Equip­ment mak­ers look west

Chi­nese firms make over­seas ac­qui­si­tions as do­mes­tic mar­ket be­comes sat­u­rated

China Daily (Canada) - - BUSINESS - By LYU CHANG and FENG ZHI­WEI

De­spite the eco­nomic slow­down and over­ca­pac­ity is­sues, China’s mar­ket for con­struc­tion equip­ment will likely re­cover from lack­lus­ter growth, as ma­jor com­pa­nies in the sec­tor have been busy with over­seas ac­qui­si­tions, in­dus­try in­sid­ers said.

The lat­est ex­am­ple of Chi­nese ma­chin­ery mak­ers ex­pand­ing over­seas amid a tough do­mes­tic mar­ket is Zoom­lion Heavy In­dus­try Sci­ence & Tech­nol­ogy Co Ltd, one of the coun­try’s largest ma­chin­ery mak­ers, which has ac­quired Ger­man lead­ing dry mor­tar pro­ducer, M-Tec.

Fi­nan­cial de­tails weren’t dis­closed, as the deal is still sub­ject to reg­u­la­tory ap­proval. The deal was fi­nal­ized on Dec 20, ac­cord­ing to a state­ment re­leased by Zoom­lion on Wed­nes­day.

“Our com­pany is go­ing through an in­dus­trial trans­for­ma­tion and up­grad­ing, and the pur­chase of the Neuen­burg-based M-Tec will help the com­pany to com­plete that process, bring­ing in a new growth en­gine in the dry mor­tar equip­ment sec­tor,” said Chen Xiaofei, vice-pres­i­dent of Zoom­lion, which is listed on the Hong Kong and Shen­zhen stock ex­changes.

Chen noted that there’s huge de­mand in China for dry mix mor­tar — a new and eco-friendly con­struc­tion ma­te­rial, which is al­ready widely used in the United States and Europe — as the na­tion is build­ing more “green” projects.

China’s de­mand for dry mix mor­tar is ex­pected to rise to 190 mil­lion tons by 2017, with the an­nual growth of sales of equip­ment for dry mix mor­tar plants es­ti­mated at more than 70 per­cent by then, ex­perts said.

The two com­pa­nies have al­ready en­tered into an agree­ment, but the de­liv­ery of eq­uity is still un­der­way, said He Wen­jin, vice-pres­i­dent of Zoom­lion’s in­vest­ment and fi­nanc­ing depart­ment. He said he ex­pects the deal to be fin­ished in March.

In the first three quar­ters, the net profit of State-owned Zoom­lion, which is based in Hu­nan prov­ince, fell 45 per­cent to 3.80 bil­lion yuan ($620.90 mil­lion).

Ger­many-based M-Tec, which was founded in 1978 and sells its prod­ucts in 55 coun­tries and re­gions around the world, was un­able to be reached im­me­di­ately for com­ment.

Mean­while, other Chi­nese ma­chin­ery mak­ers, in­clud­ing Sany Heavy In­dus­try Co Ltd and XCMG Con­struc­tion Ma­chin­ery Co Ltd, are also turn­ing to emerg­ing mar­kets such as South­east Asia and South Amer­ica, where big con­struc­tion projects are re­sult­ing in huge de­mand for af­ford­able earth­mov­ing equip­ment.

In the Jan­uary-June pe­riod, Sany’s sales out­side China rose two-thirds from a year ear­lier, with growth in Asia Pa­cific up more than 90 per­cent.

In 2008, Zoom­lion paid 271 mil­lion eu­ros ($370.75 mil­lion) for a 60 per­cent stake in Ital­ian con­struc­tion ma­chin­ery maker Com­pag­nia Ital­iana Forme Acciaio SpA, known as Cifa, the world’s third-largest con­crete ma­chin­ery man­u­fac­turer.

In­dus­try in­sid­ers said that ex­pand­ing over­seas is one way out for ma­chin­ery com­pa­nies in China where the mar­ket is al­ready sat­u­rated.

“In the past few years, we’ve seen do­mes­tic con­struc­tion ma­chin­ery mak­ers up­grad­ing them­selves with over­seas ex­pan­sion and ac­qui­si­tion deals,” said Su Zi­meng, sec­re­tarygen­eral of the Bei­jing-based China Con­struc­tion Ma­chin­ery As­so­ci­a­tion. “And this is good for the whole in­dus­try, as the over­seas ex­pan­sion moves will cush­ion the im­pact of the tough do­mes­tic mar­ket.”

The sales vol­ume of Chi­nese heavy equip­ment producers was up just 2.98 per­cent last year to 562.6 bil­lion yuan, well be­low the 21.7 per­cent in­crease reg­is­tered in 2010.

Song Yang, an an­a­lyst at Bar­clays, es­ti­mated growth of be­tween 3 per­cent and 4 per­cent for sales of con­struc­tion ma­chines such as ex­ca­va­tors and wheel load­ers and flat growth for con­crete ma­chin­ery in 2014. Con­tact the writ­ers at lvchang@ chi­nadaily.com.cn and fengzhi­wei@ chi­nadaily.com.cn

PRO­VIDED TO CHINA DAILY

Zoom­lion Heavy In­dus­try Sci­ence & Tech­nol­ogy Co Ltd equip­ment on dis­play at a trade show in Shang­hai last year. The com­pany re­cently ac­quired M-Tec, a Ger­man lead­ing dry mor­tar pro­ducer.

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