China's machinery sector recovering

China's machinery industry maintained moderate growth last year despite downward economic pressure, propped by increased trade surplus and private firms performing well, data released by the China Machinery Industry Federation (CMIF) showed on Monday.

The data suggested a slow but steady recovery from a previous plunge in the sector, as the upgrading of products and industrial structure furthered in 2013.

The sector's revenues from main business totaled 20.4 trillion yuan (3.34 trillion U.S. dollars) last year, up 13.8 percent year on year and growing slightly faster than the 2012 pace, a research note from the CMIF said.

The figure marked a new record by surpassing the 20-trillion-yuan mark for the first time, indicating that China has reinforced its position as one of the world's major manufacturers against the dampened global economy.

The CMIF's vice president Cai Weici, however, downplayed the significance of the rising revenue, but cared more about quality and profitability.

Aggregate profits across the sector increased 15.6 percent year on year to 1.41 trillion yuan. The growth rate was over 10 percentage points higher than that of 2012, the note said.

According to Cai, the increase stems from the country's top-down strategy including industrial structural adjustment and the upgrading of products, the effect of which was taking shape.

Technological innovations were widely made by domestic enterprises to achieve leverages such as attractive prices and quality amid fierce competition. High-end equipment with self-owned technology was developed in 2013.

Along with the increase in profits, machinery exports also went up. Exports appeared to be an effective way for the sector to absorb overcapacity, and for enterprises to take piling stock off hands.

The sector exported products worth 372.5 billion U.S. dollars in 2013, up 6.24 percent from the previous year, with the trade surplus hitting 73.6 billion U.S. dollars, which was the largest on record.

The note attributed it to the spectacular performance made by China's private machinery enterprises that began to attach greater importance to the overseas market as domestic demand dawdled.

In 2013, private companies' total profits earned from main business jumped 15.4 percent to 11.6 trillion yuan, above the cross-sector growth rate. Their output in value accounted for over half of the total industrial output of the sector.

"Private firms, instead of state-owned ones, are the most dynamic participants in the machinery industry, contributing greatly to pushing the sector to grow at a mild level when restructuring went on," Cai said.

Nevertheless, he cautioned that difficulties which slashed machinery makers in 2011 still existed, citing sluggish domestic demand as a major one.

The sector's profits from main business grew only 13.8 percent year on year in 2013, while the profit ratio slipped to 6.57 percent, indicating an unsatisfactory situation for real economy, the note said.

In addition, factors such as increasing difficulties in exporting, surging accounts receivable, rising workers' salaries and environmental costs impacted China's manufacturers.

The machinery industry experienced a decade of booming development from 2001, when annual revenue growth stood at no less than 25 percent. The prosperity brought about high confidence among manufacturers, but on the other hand it also hid risks that would pose a major threat when the growth rate slowed.

Following the slow economic growth in 2011, enterprises began to suffer from oversupply and homogeneous products that led to bankruptcies.

Overcapacity still lingers and firms with outdated capacity keep going bust, but competitive machinery makers have started to stand out as the sector is likely to see further polarization.

"The sector will brace itself for development at a more appropriate growth rate after years of adjustment," Cai said, "Stabilizing growth from the bottom is expected."

He forecast the growth rate for production and profit both at 12 percent in 2014, while the increase in exports will reach around 8 percent.