Some 100 Kilometers From Where Mao Zedong Was Born

From a sprawling manufacturing base deep in China’s southwestern Hunan province, some 100 kilometers from where Mao Zedong was born, construction-machinery maker Sany Group (SANYIZ) plans to take on the world. While workers in blue overalls and yellow hard hats crawl over cranes and cement mixer trucks in a gleaming factory, Sany President Tang Xiuguo sits nearby, discussing the opening of factories in Brazil, India, and Alabama and the $475 million acquisition of a German maker of cement pumps, Putzmeister Holding GmbH. Tang, a founder of the 22-year-old company, aims to lift overseas sales, now some 5 percent of its $16 billion revenue, to up to one-fifth of revenues within five years. China’s export business, which increased 17 percent a year over the last three decades on plastic toys, cheap shoes, and electronics assembled by companies such as Foxconn Technology Group, is changing fast, Bloomberg Businessweek reports in its April 9 edition. Rising labor costs, up 15 percent annually since 2005, plus the yuan’s 30 percent gain since a peg to the dollar was scrapped that year, are putting new pressures on the nation’s cheap manufacturing model and driving textile, shoe, and apparel factories to close or relocate to Vietnam, Cambodia, or Bangladesh. “China’s share of the world’s low-end exports has started to fall. This reflects a shift by Chinese producers into sectors where margins are higher rather than a failure to compete, ” U. K. -based Capital Economics said in a March 28 note. Ships, Locomotives Last year, Chinese-built ships dominated the global market with a 41 percent share, ahead of South Korea (KOEXTOTY) and Japan, according to London-based shipping services company Clarksons. Data from the International Trade Centre, a joint agency of the United Nations and the World Trade Organization, show gains in China’s global share of the markets for railway locomotives and wagons, machinery, and industrial boilers. In construction machinery, Sany’s specialty, three Chinese companies including Sany rank in the top 10 globally. Many of the new exporters are producing from inland China, rather than the coast, the traditional region for manufacturing. Overall, the portion of China’s exports made up by heavy industry, about two-thirds of which is machinery, has grown from 29 percent in 2001 to 39 percent last year, surpassing light industry and electronics, according to Beijing-based economics consultants GK Dragonomics. “They are making different products with higher technology, things they can charge more money for, ” says Andrew Batson, GK Dragonomics’ research director, who estimates that the new industries can help lift China’s share of global exports from 10 percent now to 15 percent by 2020. “The typical Chinese exporter is not a shoe factory in Guangdong anymore. Instead it is some kind of equipment or machinery maker. ” India, Middle East The Chinese makers of this machinery are targeting India, South America, and the Middle East, as Europe, still China’s largest export market, struggles with its debt crisis. Europe, the U. S., and Japan accounted for 48 percent of China’s total exports last year, down from 56 percent in 2003, with developing countries now taking the majority, says Louis Kuijs, an economist at the Hong Kong-based Fung Global Institute. “We have an advantage because our technology and our products level are more suitable for these countries, ” says Sany’s Tang. “And our price is a bit lower than other international brands. ” Policy makers have made upgrading industry a national priority. Equipment manufacturing, shipbuilding, and cars are among the industries slated to receive $2.5 billion from the government this year to improve technology and product quality. Mergers and acquisitions inside China and overseas are also being encouraged. Caterpillar, Siemens Shao Ning, vice minister of the State-Owned Assets Supervision and Administration Commission of the State Council, says: “Our position is we support Chinese companies investing abroad. ” While China’s new manufacturers have made limited inroads in developed markets, already they are challenging Caterpillar Inc., Siemens AG (SIE), General Electric, and other established equipment makers in places like South America and Russia. China’s construction-machinery industry may overtake Japan’s and Germany’s to become the second-largest exporter in the category, behind the U. S. Winning market share in the U. S. And Europe could take years, in part because of concerns over quality after incidents such as the crash of a Chinese-built high-speed train in Zhejiang province in July. Sany says it spent $240 million last year upgrading its factories, including the installation of welding robots. As the company expands overseas, it aims to improve its products to match the quality achieved by its newest acquisition, Germany’s Putzmeister, which will share engineering know-how and suppliers with its Chinese parent. “We know that ‘Made in China’ doesn’t have a great reputation. We want to change this through selling high-quality products, ” says Tang. Source: bloomberg.com