By Wang Jianzhong

In 2006, the machinery industry made a series of achievements: both the production and the sales increased rapidly with a benign link between them; the growth margins of industrial added values and profits for the whole industry were comparatively large; the exports grew at an accelerated rate, thus having posted a trade surplus for the first time; and new progresses were made in adjusting the industrial structure. But such problems as a comparatively high growth margin of investment, a hike in the prices of energy resources and raw materials, and a tense supply of funds for enterprises made it rather difficult for the industry to move steadily.

Economic operation of machinery industry in 2006

Firstly, both the production and the sales increased rapidly with a benign link between them. From January 2006 to November 2006, the gross output value of industry realized by the machinery industry had accumulated to RMB 5 trillion yuan, up 29.4 percent year on year, and the growth margin had increased by 8.2 percentage points on a year-on-year basis; industry added-value reached RMB1.26 trillion yuan, up 21.3 percent, and the growth margin had increased by 7 percentage points; and the accumulative production and sales rate was 97.29 percent.

The output of main products maintained a growth. Among the 95 kinds of main products covered in the statistics, third-fourths realized a double-digit growth rate. There have produced 6.66 million vehicles with a growth margin of 26.1 percent year on year, among which there include 3.56 million cars with a growth margin of 40.3 percent; the capability of power generation equipments produced increases by 29.6 percent to 109.23 million kw; the production volume of metal cutting machine tools increase by 13.9 percent to 510,000 sets, among which digital control machine tools amount to 77,000 sets, up 30.8 percent; the output capability of special equipments used in oil refining and for petrochemical purposes reached 340,000 tons with a growth margin of 59.9 percent.

Secondly, economic profits increased by a large margin. From January 2006 to November 2006, the main business revenues increased by 29.7 percent year on year to RMB4.78 trillion yuan with the growth margin increasing by 8 percentage points year on year; total profits increased by 38.9 percent to RMB 260.7 billion yuan with the growth margin increasing by 31.1 percentage points. By the end of last November, the worth of all finished product inventories had increased by 18.3 percent to RMB 349.6 billion yuan; the amount of accounts receivable increased by 23.1 percent to RMB 868.8 billion yuan.

Thirdly, the growth rate of exports was higher than that of imports, thus having realized a trade surplus for the first time. From last January to last November, the total values of all exports and imports for the machinery industry reached US$257.8 billion, up 28.2 percent year on year, where the values of exports increased by 36.8 percent to US$129.2 billion and the values of imports increased by 21 percent to US$128.6 billion. The accumulative trade surplus was US$600 million.

Problems currently existing in operations of machinery industry

Firstly, the investment in the industry was excessively increasing. Driven by the rapid and sustained growth of demands in the market, there appeared a trend of rapid growth for the investment in fixed assets in the machinery industry. From last January to last November, the investment in fixed assets for the general purposes equipment manufacturing industry, the electric equipment and machinery manufacturing industry, the special equipment manufacturing industry, and the manufacturing industry of instruments, meters, cultural and office machinery had increased by 55.6 percent, 52.2 percent, 40.6 percent, and 35.1 percent respectively.

Secondly, the price of energy resources and raw materials climbed up too rapidly. Due to the tense supply of raw materials such as copper, aluminum and high-quality special steel materials and the ever-high prices, enterprises' profits were severely affected. During the first three quarters of 2006, 19 out of the 50 electrical appliance manufacturers in the machinery industry in Shanxi Province suffered deficits and their deficits had increased by about 1.24 times. The problem that the supply of energy resources is tense is still not completely solved yet in certain regions.

Thirdly, it is urgently necessary to accelerate adjustments to the products structure. As there are a rather large number of enterprises in the same industry and products of such enterprises are of homogeneity, prices of such enterprises' products in the market declined and the growth rate of sales revenues for many industries is lower than the growth rate of sales volume as the competition in the market got more intense. Meanwhile, as requirements on the technique performance of products in market upgraded, the output of certain products decreased. During the first three quarters of 2006, Hunan Province's outputs of agriculture transportation machineries, forklift trucks and compaction machineries decreased by 39.7 percent, 37.3 percent and 25.3 percent year on year respectively.

Fourthly, certain enterprises suffered a tense supply of circulating funds. As the market prices of raw materials such as copper and aluminum climbed up too rapidly, circulating funds of enterprises were seriously occupied. There even exists such a phenomenon that some enterprises had no funds to purchase raw materials. Even if they have contracts and there are demands in the market, they dared not bring their productivity into full effect.

Analysis on the environment for operations of machinery industry

From the perspective of the police environment, as the government gradually boosts its policies on accelerating the vigorous development of equipment manufacturing industry, the development of the equipment manufacturing industry will continue to get key supports. From the perspective of market environment, the upgraded industry structure and consumption structure had raised more exigent requirements on accelerating the technological progress in the equipment machinery industry. With the ever-growing demands in the market at home and aboard, the equipment machinery industry will get a relatively relaxing space for its development.

For a certain period of time in the future, a general trend of demands in the domestic market is that although the demands for common traditional products will somehow increase, the competition will be extremely intense; and demands for key technological equipment with a high technological content and high added value will increase rapidly.

Meanwhile, there existed some disadvantageous factors in operations of the machinery industry. Firstly, the situation with a low technology level in some fields, a shortage of high technology products and a redundancy of low level products has not completely changed yet; the supply-demand relationship with a surplus due to the structure will exist in a long term. Secondly, the fact that certain countries treat machinery products exported by China unfairly will affect the normal development of China's machinery industry. Thirdly, as adjustments to the structure of such industries with a surplus production capacity are being pushed forward step by step, demands for certain machinery products in the market will be somehow affected. Fourthly, it is still possible that prices of upstream energy resources and raw materials as well as transportation costs will increase; and such a fact will directly affect the economic profits of the machinery industry.

Trends in the development of machinery industry

High-tech embedded products. An advanced equipment manufacturing industry is an important carrier of high technologies and also an important foundation to accelerate the technological upgrading and development of relative industries. The high technology content of equipment products has become a key factor to win out in competitions in the market. Demands for key technological equipment with a high technology content and high added value will increase rapidly.

Individualized services. In order to adapt to the uncertainty of market requirements and individualized requirements of customers, advanced equipment manufacturing enterprises will absorb continuously various high technologies and modern management technologies and apply them to the whole process from product design, production, management, sales, use, services to even recovery in an integrated manner so as to realize a production featured with high quality, efficiency, low consumption, cleanness, agility, and flexibility.

Conduct operations in a large scale. On the one hand, a large-scale production will increasingly strengthen large enterprises' predominant role in technological innovations and in the market; on the other hand, enterprises will expand their strength through competitions by combining with one another and getting themselves restructured continuously. Meanwhile, they do cut short their battlefront one after another and peel off their minor businesses incessantly so as to make their main business more strong and improve the capability to get the system integrated and adapt to the individualized and diversified market.