China's Sany Heavy poised for economic "golden age"

Sun Oct 28, 2012 4:59pm EDT

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By John Ruwitch

SHANGHAI, Oct 29 (Reuters) - China's construction equipment sector is slowly but surely digging itself out from under a mountain of inventory and will return to growth in the second or third quarter of next year as the economy recovers, the president of Sany Heavy Industry Co Ltd said.

Xiang Wenbo said that will set up the industry for a return to high-speed growth during the 2013-2017 period, which he expects to be a "golden age" of development in China under new Communist Party leaders due to take office at a once-a-decade handover in November.

Sany Heavy, China's biggest manufacturer of excavators and construction equipment, is expected to report a sharp drop in quarterly profit when it releases its third quarter results later on Monday.

It had missed second-quarter forecasts with a 28 percent fall in net profit, its biggest quarterly drop since 2008, as China's economic slowdown led to a spike in unpaid bills.

The industry outlook has been muddied by huge stockpiles of unsold equipment after a four-year boom fuelled by China's massive 2008-09 stimulus programme.

"For the industry to return to true growth may have to wait until the second or third quarter of next year because of the destocking process," Xiang said in an interview on Friday.

The coming five years "could be a golden age of development for this government," he said at Sany's massive new glass-and-steel factory on the outskirts of Shanghai. "I think we can expect this."

Last week, Caterpillar Inc, the global leader in tractors and excavators, cut its 2012 forecast for the second time this year and warned about global growth, but said it also expected big infrastructure spending in early 2013.

Xiang, who doubles as the head of the Communist Party branch at Sany, declined to speculate on possible new stimulus spending under the country's new leaders.

But, he said, China's infrastructure, including roads, airports and sewage systems, was in such dire need of improvement that more investment was a foregone conclusion.

"I think everyone can expect Chinese investment in the coming 10 to 20 years because China's industrialisation and urbanisation are not complete," he said.

RAPID GROWTH

China, the world's largest construction market, has lost steam since the second half of 2011, with the country's economic growth rate slowing to 7.6 percent in the last quarter, the slowest pace in more than three years.

Things would turn in China next year, Xiang predicted, but growth would still be modest.

"If it's 10 percent that would be okay," he said.

Sany Heavy, ranked sixth in the world, will see annual revenue growth of 20-30 percent in the next five years, which could catapult it into the No.2 spot after Caterpillar, he said.

When Sany was launched in 1989 as a small welding material factory under a different name, Caterpillar gear was being used to finish the Lubuge Hydropower project in Yunnan province, one of the country's first construction projects to involve international partners.

The company grew rapidly as China demand exploded.

It was thrust into the headlines recently because of its connection to Ralls Corp, the Chinese firm that has sued U.S. President Barack Obama for blocking its wind far project. Two Sany Group executives own Ralls.

In the Chinese market for crawler excavators over six tonnes, Sany's market share leapt from 2 percent in 2005 to 11 percent in 2011, according to data from Off-Highway Research.

Caterpillar, meanwhile, dropped to 7 percent in 2009 from 11 percent in 2005. It held steady for the next two years.

Komatsu China, a unit of Japan's Komatsu Ltd and market leader since 2006, dropped to 11 percent last year from 18 percent in 2008. Hitachi, the 2005 leader with 17 percent of the market, slipped to 8 percent last year, data showed.

"Demand in China will be large and that is a huge opportunity for us," Xiang said, adding that the company had a home field advantage that foreign firms, including Caterpillar and Komatsu, could not compete with.

The Sany parent group does more than 90 percent of its business in China, but its overseas business has been doubling annually - albeit off a small base - targeting developing countries.

"This pace will continue," Xiang said. "And it's because our overall amount of industrial machinery (sold abroad) is still low, globally it is relatively low."

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