Urbanization to drive Caterpillar's growth in China building sector

Although the expansion of China's machinery industry may decelerate amid tightening policies and a slowing economy, urbanization will drive the industry's growth in the long term, the world's largest construction and mining equipment, diesel and gas engine maker, Caterpillar Inc, said.

"The restriction of credit availability had a dampening effect on the machinery industry, which would lead to the market size this year to be about flat with that of the previous year," said Richard Lavin, Caterpillar's group president, in an interview with China Daily.

Lavin's estimate replaces his expectation a few months ago for the market to grow more than 10 percent in 2012, as the country set this year's GDP growth target at a lower-than-expected 7.5 percent earlier this month.

"This is a result of a number of steps the Chinese government has taken over the last 12 months to deal with inflation and try to achieve a soft landing of the economy in total," he said.

But Lavin predicted the market would see some improvement in the second half as the authorities have begun to free up bank reserves.

Meanwhile, urbanization is going to create a continuous need for infrastructure in the long term, and therefore demand for construction equipment, which continues to make the Chinese market attractive.

Experts said that China's urbanization rate is likely to increase from just above 50 percent at present to about 60 percent by 2020 and 65 percent by 2030.

As a result, "infrastructure such as roads, railroads and ports, will continue to be built at an aggressive pace in China," Lavin said.

Mining is another very important area, he said. "As the country expands consumption in resources, its needs for modern technology machinery products, as well as the safety requirements in mining operations, will be increasing."

Lavin is confident in the growth of China's machinery industry over the next five years, and believes Caterpillar will capture the opportunity and grow its market share.

He added that the company is currently in contact with some local governments about potential cooperation.

Caterpillar announced on Wednesday a $100 million new investment in Xuzhou, Jiangsu province, which will begin production in early 2014 and enhance its hydraulic excavator capacity in China by 80 percent when completed in 2016.

Global revenue in 2012 was expected to reach $68 billion to $71 billion, and the share of the Chinese market will expand two to three times over the next few years, Douglas Oberhelman, chairman and CEO, was quoted by The Economic Observer as saying.

"Our sales in China have grown significantly over the past five to six years, and we project the sales to continue growing at a significant level over the next five years," Lavin said.

Caterpillar has 17 factories operating in China and nine others being expanded or planned, with four research and development centers.

China became the largest engineering machinery market in the world in 2010 with a value of more than 400 billion yuan ($63 billion).

However, Caterpillar faces a rising competition from Chinese rivals, such as Sany Group and Zoomlion Co Ltd, which have gained market share in recent years from their foreign counterparts through aggressive marketing, attractive financing and improving technology.

Sany is now the world's No 7 construction equipment maker, followed by Zoomlion at No 9 and another Chinese company - XCMG Group - in 10th place, according to KHL Group's 2011 Yellow Table.

weitian@chinadaily.com.cn

(China Daily 03/23/2012 page15)