Chinese manufacturers of heavy machines target global market after quenching domestic demand by offering quality equipment such as backhoes and excavators increasing sales of construction machinery by more than 20 % worth more than $232 billion as at the last quarter of 2021.
Construction industry analysts and market observers have turned their focus on China’s capacity to produce high quality heavy machines such as excavators, backhoes, cranes, loaders, bulldozers and skid steers due to their rising command of market share of construction equipment sales. According to Fortune Business Insights, Chinese manufacturers are likely to increase their global market share by at least another 50% by 2028 attributed to their market traction in Asia and Africa where development associated with population growth and infrastructure development is at a peak. According to the report, the Asia Pacific market will be the dominant driver within the construction sector which includes sales of heavy construction machines from within the country. Despite the fact that market leaders such as Caterpillar, Hyundai, Komatsu, John Deere and Kubota control approximately 40 % of the global market share as indicated by Off-Highway Research’s Chris Sleight (Managing Director). According to the report almost all heavy machine equipment sold within China are from domestic producers with few foreign manufacturers involved. The command of Chinese manufacturers of domestic markets has resulted in these manufacturers increasing exports that have been observed to be steadily rising over the last two decades. Among the main manufacturers that have managed to gain footing in the global market include Sany, Xuzhou Construction Machinery Group (XCMG), Shantui, Liu Gong and Zoom-Lion.
These Chinese manufacturers are specific in the equipment that they produce or develop. For instance Sany which began as a welding material factory in the mid-1980s independently managed to develop the first truck mounted high pressure concrete pump that was capable of large displacements. Currently, the company has established itself as the 4th largest in terms of construction equipment sales especially with equipment such as cranes and crawler cranes. With regards to the excavator, the company has moved right up to the top as they were the top producers of excavators in 2021 and most of their sales were targeted strategically towards an excavators for hire company. XMCG and Zoom-Lion in turn have established a strong position in the global market with cranes (both crawler cranes and mounted cranes) as indicated by the director of Off Highway Research, Shi Yang. Among the reasons behind the rapid rise of Chinese manufacturer that have been long under the shadows of major manufacturers from Europe, the US, Japan and Korea such as Caterpillar, Bobcat, Komatsu, Kubota or Hyundai is due the immense investments and number of employees involved in R & D projects. Another factor is the collaborations that these companies have established with companies such as Caterpillar and Liebherr who were mainly responsible to XCMG’s growth to become the 3rd largest manufacturer of heavy machines over the last two decades. As of this year, XCMG posted a sales figure of more than $18 billion out of which almost $2 billion were attributed to exports. Some of their major exports included a range of tunnelling, mining, piling and road construction equipment. The company also diversified its range of offering with fire-fighting equipment, trucks and sanitation vehicles. Among the company’s most significant achievement was the development of the XGC88000 which is the largest crawler crane on the planet that has the largest lifting capacity to date.
Despite the severe impact of the COVID-19 pandemic on the entire construction industry of China causing a decline in revenues of nearly 7 % at the very early stages of the pandemic before declining further in 2021 which affected the manufacturing sector of China significantly. However, at the start of 2022, these sectors rebounded rapidly compared to other countries as lockdowns and travel restriction were lifted. Purchasing Managers Index (PMI) increased rapidly despite the disruptions associated with labour and supply chain issues that interrupted large-scale manufacturing activities. Companies such as Sany, accounted industry trends during the pandemic and were ready to continue where they left off by developing and producing large excavators such as the SY series that were excavators that were deemed as ‘intelligent excavators’ that played a crucial role in overcoming the decline in sales during the pandemic.
The construction industry is currently poised to meet the demands of increasing infrastructure development and urbanisation projects which includes machines that carry low ownership costs, efficient, powerful and comply with environmental regulations. This has resulted in most major manufacturers to focus on electric construction equipment or hybrid excavators as these latest developments are expected to exert a significant level of impact on the future growth construction machinery. Apart from that another significant notable growth driver that have been pushing sales positively for most manufacturers is the increasing dependence of contractors on companies that offer equipment such as looking for the price of excavators for hire. The niche associated to rentals of construction machinery has grown significantly over the last decade especially in Asia Pacific and even in countries such as China, India and Australia. Construction companies have come to realize that the high cost of new equipment and subsequent costs associated with storage and maintenance exerts pressure on cash flow and capital structures. As such, contractors have resorted to renting as it is clearly a more viable and practical option especially for new entrants into the industry as capital could pose as an issue. This strategy has been observed to be not just practical, but also cost effective especially for short term projects that use certain machines sparingly. The fact that renting ensures optimal machine use compared to owning machines that lay idle when they are not required is among the primary reasons as to why construction companies choose to hire construction equipment instead of purchasing machines. The current supply chain crisis pressure most contractors to pay in cash for construction materials and having a healthy cash flow is a critical success factor for most projects as suppliers give priority to customers who pay cash. Buying heavy machines disables the ability of these contractors to offer cash payments to material suppliers as funds will be tied up to these machines, even when they are not in use or generating revenue.
