China’s Silk Road feeds hope of 2017 recovery

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