a US$1.5 billion IPO on the Hong Kong Stock Exchange – citing poor market conditions – but 2012 was more fruitful for the firm, with it acquiring a 52% stake in German machinery giant Schwing in July 2012.
It also completed its US$1.9 billion new facility in Xuzhou, allowing it to produce all-terrain cranes and wheel loaders with a capacity of 5,000 and 40,000 respectively.
Sinomach
While XCMG has focused on Germany and the US in its expansion plans, China National Industry Corporation (Sinomach) has turned to France, in an effort to crack the country’s vast and heavily-subsidised farming industry.
Xu Niansha, Sinomach chief executive, made no secret of his intention to take the fight to the French at the heart of the European debt crisis, telling Chinese state-media: “In the past, European countries were unwilling to cooperate with us, but now things are different while the debt crisis continues, some cannot even survive.”
The 8 million euros ($11.19 million) McCormack France deal has set an interesting precedent for Chinese businesses in France, with Sinomach agreeing to create 400 local job and, more notably, not to fire any local workers after the deal went through.
Sinomach is aiming for sales revenue of RMB500-600 billion yuan by the end of 2020, with profits reaching RMB25-30 billion. But Xu does not just want to win work in Europe, he wants to learn from them.
“China still lags far behind its Western counterparts in many high-tech manufacturing industries, but we can learn from them, especially the European countries including Germany and France,” he said.
LiuGong
LiuGong is the world’s tenth-largest construction equipment by market share and China’s largest, producing everything from cranes to drilling machines and with a growing presence in Europe and the US.
Founded in 1958. LiuGong was China’s first manufacturers of wheel loaders and now claims to have a 20% share of the domestic market, with exports accounting for some 28% of total shares in 2012.
LiuGong boss Zeng Guangan is hoping to double the US$700 million it made from exports last year by 2016, and the firm’s 2011 deal with US diesel engine-maker Cummins was a key factor in the company’s new overseas sales drive. It gives LiuGong access to clean-diesel technology, meaning it can meet tough emission requirements in Europe and the US.
The Cummins deal is by no means the first effort by LiuGong to tie up with high-profile European partners. In 1995, it inked an agreement with ZF in Germany to supply transmissions and axles for heavy equipment.
A new plant – which LiuGong and ZF went 50:50 on – is expected to open next year and produce 30,000 units by 2018.
Shantui
In the spirit of finding your niche and dominating it, Shantui Construction Machinery – a subsidiary of Shandong Heavy Industry – has long been known as the bulldozer king in China.
But an independent report published two years ago by Off-Highway Research, a construction equipment industry consultancy, revealed that growth was not limited to its home market. Of an annual global bulldozer production of just under 25,000, it revealed, Shantui produced 10,000 of them – this compared to Caterpillar’s 6,400.
Such growth is not a surprise given the company’s focus on the global market. The firm designs dozers that specifically target a wide range of terrains, from swamps to highlands, and has recently had its eye on the African mining market, where it already has some 5,500 units on the ground.
Shantui not only assembles its own machines, but manufacturers many of the parts for them, also providing parts to its competitors. Lastly, at a time when questions continue to be asked about the standard of Chinese-made goods, Shantui in 2011 became the first Chinese manufacturer to produce a dozer that passes both European and American safety standards.
