By Liu Jin
In the National Machinery Industry Economic Development Report Conference held recently, Cai Weici, executive vice chairman of China Machinery Industry Federation, said that currently development of the machinery industry remained grim; we should be prepared for a tough time, but the development prospects were favorable in the long term.
Positive signal amidst slowdown
The current slowdown is an adjustment against the background of the change of economy development goal from quantity to quality, and the market "reversed pressure" mechanism is yielding expected results.
Due to such factors as slipping export and weak investment in infrastructure construction and real estate, China's industrial production growth in the first three quarters of this year has continued to slow down, the operation difficulty of the machinery industry has increased, and the slowdown of main economic indicators has continued since 2011. The 6 major economic indicators, namely industrial added value, total output, profit, foreign exchange created, products production volume, and fixed assets investment, are all on a downward trend. Meanwhile, the industry is becoming increasingly differentiated, and economic operation become more difficult.
According to statistics, from January to September, aggregated industrial added value of the machinery industry increased by 8.6 percent year on year, 1.3 percentage points lower than the average national industrial growth rate; the ranking of the growth of the increased value of the machinery industry among the 12 industries fell to the 10th place. Total industrial output from January to October was RMB 14.9 trillion Yuan, an increase of 11.91 percent year on year, the second lowest in the past 10 years, 13 percentage points lower than the growth in 2011.
Cai Weici said that the current slowdown of the machinery industry is an adjustment against the background of the change of economy development goal from quantity to quality. From this perspective, the overall and upgrading trend of machinery enterprises has been satisfying this year, the market "reversed pressure" mechanism is yielding expected results.
According to statistics from China Machinery Industry Federation, the decline of total industrial output value has decelerated, the situation is stabilizing, overall production/sales ratio has gone up slightly, some leading indicators have shown signs of positive change, growth of inventory and products and finished products capital use has slowed down year on year, and price index has shown signs of stabilizing. Besides, growth of auto mobile sales and production, which is of the greatest weight in the total volume of the machinery industry, has begun to climb month by month.
In the meantime, it is also reflected in the total order volume of the machinery industry's key enterprises in contact: total order volume from January to July decreased by 5.55 percent year on year, and that from January to August and from January to September was down by 0.33 percent and 0.35 percent respectively. The decrease has narrowed significantly, indicating that orders are beginning to go back up.
Effects of structural adjustment are apparent
The machinery industry's initiative and extensive market reform enables the industry to cultivate endogenous response ability and growth momentum prior to others.
"The machinery industry's initiative and extensive market reform enable the industry to cultivate endogenous response ability and growth momentum prior to others and create favorable condition for coping with the current difficulty", said Cai Weici, who pointed out that there were still highlights in the development of the industry and the effects of structure adjustment had been apparent.
Private and small businesses of the machinery industry have scored rapid growth. From January to October, private enterprises achieved output value of RMB 8.39 trillion Yuan, increasing by 17.81 percent compared with the period of last year, 5.9 percentage points higher than the average growth rate of the industry and their shares in the industry increasing to 56.3 percent. Small businesses, in particular, have seen their profit from January to September increase by 17.63 percent compared with the same period of last year, significantly than the growth rate of -4.68 percent of large enterprises and the growth rate of 0.69 percent of medium-sized enterprises at the same period. This is an indication that large state-owned enterprises have plenty of potential to be tapped.
The machinery industry's efforts to "go for the higher end and consolidate the foundation" are being accelerated. International topnotch equipments, including 80,000-ton stamping press, 3,000-ton caterpillar crane, and 520-horsepower bulldozer, have been created; CFHI's forge-weld hot-wall hydrogenation reactor was exported to India (for RMB 1.4 billion Yuan), Taiyuan Heavy Machinery's 4-cubic-meter to 35-cubic-meter mining excavators have been exported to India, Russia, and other countries, and ZPMC's marine pipe-laying equipments have been exported to America. Investment in infrastructure experiment, to which not much importance had been attached previously, has increased markedly; the independent development of key parts and special materials has accelerated. Efforts for the independence and innovation of parts like high-voltage insulating bush, transformer outlet device, and high-end valve that have long been dominated by multinationals have accelerated despite the influence of economic tightening up.
Besides, cost-reduction-oriented and energy-saving-oriented technology reforms have attracted great attention from the industry and enterprises. For example, to cope with the challenge of increasing labor cost and labor shortage, the bearing industry are gradually evolving from single-machine production to automatic connected production; driven by market competition pressure and in order to save materials and reduce consumption, high-speed upsetting is adopted for semi-finished bearings, grinding fluids are circulated collectively, and hydraulic systems are operated collectively.
Seize opportunities in the medium-speed growth phase
We should start with increasing effective demands and dissolving excessive production capacity, increase policy support, and deepen market-oriented reforms.
Looking into 2013, experts participating in the conference all suggest that China's machinery industry has gone from a rapid growth phase into a medium-speed growth phase. On one hand, the pressure of increasing cost will continue, and on the other hand, macro-economy policies can be expected to further promote the upgrading of the machinery industry.
"The growth of the machinery industry has basically bottomed out now, and it is not likely that it would continue to slip considerably in the future". According to Cai Weici, the industry will continue to operate at the bottom in the fourth quarter; the overall trend in this year could be characterized by plunging to the bottom in the early period and stabilizing and going slightly upward in the late period. In the first quarter or even the first half of next year, the economy is likely to continue to operate at the bottom, and macro-economy prosperity level would still be rather low, which would result in low level of demand for machinery products.
According to Cai Weici's estimation, in 2013, the operation of China's machinery industry would still stay at a rather low level, but it is still possible to expect two-digit growth. The growth of production and sales is estimated at around 10 percent, profit increase rate at 5 percent, and export growth rate at around 8 percent.
In Cai Weici's view, to improve the current operation situation of the machinery industry, we need to take measures against the two major problems of weak demand and excessive production capacity, and start with increasing effective demand and dissolving seriously excessive production capacity. On one hand, we should make every attempt to boost demand, increase policy support, and make solid achievement in the independent production of equipment. On the other hand, we should deepen market-oriented reform, vigorously create a favorable and fair competition environment for the updating and upgrading of the machinery industry, and protect enterprises' innovation initiatives.
