UPDATE 1-Global engineering sales to grow 5 pct in 2014-Germany's VDMA

Mon Oct 28, 2013 11:47am EDT

(Adds comments from interview with Festge)

FRANKFURT Oct 28 (Reuters) - Global engineering sales will increase 5 percent in real terms in 2014 - five times as much as this year - as the Chinese market revives, the head of Germany's VDMA industry association said on Monday.

"That might sound euphoric but it's not unusual in a cyclical sector like engineering where we have had below-average demand for years," Reinhold Festge, the VDMA's new president, said at a news conference in Frankfurt.

But Festge cautioned that 2013 would be more disappointing than expected, with the sector growing slightly less than 1 percent worldwide due to the subdued economic environment.

Demand picked up in Germany in August, with engineering orders rising by 6 percent from the previous year thanks to unusually strong business with euro zone partners.

Festge told Reuters German companies needed to pay careful attention to competition from Chinese rivals and added that they needed to be more innovative, offer more products in the lower and mid-price segments and increasingly produce goods close to their markets.

Festge said he was "very concerned" about Chinese takeovers of German firms, adding that family-owned companies which had not yet settled upon a successor or firms with financial troubles could become targets.

Chinese companies have increasingly featured in the bidding process for German companies in recent years, with car parts maker Hebei Lingyun acquiring car door latches specialist Kiekert in 2012, for example.

But Festge added that he did not foresee a big wave of acquisitions by Chinese rivals as German engineering companies were "too healthy for that".

He also said takeovers of Chinese companies by German firms would remain the exception, partly because the former often have a lot of staff but lack new technologies.

German engineering firms export three quarters of their machines. Their biggest markets are China, the United States, France and Russia.

China has been making inroads into the global market in recent years and is now the third most successful exporter of machines after Germany and the United States, the VDMA says.

The VDMA represents over 3,000 mainly small and medium-sized companies but also large companies such as MAN SE and ThyssenKrupp. (Reporting by Tom Kaeckenhoff and Anneli Palmen in Frankfurt; Writing by Michelle Martin in Berlin; editing by Jeremy Gaunt)

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