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Infrastructure developing at 'breathtaking pace'
Published on: 2010-12-22
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Caterpillar Inc, the world's biggest maker of heavy equipment, is aggressively expanding its products and investments in China. This includes $286 million to build a facility to produce its large engines in the northern city of Tianjin, and marketing a two-year $1 billion yuan ($150 million) bonds to institutional investors in Hong Kong.

Richard P. Lavin, one of the five group presidents of Caterpillar, who is responsible for emerging markets, talked with China Daily reporter Lian Moabout Caterpillar's strong faith on the Chinese market.

Q: Why did Caterpillar recover so quickly from the financial crisis and what role did the China market play in Caterpillar's recovery?

A: Caterpillar was among the first in the industry to recover and I think the reason is that we planned for the trough and the economic downturn several years ahead. Our preparation was not in just top-level plans, but in detail to ensure we would be ready to respond.

China's sharp recovery is the major contributor for our ability to recover as well. The Chinese government deserves lots of credit for moving so quickly in 2008, and the massive infrastructure stimulus program was a major factor that our domestic sales were able to rebound.

Q: China's 4 trillion yuan stimulus investment in infrastructure will end. How does Caterpillar see the future of the construction industry in China?

A: We see China's infrastructure industry developing at a breathtaking pace and do not see any slowdown in opportunities and growth in next five years.

There are many influencing factors. For example, China's urbanization is going to continue to expand, so infrastructure building has to be there to support it. There will be a largely growing demand for construction equipment.

China is a critical and central market for Caterpillar. Our revenue in China goes forward to represent a significant and growing percentage in our global revenue. We expect the level of revenue growth in China is greater than any other country.

Q: What is Caterpillar's strategic plan for China over the next three years?

A: Right now, our investment plan in China is largely focused on our organic growth. We have announced several very aggressive expansion plans in Xuzhou, Suzhou (both in Jiangsu province, East China) and Qingzhou (Shandong province in East China) this year.

We plan to quadruple the manufacturing capability and facility in our Xuzhou excavator factory over next several years. We have similar plan for our Shandong SEM Machinery Co Ltd and have announced plans to set up new factories in Wujiang, Jiangsu province, and Tianjin.

The recent major investment of our business model in China was a yuan-denominated financing issue in Hong Kong, which was successfully completed. We have approval to use it all in the China market.

We are also open to joint ventures and seek opportunities with potential partners, who do business as Caterpillar does, who share the same values, same approach, with us.

Q: Why did Caterpillar's joint venture with Xuzhou Construction Machinery Group (XCMG) end? Does Caterpillar limit its partner's brands in joint ventures?

A: The cooperation with XCMG was our first joint venture in China in construction equipment. We had worked closely for 15 years and the partnership was successful and productive for Caterpillar, as well as XCMG.

Over the years, XCMG's equity had reduced to about 15 percent. I think XCMG just thought there was more productive use for their money. As result, we negotiated to buy their final charge equity.

The partnership with XCMG represents our cooperation strategies. We work openly with our partners. We brought technology and manufacturing expertise and make sure our partners can bring their special expertise in joint ventures.

I can give you another example. We own Shandong SEM Machinery, which was a joint venture at the beginning. We bought 100 percent equity after several years, but we still maintain its brand name.

Q: Will Caterpillar insist on its full range business model in China's construction machinery industry?

A: I believe among our competitors in China, with our existing produciton line and planned introductions, we have broadest production line, which we will maintain and grow. With China becoming more open, Chinese customers will understand the value of different new products and applications. When they see that, Caterpillar will expand production line in China.

It is also our advantage, compared with our competitors. Our business philosophy is creating value for our customers. It is not just products we supply, coupled with financing we offer, outstanding after-sales service our dealers bring to our customers, all of these make our customers more successful than working with our competitors.


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