Market Status And Development Prospects of China's Construction Machinery Industry

1) Overall situation of the industry

Since 2018, with the decline in China's economic growth, the continued intensification of real estate control policies and the slowdown in infrastructure investment growth have had an impact on the short-term development speed of the construction machinery industry. Since 2020, counter-cyclical adjustment policies have continued to increase, and the downstream industry has increased demand for various construction machinery products. In the future, as the inventory growth of construction machinery products leads to the release of demand for renewal, and as stricter environmental protection policies accelerate equipment replacement, the demand space for construction machinery products is expected to be maintained.

In May 2020, the National Two Sessions delivered the 2020 Government Work Report, which made an overall plan for the government's work throughout the year in the context of the global economic and trade situation facing greater uncertainty. This government work report clearly states that "the proactive fiscal policy must be more proactive and the prudent monetary policy must be more flexible and appropriate." The fiscal deficit rate in 2020 is planned to be above 3.6%, and the fiscal deficit will increase by 1 trillion compared with the previous year. Yuan; implement the strategy of expanding domestic demand and expand effective investment. In 2020, it is planned to arrange local government special bonds of 3.75 trillion yuan, a significant increase of 1.6 trillion yuan from 2019, increase the proportion of special bonds that can be used as project capital, and focus on supporting both promotion and The "two new and one important" construction that benefits people's livelihood through consumption and adjusts the structure to increase stamina mainly involves strengthening the construction of new infrastructure, developing new generation information networks, expanding 5G applications, building data centers, and adding charging piles and battery swapping station facilities.

From August to September 2020, local government special bonds issued 719.929 billion yuan and 508.314 billion yuan respectively, which is another high point after May (special bond issuance of 1.030965 billion yuan). As of the end of September 2020, the cumulative issuance of local government special bonds was 3.696697 billion yuan, which has completed 98.58% of the full-year plan (3.750 billion yuan). The Ministry of Finance stated that it will ensure that the issuance of new special bonds is completed by the end of October. The issuance of local government special bonds accelerated from August to October 2020. The scope of projects that special bonds can be used as capital funds will expand, and the proportion invested in infrastructure will increase significantly. The rebound in the growth rate of infrastructure investment directly boosts the demand for construction machinery.

The China Construction Machinery Industry Association disclosed excavator sales data. According to statistics from 26 excavator manufacturing companies, 16,869 excavators of various types were sold in December 2022, a year-on-year decrease of 29.8%, of which 6,151 were domestic units, a year-on-year decrease of 60.1%; Exports were 10,718 units, a year-on-year increase of 24.4%. From January to December 2022, 26 excavator manufacturing companies sold a total of 261,346 excavators, a year-on-year decrease of 23.8%. This was the first time that my country’s annual excavator sales growth turned negative since 2016; among them, 151,889 were domestic units, a year-on-year decrease of 44.6 %; exported 109,457 units, a year-on-year increase of 59.8%. Against the background of high export growth in 2021, my country's excavator export volume will still accelerate growth in 2022.

2) Industry development characteristics

(1) Industry leading companies have outstanding competitive advantages

In industries such as loaders and bulldozers, the main products of engineering machinery, there has been a trend of market share gradually concentrating on leading companies, while at the same time the market share of disadvantaged companies has been continuously compressed. Industry leaders are more competitive, and increased industrial concentration is conducive to leveraging the advantages of economies of scale.

(2) Product line extension expands growth space

In recent years, major companies in the industry have entered other market segments, extended product lines, and added new performance growth points under the background that their original products have become leaders in the segmented industries. Based on the versatility of components and key technologies, as well as the transplantation of management models, the diversified development of construction machinery products is conducive to realizing economies of scale and scope. The mutual penetration of different sub-sectors not only intensifies industry competition, but also enables dominant companies to gain more market share. The leading companies in the industry with strong comprehensive competitiveness will eventually win and share the benefits brought by the rapid growth of the industry to the maximum extent.

