China’s Silk Road feeds hope of 2017 re­cov­ery

Kuwait Times - - BUSINESS -

SHANG­HAI:

Af­ter five years of fall­ing rev­enue, fore­courts over­crowded with un­sold ma­chin­ery and idle fac­to­ries, China’s push to build a mod­ern day Silk Road is fu­elling a re­cov­ery for the country’s heavy equip­ment in­dus­try, ac­cord­ing to ex­ec­u­tives from many com­pa­nies gath­ered in Shang­hai this week. Con­struc­tion equip­ment mak­ers - a proxy for China’s in­fra­struc­ture, re­sources and con­struc­tion sec­tors - suf­fered a plunge in sales af­ter 2011, as com­mod­ity prices col­lapsed. In­dus­try sales in China peaked that year at $35 bil­lion, ac­cord­ing to con­sul­tancy Of­fHigh­way Re­search; and this year, they are es­ti­mated at $9 bil­lion - the worst sales level in more than a decade.

But speak­ing at a crowded bi­en­nial in­dus­try show this week, ex­ec­u­tives from ma­chin­ery mak­ers said that in the third quar­ter of this year there were fi­nally signs of life. They now ex­pect growth next year for the first time since 2011, as a glut of used equip­ment ages, the in­dus­try works through ac­cu­mu­lated in­ven­tory and com­pa­nies ben­e­fit from am­bi­tious gov­ern­ment projects.

Over­all de­mand for ex­ca­va­tors in China jumped by 50 per­cent in Septem­ber, while sales of earth-mov­ing and road-mak­ing ma­chin­ery, a ma­jor ben­e­fi­ciary of the Silk Road ef­fort, turned pos­i­tive af­ter five years of losses, ac­cord­ing to Off-High­way.

“We’ve seen fairly sig­nif­i­cant signs of bot­tom­ing and turn­ing around,” said David Beat­en­bough, a vice-pres­i­dent of Guangxi Li­uGong Ma­chin­ery Co Ltd, one of China’s largest con­struc­tion ma­chin­ery man­u­fac­tur­ers, where he over­seas re­search and devel­op­ment.

“We’re see­ing quite a bit in rail, some in roads... and a lit­tle bit in tra­di­tional real es­tate,” he said. China has es­ti­mated the Silk Road ini­tia­tive, known as ‘One Belt, One Road’, could add $2.5 tril­lion to China’s trade in the next decade, mak­ing it crit­i­cal to the post-fi­nan­cial cri­sis turn­around - and the ben­e­fits will go well be­yond ma­chine mak­ers. Chi­nese Pres­i­dent Xi Jin­ping’s ini­tia­tive, in­cludes a drive for an in­te­grated eco­nomic area through Cen­tral Asia, West Asia, the Mid­dle East and Europe, based on new in­fra­struc­ture - such as roads and rail­ways, and in­creased trade links. Of­fi­cial data has shown broader signs of sta­bi­liza­tion in the China’s econ­omy, driven by bil­lions of dol­lars in gov­ern­ment spend­ing and a prop­erty boom in ma­jor cities, even as pri­vate in­vest­ment and ex­ports re­main stub­bornly weak. Bei­jing, which is seek­ing to cush­ion the im­pact of the country’s slow­est growth in 25 years, has ac­cel­er­ated ap­provals, sent of­fi­cials to probe stalled projects and en­cour­aged pri­vate in­vestors to play a big­ger role in in­fra­struc­ture build­ing.

Ear­lier this month, the country’s top eco­nomic plan­ner said it had ap­proved 2.97 tril­lion yuan ($429.3 bil­lion) worth of projects in the first ten months of the year, 2.9 per­cent higher than the amount ap­proved over the same pe­riod last year.

REVVING UP

In­fra­struc­ture spend­ing is en­ter­ing a growth phase glob­ally, led by the am­bi­tious plans to re­build the United States un­der Pres­i­dent-elect Don­ald Trump and in­clud­ing Bri­tain, which on Thurs­day freed up an ex­tra 23 bil­lion pounds ($28.6 bil­lion) to in­vest in rail, tele­coms and hous­ing in­fra­struc­ture - all good news for ma­chin­ery mak­ers.

It is still early days in the re­cov­ery. For ex­am­ple, US heavy equip­ment maker Cater­pil­lar did not have booths at the Shang­hai show this year - a con­trast with 2012, when it filled a hall with a 12,000-square-me­tre dis­play. But af­ter one of the grimmest years in decades, other signs are rosier. Be­yond Shang­hai, John Deere, Ja­pan’s Ko­matsu and oth­ers have given cau­tiously pos­i­tive outlooks in re­cent weeks. And Cater­pil­lar it­self last week re­ported a third con­sec­u­tive month of sales growth in Asia, driven by China, and said it sees growth ahead in 2017 - if Chi­nese gov­ern­ment sup­port for projects con­tin­ues. Most see growth in other parts of Asia too, as Chi­nese con­struc­tion firms go into south­east Asia or Pak­istan. A weak yuan - it has fallen 6 per­cent against the dol­lar so far this year - will also make Chi­nese com­pa­nies more com­pet­i­tive in­ter­na­tion­ally. “Business con­fi­dence is com­ing back... and (firms) are start­ing to see some good re­sults,” Karin Sun, Bei­jing-based se­nior con­sul­tant at Off-High­way Re­search, said in ref­er­ence to China. Chen Dewei, vice-gen­eral man­ager of ex­ca­va­tor and wheel loader maker Fu­jian Jin­gong Ma­chin­ery in south­ern China, said his com­pany has been able to trim in­ven­to­ries to what he called a “rea­son­able” level. —Reuters

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