Construction machinery makers set to ride infrastructure boom

China's construction machinery sector is expected to see a 3-percent increase in revenue this year on the back of the growing number of infrastructure projects being undertaken by local governments and sustained efforts by companies to boost demand for next-generation products, industry experts said.

Though many industries such as textiles and the services sectors have been hit by the COVID-19 outbreak, local governments' infrastructure projects and China State Railway Group Co's continued network expansion will effectively support the sales of domestic construction machinery firms. Most of the companies are expected to start seeing better sales from the second quarter of this year, said Qi Jun, president of the China Construction Machinery Association.

Due to the unexpected outbreak, the Beijing-based CCMA has trimmed the sector's annual growth forecast from between 7 percent and 8 percent to 3 percent this year.

Apart from traditional infrastructure projects such as highways and airports, construction machineries such as excavators and cranes are widely used for "new infrastructure" to build facilities such as 5G base stations, telecommunication towers, ultrahigh voltage grids and intercity high-speed railway networks, he said.

China's new standards urging construction machinery firms and infrastructure project contractors to adopt more digitalized and energy saving products are also expected to sustain the sales of excavators, truck-mounted cranes, elevated work platforms and aerial work vehicles, he said.

According to CCMA estimates, apart from domestic players, foreign companies from Japan, the United States, Sweden and Germany all have high expectations about China's stimulus packages in the second half of the year, mainly from new policy measures to boost infrastructure and related areas during the upcoming two sessions, China's top annual political event, which will start on May 21.

Thousands of deputies to the National People's Congress, the legislative body, and members of the National Committee of the Chinese People's Political Consultative Conference, the top political advisory body, will gather in Beijing to hold political discussions.

Thanks to a slew of supportive measures, about 92 percent of the CCMA's 1,590 member companies have resumed production by the end of April. Due to the contagion, the sector's exports dropped by 17.6 percent on a yearly basis during the first quarter of this year. Exports declined by 13.3 percent on a yearly basis to 1.91 billion yuan ($269 million) in March.

The association said prices of some products like earthmoving machines and cranes rose in early April due to factors such as rising management costs, technical grade and quality standards. However, the CCMA will keep a close eye on this move and oppose harmful price competition and disruptions to market order, said Qi.

Construction machine sales are seen as a key indicator of economic activity, since growing demand for the sector is usually backed by booming mining, infrastructure and municipal engineering project development.

Mechanical equipment's life cycle is roughly between eight and 10 years. Many owners have bought new machines in recent years to replace their old equipment purchased during China's last round of infrastructure development boom between 2008 and 2010, said Ding Rijia, a professor at the China University of Mining and Technology (Beijing).

He said that China's economic fundamentals remain stable from a long-term perspective, as the country is likely to ramp up construction and investment during the post-COVID-19 era, creating new opportunities for construction machinery makers.

Eager to boost their sales, Chinese companies including Xuzhou Construction Machinery Group, Sany Heavy Industry Co and Zoomlion Heavy Industry Science & Technology Co Ltd have all built or expanded their online sales and service platforms with the addition of digital technologies after the Spring Festival holidays.

Wang Min, chairman of Jiangsu-based XCMG, said:"Overseas markets, especially those related to the Belt and Road Initiative, and the high-end and tailor-made products, are key to China's construction machinery industry as it seeks to consolidate its presence in the global market."