(3) The key parts supporting system is gradually improved

Most of the key components of my country's construction machinery, such as hydraulic components, transmission systems, engines, etc., rely on imports. The cost of importing key components for the main engine of construction machinery accounts for more than 40.00% of the manufacturing cost, and nearly 70.00% of the industry's profits are occupied by imported components. For a long time, reliance on imports of core components has become a bottleneck restricting the development of China's construction machinery industry. As China's construction machinery industry matures, this bottleneck is expected to be gradually improved. Some industry leading companies have begun to get involved in the R&D and production of core components.

3) Industry distribution

The global construction machinery manufacturing industry is mainly concentrated in four regions: the United States, Japan, Western Europe and China, accounting for more than 80.00% of the production share. There are about 2,000 construction machinery manufacturers of a certain scale in the world. After years of competition, mergers and reorganization, more than ten large multinational companies have been formed. Construction machinery manufacturers in the international market are mainly concentrated in the United States, Japan, Northern Europe and other regions. Currently, large multinational manufacturers such as Caterpillar, Komatsu, Terex, Liebherr, Volvo, John Deere, Hitachi Construction Machinery, Case New Holland, and Ingersoll Rand control the global construction machinery market 70 %-80% share. These large companies lead the development of the industry with their strong economic strength, advanced technology and management experience.

4) Industry competition

In recent years, demand in the construction machinery industry has grown rapidly, and manufacturers have continued to expand production capacity and product lines. At the same time, some foreign manufacturers have transferred the construction machinery industry to China to reduce costs and improve competitiveness. Foreign construction machinery products continue to enter the domestic market. Competition in the construction machinery industry is becoming increasingly fierce. With the expansion of the production and sales scale of major enterprises in the industry, the concentration of the industry has continued to increase. The main backbone enterprises have occupied the leading position in various products in the construction machinery industry, while the sales of small and medium-sized enterprises have continued to decline. Therefore, the concentration of the market towards leading enterprises will become the development trend of industry consolidation in the next few years. Enterprises with smaller market shares will find it increasingly difficult to survive and will continue to be eliminated by the market. In the equipment manufacturing revitalization plan, the state also clearly supports the joint reorganization of key equipment manufacturing enterprises.

Through the analysis of the competition structure of the construction machinery industry, it can be seen that the current competition situation of the construction machinery industry shows the following characteristics:

1. As manufacturers continue to expand production capacity and product lines, international construction machinery giants are rapidly penetrating, and competition among existing companies in the industry is fierce.

2. Parts and accessories supporting companies vary from good to bad. Construction machinery companies have more choices when purchasing and have strong bargaining power.

3. Enterprises outside the construction machinery industry face relatively high barriers to scale economies, brand barriers, channel barriers, technical barriers, financial barriers, etc. to enter this industry; the switching costs of sub-sectors within the industry are not high.

4. As the basic equipment for infrastructure construction, real estate construction, etc., construction machinery is difficult to replace in function, and at the same time, there is a lot of room for technological upgrades.

5. There are many manufacturers in China's construction machinery industry, and the market share tends to be concentrated towards dominant companies. After years of development, the competitiveness of Chinese enterprises in the construction machinery industry has continued to increase, and their degree of internationalization has continued to increase.

6. Some Chinese construction machinery companies have initially acquired the core competitiveness to become the world's top construction machinery manufacturers. Among the top 50 global construction machinery manufacturers in 2020, 11 Chinese companies are on the list. Among them, XCMG ranks 4th in the world, and Sany Heavy Industry and Zoomlion also enter the top 10 in the world.

Overall, the construction machinery manufacturing industry has basically formed a market competition pattern in which large enterprises dominate market segments, and each enterprise penetrates each other's products and markets. With the continuous advancement of competition and penetration in this market, the construction machinery industry will further give birth to large-scale construction machinery groups with more comprehensive product series and larger enterprise scales. It is expected that in the next few years, large-scale mergers and acquisitions, major reorganizations and overseas mergers and acquisitions of construction machinery companies will continue to occur, and at the same time, the market concentration of each product will further increase.

