UPDATE 2-Caterpillar says China capex to triple in 3 years

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By Kirby Chien

BEIJING, March 31 (Reuters) - Caterpillar Inc (CAT.N), the largest maker of construction and mining equipment, said it expected investment in fast-growing emerging markets to accelerate rapidly, especially in China where it should triple in the next three years.

Caterpillar's sales in China will jump by about a third this year to around $2 billion, helping make the Asia Pacific region the fastest growing market for the company, Jim Owens, chief executive and chairman, told reporters in the Chinese capital on Monday.

While the United States is still the company's single largest market and will account for a big part of this year's $2.3 billion in capital expenditure, it is a market facing recession that will likely be the firm's slowest-growing market in 2008.

"We think to win long term, strategically, we need to manufacture close to our customers," said Owens.

China will take up the lion's share of $1 billion earmarked for emerging market capital expenditure over the next three years, said Owens.

"It is a huge commitment to China," he said. "That will accelerate in the next few years," he said.

However, the company is still only planning capital expenditures of about $175 million in emerging markets such as India, Russia and China this year, still only a small proportion of its global budget.

But with Caterpillar's sales outside of its home North American market climbing to 62 percent last year and still growing, the company needs to make a bigger commitment to manufacturing outside of its home base.

The company has three manufacturing plants under construction in China and is also building out its distribution network to help service its expanding network of customers.

"By the end of this year there will be at least 100 Cat rental stores in China," said Rod Beeler, the vice president for Asia Pacific marketing based in Singapore.

But China's fast growth is also helping push up prices of raw materials, adding to Caterpillar's manufacturing costs.

With soaring prices, the company may have to take the unusual step of raising prices at mid-year to take into account higher steel prices.

"Soon," Owens said, when asked when a decision might be made. The company has already announced a global 2 percent price rise for 2008.

Owens said an additional price rise this year would likely be less than 10 percent, but did not provide any details.

"If the increases that people are talking about do come through, it will have a pretty big impact on our material costs," he said. ($=7.02 yuan) (Reporting by Kirby Chien; Editing by Erica Billingham)