Caterpillar adjusts China plan

Construction equipment giant says sector to see improvement in 2013

China's economy has "bottomed out", but there are still challenges ahead and it's too early to conclude when the situation will really improve, Caterpillar Group President and Chief Financial Officer Edward J. Rapp said on Tuesday.

Caterpillar, the world's leading construction machinery provider, is in the process of temporary business adjustment in the Chinese market, with expansion slowing down and investment suspended, he said.

"The Chinese economy has bottomed out," said Rapp, but added that the question is "when the economy starts to improve".

China's economy, the world's second-largest and the largest construction market, has lost steam since the second half of 2011, with the nation's economic growth falling to 7.4 percent in the third quarter of this year, the slowest pace in more than three years.

But recent figures including fixed-assets, retail, industrial profits and exports showed the Chinese economy is heading toward a rebound.

For Caterpillar, there have been some positive signals in the market, "but it's still too early to call when we will see a pick-up in the industry", said Rapp.

"The basic forecast is we will see some improvement in 2013, or say, modest growth compared with 2012," he said.

Caterpillar has slowed the pace of its investment in China, to align itself with the market, he added.

The world's largest maker of tractors and diggers recently slashed its 2012 forecast for the second time this year, saying that sales in China had slowed in the third quarter.

Due to China's economic slowdown, Sany Heavy Industry Co Ltd, the nation's leading construction equipment maker, reported a 60 percent drop in its third-quarter profits.

Japanese excavator manufacturer Komatsu Ltd said it expected China's demand for construction and mining equipment to decline by 40 percent in the last three months of 2012.

Despite the poor third quarter, Sany Heavy President Xiang Wenbo said China's construction equipment sector will return to growth in the second or third quarter of 2013, and will experience rapid growth between 2013 and 2017.

For Rapp, the outlook for the industry in China is not that positive. "We will know a lot more after we get through the first quarter (of 2013)," he said.

Despite the steps that the Chinese government has taken to stimulate the economy, "there is no doubt that there are challenges as well. We will be prepared for whatever challenges that 2013 would bring".

Caterpillar Chief Executive Officer Doug Oberhelman said earlier this year that the outlook for the global economy is very uncertain, and is even worse than at the beginning of the global financial crisis.

For Rapp, "the worst (of the eurozone debt crisis) is behind us, but the most significant risk would be a misstep in Europe".

While Europe is still struggling hard with debt problems, China and the United States are "the two markets that have the greatest opportunities, but both are going through a transition", said Rapp.

"Yes, China's growth has slowed, but it is still by far the largest market in the world. We think that it will continue to grow, and the opportunity is there," said Rapp. "We hold long-term confidence in China."

Chen Qihua, vice-president of Caterpillar Inc and chairman of Caterpillar (China) Investment, said: "China is the key to Caterpillar's global success, and also a significant emerging market.

"The nation's commitment to advancing innovation, science and technology and urbanization and doubling GDP will generate huge business for us."