Excavator Market Is a 'Barometer' of China's Public-Private Partnership Projects
Yicai Global
/SOURCE : Yicai
Excavator Market Is a 'Barometer' of China's Public-Private Partnership Projects

(Yicai Global) March 13 -- The excavator market has become a 'barometer' for a certain front of China's economy. Its performance can be an important reference for the State Council when it makes economic policies and considers the status of China's infrastructure construction, especially Public-Private Partnership projects.

Excavator manufacturers suffered frozen sales performance before September last year. Their sales picked up and boomed in the first two months of this year.

One production team at Sany Heavy Industry Co. [SHA:600031] is scheduled to produce 70 excavators a day, and this production intensity cannot keep pace with sales.

"These are obvious infrastructure construction start signals," Xiao Youliang, Sany's board secretary, told Yicai Global.

Infrastructure construction in areas including Yunnan, Guizhou, Guangxi, Guangdong and Chongqing mainly involves roads and bridges and is benefiting from the state's PPP investments, he said, citing sales analysis.

Selling Is in Full Swing

Sany posted a piece of news on the company website titled "Orders Surge and Clients Press for Delivery: Sany's Plant is Extremely Busy," on Feb. 24. "The best description for the sales of Sany excavators would be -- 'out of stock,'" it said. The company's sales in February increased by nearly 300 percent year-on-year.

The company predicted its sales will hit a five-year high in 2017, based on how busy the production lines and distributors are.

The whole industry has enjoyed robust growth. Some 70,320 excavators were sold last year, representing a 24.8 percent year-on-year increase, per Yicai's compilation of China Machinery Industry Federation data. The sales growth rate was positive for the first time since 2013, with more than 11,354 units sold. The sales volume in December registered a year-on-year increase of 75.0 percent.

Some 25 excavator companies sold a total of over 4,500 excavators in January 2017, a 54 percent year-on year jump. A total of 14,530 excavators were sold in February, marking a rise of 297.65 percent from a year earlier.

Where Are Excavators Sold?

Sales in the east grew most rapidly in January, with a year-on-year growth of 77 percent, a Soochow Securities Co. research report shows. Central and western China had 49 percent and 51 percent sales growth, respectively.

China's eastern Jiangsu and Shandong provinces and southwestern Yunnan province were the top three regions for sales in January, selling over 300 vehicles apiece, CMIF data shows. They also topped the charts in 2016.

"Leaders urge for production and managers urge for delivery of goods. Some customers from Jiangsu even came to our plants to press for delivery of equipment," said Yang Shaoyong, deputy manager of Sany's Assembly Department. Workers have been busy trying to ensure supply of equipment.

Motivations Behind Hot Selling

Excavators are primarily used for urban construction including on real estate, rail transit, highway, mining, water conservancy and hydropower projects. They are used on PPP projects, the government and investors tie up to build and operate public infrastructure. PPP initiatives are being vigorously promoted nationwide.

The market demand for excavators is not only a 'weather vane' that monitors the popularity of the PPP model. It is also an important reference index for the State Council in making infrastructure construction policies.

After visiting Sany's big data platform, leaders from the State Council increased the frequency the company must report operation data to twice a month from monthly.

The number and value of PPP projects was 6,997 and CNY8.1 trillion (USD1.2 trillion) at the beginning of last year, data recently released by the China Public Private Partnerships Center shows. The figures were 11,260 and CNY13.5 trillion by the end of December, 61 percent and 66 percent increases, respectively.

'The Duck Knows First'

A Chinese saying goes, "the duck knows first when the river becomes warm in spring." In the infrastructure construction market, excavators are 'the duck.' Since the second half of 2016, many companies have clearly felt the infrastructure construction market was picking up. This was first reflected in excavator sales.

The sales growth of excavators in 2016 may have been affected by the fact that the market had declined for four or five years in a row, and sales began to pick up after several years of glut on the market, said Wang Jinxing, deputy secretary-general of China Construction Machinery Association.

The surge in excavators sales since the second half of 2016 was sparked by the simultaneous start of municipal engineering, rail transit and other PPP projects, said Haitong Securities Company Ltd.

Zoomlion Heavy Industry Science & Technology Co. [SHE:000157] also felt the pick-up. With the uptick in excavator and other engineering machinery sales, the company registered positive operating cash flow for the first time in past three years, a significant improvement compared with 2015, the company's 2016 preliminary earnings estimate shows.

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