CHINA'S construction machinery market may not repeat this year's explosive growth as the government's infrastructure-focused stimulus package fades and policy tightening starts to curb building activities.
However, the sector may still more than double in the next five years on relatively strong fixed-asset investment and as domestic companies seize a bigger share of international markets by enhancing their research capabilities, Shanghai Daily learned at bauma China 2010, a leading construction machinery industry fair that ends today in Shanghai.
The demand for construction machinery, such as excavators, loaders and cranes, during China's 12th Five-Year Plan (2011-2015) is expected to remain strong amid government pledges to improve railways, roads and other infrastructure.
Spending in that sector is expected to grow at an annual rate of about 20 percent, according to Qi Jun, chairman of the China Construction Machinery Association. About 85 percent of the investment will go into urban areas.
Urban fixed-asset investment in China grew 24.4 percent in the first 10 months, slowing slightly from a 24.5 percent rise in the January-September period, according to the National Bureau of Statistics.
Qi, speaking at the trade show, said details of how the new five-year plan will affect the construction machinery sector will be revealed next month. The plan targets annual domestic sales in the industry of 900 billion yuan (US$135 billion) by 2015.
That would be more than double the 400 billion yuan expected this year, according to Qi.
But growth is set to slow.
Sales seen to slow
China in late 2008 unveiled a massive 4 trillion yuan infrastructure-focused stimulus package to deal with the global financial crisis. That fired up the construction machinery industry. Now the government is easing back on stimulus and tightening lending to address inflation and a bubble in the property market. Construction activity is expected to ease off, too.
Zhou Xiqiang, assistant to the president at Xiamen XGMA Machinery Co, China's third-largest loader supplier, said loader sales in the China market may increase only 5 percent next year, though the Shanghai-listed company itself aims to increase sales by 20 percent.
Loader sales in the country in the first nine months surged 60 percent from a year earlier to 167,409 units, while excavator sales jumped 83 percent to 125,630, according to the machinery association.
Kim Dong-chul, head of the Chinese division of South Korea's Doosan Infracore Co, said he agreed that overall market growth will slow but said the deceleration won't be dramatic enough to cause concern.
"We still expect between 15 percent and 20 percent growth in China's excavator market for 2011," he said in an interview.
Doosan ranks No. 2 in terms of excavator sales in China in the first nine months of this year. It aims to sell 22,000 excavators in China in 2010, Kim said.
Some analysts and investors feared a worse turn of events in the second half of this year and into 2011.
In an August report, Goldman Sachs Gao Hua Securities analyst Lu Tian said some investors are expecting up to a 20 percent decline in construction machinery sales in 2011.
"It is too pessimistic to assume a negative growth rate," he wrote then, adding that year-on-year declines in the second half and in 2011 are very unlikely.
Lu cited China's ongoing investment in railways, which calls for huge spending in the second half according to the plan, and continued policy support for other infrastructure spending.
Foreign confidence
"China should continue to spend on infrastructure as many of the projects are based on sensible economic returns," Lu said. "There was a shortfall in infrastructure building prior to the previous economic stimulus."
Sweden's Volvo Construction Equipment also voiced confidence in the China market.