Machinery made in China conquering the world

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Chinese mechanical engineers appear not to suffer from any negative effects of the global economic crisis. Machine builders in China began 2010 brimming with dynamism. Both manufacturing and sales know only one direction – up and up. Chinese companies are turning out to be ever more competitive for the remaining countries of the world.

As communicated by Germany Trade and Invest (gtai) Chinese mechanical engineering had a brilliant start into 2010. Gross output rose by 42.3 per cent for the first quarter only – compared to the same period last year. By now all sectors are back to strong increases: food processing and packaging machinery for example added 24.9 per cent, machine tools even more, reaching an increase of 41.3 per cent.

As a consequence of the world-wide crisis, machinery sales of the largest producer countries dropped by some 19 per cent in real terms in 2009. Following calculations submitted by VDMA, the German sectoral association, European machine sales for 2009 are projected to have fallen by 25 per cent, compared to a drop by about 20 per cent in the United States of America. Japanese machine builders, very strongly focussed on standard machinery had to concede sales crashing by some 40 per cent in 2009. As opposed to this, Chinese mechanical engineering recorded a ten per cent increase.

2010 - a record year

This increase is buoyed by the large customer sectors as well as by increasing exports. Customers are prepared to again invest heavily into extending and modernising facilities and capacity. This dynamic upswing is also documented by latest output figures of the sectors buying machinery: they reach from shipbuilding scoring an increase of 92.4 per cent for the first quarter, up to steel (up 24.5 per cent) and plastics products. Output of the latter rose by an impressive 20.7 per cent. To this one has to add the rapidly growing future markets of the country itself plus impressively improving technological qualifications of Chinese companies. The internal market has also seen rapid growth, its needs being increasingly catered for by national companies.

China also needs quality products for the country’s own exports, and companies are striving to improve co-operation with partners in the West to get them, thus steadily increasing quality levels of national manufacturing. In many sectors, Chinese companies have for a long time worked eye-to-eye with enterprises from western countries, as well as Japan, thus speeding up their own development. All the signs are that 2010 will be a bumper year for the People’s Republic of China. Projecting sales of clearly above € 300 billion (converted from renminbi) for the current year, Chinese mechanical engineering will again strengthen its position of global leadership. These figures come from a recent study by AlixPartners. Germany Trade and Invest also assumes that Chinese manufacturing of machinery and equipment will again see double-digit growth in 2010.

Competition and Opportunities

This means that the 'Middle Kingdom’ has grown to be a major competitor for countries like Germany, Japan and the United States of America, who dominated the machine building sector for years. Meanwhile, Chinese mechanical engineering is leading the world market. But this also brings up greater opportunities for western countries to enter this market. Since 2001, imports into China have more than doubled. As Dr. Manfred Wittenstein, VDMA’s president, told the "Frankfurter Allgemeine Zeitung“: “This downswing would have hit us much harder without China. The country has greatly increased in importance”. Now, there is much greater demand for high-quality and more expensive products on the Chinese machinery market. However, for the first time in many years, machinery imports into the People’s Republic of China fell in 2009: compared to 2008, they dropped by 12.5 per cent to the equivalent of USD 89.3 billion. Japan was the country hardest hit by this development. Last year, the country’s exports to China fell by 19.4 per cent, to USD 21.3 billion. Machine deliveries from Germany and the United States of America also had to accept losses: thus, Chinese imports from the United States decreased by 14.1 per cent, reaching the equivalent of USD 11.5 billion, those from Korea fell by 5.3 per cent (totalling USD 7.1 billion), while Germany’s exports to the country went down by 3.5 per cent, earning the country USD 18.9 billion. As opposed to that, Italian machinery exports to Japan rose by 4.8 per cent, reaching USD 4.7 billion.

However, Chinese machinery imports went up again during the first quarter of 2010, although this increase was spread unevenly over the sectors. As for now, textile machinery is on the way up (experiencing a plus of 86 per cent), while demand for printing machinery was also increasing (plus 69.0 per cent). The greatest losses in these trend figures were registered by paper-making machinery (minus 34.8 per cent), as well as food processing and packaging machines – a loss of 11.3 per cent in sales means persisting difficulties.

Recently China’s Ministry of Finance published machinery catalogues, revealing that the country intends to facilitate importing certain types of technology by abolishing VAT and customs duties on imports for many products of the mechanical engineering sector. Environmental technology plays a major role in all this.

Nevertheless the experts remain fearful in view of many risks. Nobody knows for certain to what extent this present boom will turn out to be sustainable. Insecurity is further bred by ongoing problems of product and brand piracy, enforced technology transfers and the intransparency of framework conditions considering Chinese support for exports and innovation.