Confidence in construction machinery market builds

Industry expected to hit bottom in 2013, then trend upwards

China's construction machinery market is expected to bottom out in 2013 as major market players specialize their business operations amid weak demand and fierce competition.

"We believe the market will hit the bottom in 2013, and we will come out of the recession in the construction equipment market," said Ahn Hee-eun, CEO of Doosan Infracore (China) Investment Co Ltd.

"The market will grow by about 200,000 machines. As the GDP per capita in China grows and the cost of labor gets more expensive, more machines will be put on the market."

China, the world's biggest single market for construction machines, accounts for about 48 percent of the global market. The industry's output has increased sevenfold in the past decade.

After explosive growth from 2009 to 2010, the Chinese market entered a period of "adjustment and cooling-down" along with economic growth slowdown and increasing overcapacity from April 2011 to the end of 2012, according to Qi Jun, head of the China Construction Machinery Association.

Profits of the 13 major enterprises dropped 34.1 percent year-on-year in 2012, while their accounts receivable jumped 61.27 percent year-on-year, according to data from the association.

"The industry has developed with homogeneous and disorderly competition. Overcapacity of low- and middle-end products, inadequacy in independent innovation as well as insufficient technology and manufacturing for key parts all constrain the industrial development and restructuring," Qi said.

Douglas R. Oberhelman, chairman and CEO of Caterpillar Inc, said the current slowdown is part of an economic cycle and views succeeding in China as "an important part of our long-term strategy".

"We are more committed for our strategy in China than ever. We see various opportunities in future urbanization. The growth of the economy at 7 to 9 percent for the next five years will bring many opportunities for us," he said.

"We are committed to our manufacturing, operation, logistics and business model here in China in a strong way."

Caterpillar opened its 23,000 square meter power train facility in Wuxi, Jiangsu province, to produce axles, transmissions and final drives for use in a range of earthmoving and mining machinery, while completing a 17,000 sq m expansion at an existing component facility in Wuxi to produce hydraulic cylinders.

The company now has 24 manufacturing facilities, four research and development centers, three logistics and parts centers as well as 15,000 employees in China.

"What we are doing is fitting into China's restructuring of economic growth," said Chen Qihua, vice-president of Caterpillar Inc and chairman of Caterpillar (China) Investment Co Ltd.

"We are drafting strategies and moves in distributed energy, green energy, energy saving and consumption-reducing potential opportunities from sustainable development," he said.

Despite promising prospects, Jiang Lan, senior vice-president of sales and marketing at Doosan Infracore (China) Co Ltd, said the Chinese market will never regain its former explosive growth owing to overcapacity, high inventory in machines and key parts as well as moderate economic growth.

"The Chinese market will see more mergers and acquisitions in the coming years. Rational growth of the market is surely a good thing and will drive market players to provide the best products and services with the perspective of the whole value chain," she said.

Doosan launched seven new products, including the DX80 mini-excavator, tailored for the Chinese market on March 28 in Beijing, according Hong Goo Lee, senior vice-president of Engine Business Group of Doosan Infracore.

Chen of Caterpillar identified talent development as the determinant of Caterpillar's success in China.