Equipment makers look west

Zoomlion Heavy Industry Science & Technology Co Ltd equipment on display at a trade show in Shanghai last year. The company recently acquired M-Tec, a German leading dry mortar producer. Provided to China Daily

　　Chinese firms make overseas acquisitions as domestic market becomes saturated

Despite the economic slowdown and overcapacity issues, China's market for construction equipment will likely recover from lackluster growth, as major companies in the sector have been busy with overseas acquisitions, industry insiders said.

The latest example of Chinese machinery makers expanding overseas amid a tough domestic market is Zoomlion Heavy Industry Science & Technology Co Ltd, one of the country's largest machinery makers, which has acquired German leading dry mortar producer, M-Tec.

Financial details weren't disclosed, as the deal is still subject to regulatory approval. The deal was finalized on Dec 20, according to a statement released by Zoomlion on Wednesday.

"Our company is going through an industrial transformation and upgrading, and the purchase of the Neuenburg-based M-Tec will help the company to complete that process, bringing in a new growth engine in the dry mortar equipment sector," said Chen Xiaofei, vice-president of Zoomlion, which is listed on the Hong Kong and Shenzhen stock exchanges.

Chen noted that there's huge demand in China for dry mix mortar - a new and eco-friendly construction material, which is already widely used in the United States and Europe - as the nation is building more "green" projects.

China's demand for dry mix mortar is expected to rise to 190 million tons by 2017, with the annual growth of sales of equipment for dry mix mortar plants estimated at more than 70 percent by then, experts said.

The two companies have already entered into an agreement, but the delivery of equity is still underway, said He Wenjin, vice-president of Zoomlion's investment and financing department. He said he expects the deal to be finished in March.

In the first three quarters, the net profit of State-owned Zoomlion, which is based in Hunan province, fell 45 percent to 3.80 billion yuan ($620.90 million).

Germany-based M-Tec, which was founded in 1978 and sells its products in 55 countries and regions around the world, was unable to be reached immediately for comment.

Meanwhile, other Chinese machinery makers, including Sany Heavy Industry Co Ltd and XCMG Construction Machinery Co Ltd, are also turning to emerging markets such as Southeast Asia and South America, where big construction projects are resulting in huge demand for affordable earth-moving equipment.

In the January-June period, Sany's sales outside China rose two-thirds from a year earlier, with growth in Asia Pacific up more than 90 percent.

In 2008, Zoomlion paid 271 million euros ($370.75 million) for a 60 percent stake in Italian construction machinery maker Compagnia Italiana Forme Acciaio SpA, known as Cifa, the world's third-largest concrete machinery manufacturer.

Industry insiders said that expanding overseas is one way out for machinery companies in China where the market is already saturated.

"In the past few years, we've seen domestic construction machinery makers upgrading themselves with overseas expansion and acquisition deals," said Su Zimeng, secretary-general of the Beijing-based China Construction Machinery Association. "And this is good for the whole industry, as the overseas expansion moves will cushion the impact of the tough domestic market."

The sales volume of Chinese heavy equipment producers was up just 2.98 percent last year to 562.6 billion yuan, well below the 21.7 percent increase registered in 2010.

Song Yang, an analyst at Barclays, estimated growth of between 3 percent and 4 percent for sales of construction machines such as excavators and wheel loaders and flat growth for concrete machinery in 2014.