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MNI INTERVIEW: Top Excavator Maker Tracks China Property Slump

SINGAPORE (MNI)

The world's leading maker of excavators has a way to track usage of its equipment and glean economic insights.

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China's economy is notably slower after a rapid recovery from the Covid-19 pandemic as property market concerns shake investor confidence, executives at a top construction equipment maker told MNI, adding the slump comes as manufacturers are dealing with a transition to "carbon neutral" processes and equipment by 2060.

"The (economic) situation is slower as the outlook for the property market concerns people who are slowing down their investments," said Tang Xiuguo, president of Sany Group, China biggest heavy equipment manufacturer.

"In the short term, two factors are jointly imposing negative influences on the economy — many construction projects have been suspended in winter - and the Evergrande case has not be resolved."

China Evergrande Group ended talks with Hopson Development Holdings late Wednesday to sell a majority stake in Hong Kong-listed Evergrande Property Services Group for HKD20 billion, with shares of the companies falling sharply after resuming trade on Thursday after a 2.5 week halt.

The slowdown in property, a key economy driver in China, comes as Sany faces higher raw material costs, Dai Qinghua, vice president of Sany, said. The company has raised the prices on some of its products as a result in a highly competitive global market, see: MNI: Surge In China Factory Prices Needs PBOC Credit Expansion.

Tang's remarks are in line with the "excavator index" - a gauge produced by Sany that tracks more than half-a-million of the company's concrete mixers, excavators and cranes. The indicator was once hailed by Premier Li Keqiang when he visited Sany in 2018 as providing "important support for macroeconomic analysis".

In a recent assessment, Sany executives said the data showed the operating rate and uptime of Sany excavators fell to 70.6% and 92.8 hours in July from 81.27% and 112.9 hours in June. The company started the index in 2015,

According to National Bureau of Statistics, China GDP Q3 growth printed at 4.9%, a record low in the same period except last Q3 when the economy was still suffering the impact of pandemic lockdowns.

However, Tang believes there is still opportunity for construction investment growth in the long run as the country gears up to fix weak parts of the economy in infrastructure and as younger home buyers move to cities.

ROBUST EXPORTS

Sany executives said the unexpected growth in exports was a surprise as China recovered rapidly from the initial lockdowns last year, something Tang said labelled as an "excess compensatory rebound" that continued into part of 2021.

In the first half of this year, Sany's excavator sales jumped 140% year-on-year, accounting for more than twice its domestic sales, which jumped 80% in the recovery from the pandemic outbreak, said Tang. Buyers from Europe, the U.S., Japan and South Korea increased orders, along with One Belt and One Road projects, he said.

According to Off-Highway Research, the company sold 98,705 excavators in 2020, taking 15% of the global market share and is the world leader, with the total sales last year of CNY136.7 billion, from CNY101billion in 2019.

TRANSFORMATION

Tang said Sany's next steps are more hi-tech and digitalisation investments as the slowdown actually accelerates policy shifts by China into higher-end manufacturing and green policies. China faces short-term power shortages currently as fossil fuel input prices outstrip state-set power tariffs that affect manufacturing.

The company's plans longer term to address power issues include smart manufacturing and energy-saving transformation products with the trend of the whole sector aimed at reaching "carbon peak" by 2030 and "carbon neutral" by 2060, executives said.

Dai said the manufacturing sector is focusing on shifting from high energy inputs to tech-focused operating systems that draw on renewables and new fuels.

Sany builds its own wind power plants, which can provide enough electricity to all its factories now. In addition, the company is upgrading its products to electric power from fossil energy power by introducing lithium batteries and hydrogen cells.

Sany has also started a smart factory effort to transform 20 plants all over the country in a project called Lighthouse Plants Building, that, according to Dai, has managed to improve labour productivity by 85%.