5) Industry prospects

Currently, the main problems facing the industry are: rapid changes in market demand; serious structural overcapacity; after-market services and order need to be standardized, and relevant management systems need to be strengthened; the innovation system needs to be improved, and innovation capabilities need to be improved; product reliability and durability The performance needs to be further improved; the pace of development of key parts and components needs to be accelerated; there is still huge room for development in greenness, pleasantness, and intelligence; the competitiveness of large and ultra-large earthmoving engineering machinery is insufficient. The demand for product technical performance in the four major strategic target markets of the "Thirteenth Five-Year Plan" is quietly changing. Emerging markets are in urgent need of development, traditional markets are worth looking forward to, the engineering machinery aftermarket has huge potential, and the international market will continue to grow steadily.

In addition to services, customization of construction machinery and market segments with individual needs will also be a focus for companies to achieve breakthroughs. In the future, as the construction machinery industry becomes more popular in people's daily lives, working conditions will become more diverse and customer needs will become richer. For example, mines and docks also need loaders, but their requirements are different; they are also excavators. Planting trees and flowers in your own garden is far different from the requirements of a construction site. Customized services in market segments are still in their infancy in my country, and their future development prospects are promising.

According to data released by the National Bureau of Statistics, from January to December 2022, the national fixed asset investment (excluding rural households) was 57,213.8 billion yuan, an increase of 0.9% over the previous year. Among them, private fixed asset investment was 31,014.5 billion yuan, an increase of 0.9%. Large-scale fixed asset investment has created a good external environment for the development of the construction machinery industry.

During the 14th Five-Year Plan period, infrastructure and real estate investment are expected to remain stable and increase, and the urbanization rate target will be increased to 65% in 2025, which will lead to continued expansion of construction machinery and equipment. As the aging of the population intensifies, construction machinery and equipment represented by small excavators have spawned a large demand for machine replacements, and their tool-like attributes have become more and more obvious, providing strong support for the medium and long-term growth of excavators and smoothing the cyclical fluctuations of the excavator industry. .

High growth throughout the year is expected in the first year of the 14th Five-Year Plan, and the industry cycle volatility will be significantly reduced in the medium to long term. During the 14th Five-Year Plan period, investment in infrastructure and real estate is expected to remain stable and increase, and specific urbanization rate goals have been proposed. The continued upward trend in the urbanization rate will lead to a continuous increase in the number of construction machinery. Under the background of carbon neutrality, environmental protection policies are becoming stricter, and the demand for upgrading and capacity replacement is expected to be gradually released in the future. The sales center of the industry will continue to increase, which will help to further smooth the industry cycle fluctuations. Construction machinery and equipment, represented by small excavations, has broad room for replacement. It is expected that the sales volume will increase to 70%-80%. The tonnage of engineering cranes is expected to continue to increase, and the sales revenue growth rate will be higher than the sales growth rate.

In the future, the domestic construction machinery industry market will still be full of opportunities. In the face of market changes, leading companies in various industries that are traditionally known for their manufacturing capabilities are actively introducing smart concepts and opening up new markets. "Smart manufacturing" is becoming a new direction for the development of a number of Chinese manufacturing companies. It is understood that by 2025, key areas of the manufacturing industry will be fully intelligent, the operating costs of pilot demonstration projects will be reduced by 50.00%, the product production cycle will be reduced by 50.00%, and the defective product rate will be reduced by 50.00%.

As an important part of the equipment industry, the construction machinery industry is highly related to various industries and has strong ability to support employment. It will play a decisive role in the context of counter-cyclical adjustment. The severe global economic and trade situation has an impact on the construction machinery industry. Looking forward to the future, "intelligent manufacturing", "industrial Internet", "big data" and other futures are expected to reshape the industry ecology. The construction machinery industry has the characteristics of diversified equipment products, discrete production processes, and complex supply chains. In the future, there will be a clear trend of further upgrading toward unmanned, digital, and intelligent industries.

Leading enterprises will accelerate the pace of intelligent transformation, comprehensively improve the intelligent level of R&D and design, production and manufacturing, supply chain management, remote operation and maintenance, customer service and other aspects, and promote the development of the construction machinery industry to a higher value level. In addition, the current overall product inventory in the construction machinery industry is at a high level. Many products are gradually entering a period of upgrading. Environmental protection policies are gradually becoming stricter. Under the background of continuously improving emission standards, product upgrading, machines replacing labor, and internationalization are changing from quantity to quantity. Until the qualitative change is implemented, it is expected to promote continued improvement in industry demand.