Major domestic manufacturers accelerating their overseas expansion in developed markets

After weathering more than two years of weak domestic sales and struggling with excess capacity, China's construction machinery market is set for a recovery in 2014, fueled by increasing overseas demand.

Su Zimeng, secretary-general of the Beijing-based China Construction Machinery Association, said that conditions are stabilizing. He noted that all major domestic companies in the sector are accelerating their overseas expansion and making large acquisitions in developed markets.

Heavy equipment producers' sales volume was up just 2.98 percent last year at 562.6 billion yuan ($91.81 billion), well below the 21.7-percent increase in 2010.

The sector was a huge beneficiary of the government's 2008 stimulus package of 4 trillion yuan and the ensuing infrastructure boom. But without follow-on investment, companies in the sector have found it tough going to maintain sales.

"It seems the good days are over, so big Chinese construction machinery makers have been forced to widen their overseas channels, especially in developing countries, which are rich in natural resources but poor in infrastructure," Su said.

Zeng Guang'an, president of Guangxi Liugong Group, one of the largest companies in the business, noted that the company had shut its Tianjin plant. That move is helping it avoid excess production and inventories and maintain its cash flow.

The Liuzhou-based company this month completed the acquisition of Poland's Huta Stalowa Wola and its distribution subsidiary, Dressta Co Ltd, for 335 million yuan. The Polish company is a technological leader in producing high-end crawler dozers, which are tracked machines that use front-mounted blades to move material.

Liugong's sales rose 6 percent last year to $2.03 billion. The company also plans to establish a new department in the first half of 2014 to develop mining machinery specifically for resource-rich markets such as Zambia, Tanzania, Tajikistan and Australia.

The company aims to raise the share of international business from 30 percent now to 50 percent in its total business operations by 2015.

"In African and South American markets, mining machinery is largely needed to develop mines, harness forest resources and work on hydro and road projects," Zeng said.

"We also wish to expand our product line to include wind power and coal chemical equipment, because a number of our market destinations are rich in both resources."