China's construction equipment market, hit hard by the economic slowdown, is expected to show some improvement next year, industry leaders said, though the explosive growth rates of 2009 and 2010 are unlikely to be repeated.
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In dealing with increased competition, some Chinese firms will focus on technology upgrading and product quality rather than on chasing higher manufacturing scales, according to participants at Bauma China 2012, the international trade fair for construction equipment, which ends today in Shanghai.
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"We will avoid simple expansion in growth of scale," said Wang Xiaohua, chairman of LiuGong Group Corp, a major wheel-loader maker based in Guangxi. "We have to work hard on upgrading technology, improving quality and building up our brand."
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In August, LiuGong's listed arm, Guangxi Liugong Machinery Co, became a partner of the China Polar Research Center, the first in the machinery equipment industry to supply that field of China's scientific research and also test its products in extreme weather conditions.
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Wang said many smaller players in the industry will be forced out of the market in the next three to five years.
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"We have around 200 manufacturers in the domestic industry, but, in fact, we only need 10 percent of them," he said.
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Guangxi Liugong posted an 85 percent drop in third-quarter profit, joining peers in reporting dismal results in a highly cyclical industry.
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China began approving major new infrastructure projects in the third quarter in an attempt to revive growth after seven consecutive quarters of slowdown. The nation registered 7.4 percent annual growth for the third quarter.
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More recent data in October beat expectations, with fixed-asset investment, industrial output and retail sales pointing to signs of recovery.
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But it may take time for construction machinery makers to bounce back in an industry beset by oversupply, high inventories and unpaid bills.
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US-based Caterpillar Inc, the world's largest maker of construction and mining machinery, expects to start seeing the impact of China's policy changes late this year or early next, Ed Rapp, group president and chief financial officer, said at the trade show.
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"Yes, China has slowed down," he said. "But it's slowed from a very, very fast pace. Even though we've heard a lot about industry contraction in China over the past 12 months, it's still by far the largest construction equipment opportunity in the world. We think that opportunity is going to continue to grow over the next five to 10 years."
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Caterpillar rented more than 12,000 square meters at Bauma China 2012, the largest trade show display ever for the company. Among its exhibits was a unique Cat excavator built for the latest James Bond film "Skyfall."
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Other global leaders also see great potential for their China business, despite challenges facing the industry.
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Volvo Construction Equipment President Pat Olney said the firm has invested over 1 billion Swedish krona (USD149.1 million) in expanding capacity and product offerings in China. He said Volvo is set to build on its leading market position in China's excavator and wheel-loader segments by raising the bar even higher.
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"Our successes over the last decade have surpassed even our most optimistic targets, but we remain just as ambitious today as ever before," Olney said.
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Profit at major construction machinery makers in China fell 28.4 percent in January-September, while sales inched up 0.02 percent, according to the China Construction Machinery Association.
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Sales this year could end up a bit higher than in 2011, and they may rise 13 percent next year, according to Qi Jun, chairman of the association.
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LiuGong's Wang said the industry is at a turning point. "The next 10 years are going to see a period of relatively low growth and a market that's more mature," he said.
