For all the outward bravado Chinese companies have demonstrated in recent foreign investments and acquisitions, they are now feeling the effects of a slower economy that has left them with excess manufacturing capacity and large numbers of unsold machines.
"The extent of unsold machines could be 20% in many cases, although Chinese companies are using much less than their installed capacity," Shi Yang, China's chief representative for off-highway research, told ENR as the biennial Bauma China exhibition was about to get underway in Shanghai on Nov. 25-28.
The introduction of emission norms and environmentally friendly standards in China may also force producers there to dispose of Tier 2 and other dirty-diesel equipment for low prices in regions where regulations are lax. Though Chinese firms have improved quality and taken baby steps toward providing after-sales services in foreign markets, they still rely on competitive pricing to make sales. "Pricing is still the most important weapon for Chinese equipment makers," Yang said.
Construction is seen as an overheated sector in the eyes of the Chinese government, which is trying to slow down the economy to 7.5% of annual gross domestic product. Banks are much less eager to lend, and government-backed construction projects have reduced to a trickle.
China's big equipment brands, such as Sany, Zoomlion and XCMG, are selling several products at nearly half the price they attracted during the industry's high-noon period in 2009-12. Most companies in China are running at 30% to 40% of the capacities of those heydays.
Even the biggest exhibitors said they were feeling the pressure of surviving in a flat market. The most optimistic industry observers are predicting stable demand in the next two years in the mature markets of North America and Europe, with slight growth spikes in China.
"The biggest thing now is about return on investment," said Paul Browne, Volvo spokesman. "What the contractors are paid is dropping. Their rate of return takes a long time. So, they are looking for more price-effective machines." In other markets with large potential, such as Russia, a lack of stability at the project level frustrated vendors, as well. "We are talking of steady growth, to grow steadily in a relatively flat market," Browne said.
Indeed, Caterpillar, the world's biggest construction-equipment company, confirmed that it decided not to attend Bauma China this year.
Caterpillar's investments in China "are made with a long-term view toward the market growth opportunity in China as the government seeks to improve energy efficiency, tackle environmental concerns, continue urbanization and press forward on reforms," the company said in an e-mailed statement. "At this stage, we are focusing on systematically building out our full business model in China…so as to enable our growing base of customers in China to be more successful with lowest owning and operating costs."
Unlike the 2012 exhibition, when Catepillar spoke in detail about its big plans, the company was this time remaining quieter, while other major players—Volvo, Komatsu, Liebherr, Hitachi, Terex and John Deere—were setting up their stalls. The company has been under a cloud in China's shrinking market, facing difficulties in deals with local firms, market sources said. Two other major companies not exhibiting at Bauma are U.S.-based Case Construction and China-based Shantui.
Even as Chinese equipment demand might seem depressed, the country is still the single-biggest market in the world, and many international players are betting on it. "Even though we're a relative newcomer to the market, we're already seeing growing interest from customers," said Malcolm Early, vice president of marketing at Canada-based Skyjack.
Crane maker Manitowoc planned to display two flat-top tower cranes built at its Zhangjiagang factory, while SDLG was setting up 27 machines, including a 46-tonne excavator and a 12-tonne wheel loader.