Top Stories
Top Stories
Construction and Farm Machinery

China machinery firms diversify by opening banks

Construction work on a road reconstruction project.
Getty Images

Chinese construction machinery makers are opening banks, designing tractors and abandoning core business deals in an effort to diversify and stay profitable as China's sputtering economy brings a sustained downturn to a once-booming market.

Encouraged to expand after Beijing fired up a $640 billion stimulus package seven years ago to help them beat the global financial crisis, manufacturers from Zoomlion Heavy Industry Science and Technology to Sany Heavy Industry are stuck with a glut of unsold equipment, factories they don't need and tumbling earnings.

With domestic demand, government investment and the housing market all weakening, growth in the world's second-biggest economy slid to a 24-year low of 7.4 percent last year. The head of the central bank's research bureau believes growth could slow again this year, and all but one of China's 30 provinces have cut their 2015 economic targets.

"It will be another tough year for construction machinery makers as the growth of the country's fixed asset investment continues to slow," said Shi Yang, a China-based senior consultant with industry intelligence firm Off-Highway Research.

Don't write off this troubled sector in China

That's bad news for an industry already burdened with chronic overcapacity. In 2013 China alone had enough plant to make 420,000 wheel loaders, used to move materials around construction sites, nearly twice global demand of 240,000 for the year, according to Shi.

The machinery makers' response has been to cast their net far and wide in an urgent search for new business. Southern China-based Zoomlion, which warned in January its 2014 profit might slump by four-fifths, has added snow ploughs, fire-fighting vehicles and even farm tractors and harvesters to its equipment portfolio.

Read MoreCan China deliver on Asian economy?

"We are now transforming into a diversified manufacturer," said Wang Xuhong, a spokesman for Zoomlion. The firm is now awaiting regulatory approval to get into China's heavy truck business.

"If we can make it, Zoomlion could be five or six times as big in the future and won't be so vulnerable to a downturn in any particular sector," said Wang.

A bank, no cranes

At southern China-based Sany, which cut staff by around 18 percent in 2013 as the downturn started to bite, the firm's parent group is setting up a bank in partnership with privately owned firms. In a stock exchange filing, Sany said it sees "huge growth potential" in banking, without disclosing details of its plans.

Why this expert isn't shunning China's property space

Meanwhile Shantui Construction Machinery, China's biggest maker of bulldozers, walked away from a deal to take control of a domestic crane-making subsidiary of U.S. construction machinery firm Manitowoc Company in 2013 for 216.8 million yuan ($35 million).

While the move was unusual for an ambitious Chinese firm, so were the circumstances: Shantui had just seen its annual profit all but wiped out by the construction market downturn.

Complicating the overcapacity situation is a swathe of industry outsiders that spent money building machinery making plants in the years following Beijing's stimulus package. Those firms, from Wuliangye Group, parent of liquor maker Wuliangye Yibin, to shipbuilder China Rongsheng Heavy Industries Group Holding, must now also take tough decisions.

Wuliangye has halted production at a plant in Yibin city, in southwest China, that can make 10,000 construction site excavators a year, a Wuliangye Yibin executive told Reuters. Speaking on condition of anonymity, the executive said Wuliangye is reviewing options for the business.

An executive at Wuliangye Group confirmed excavator manufacturing has been stopped, but declined further comment.

China's construction machinery association has issued a bullish forecast for domestic equipment manufacturing growth of 5 to 7 percent for this year. But that reflects a boost from Beijing's proposed massive 'Silk Road' infrastructure investment from Kazakhstan to Southeast Asia.

Chinese industry executives say they expect the domestic market to be flat at best this year.

"Our January sales were still down and February won't be good either because of the (Chinese) New Year holiday," a senior executive at Shantui told Reuters, speaking on condition of anonymity as he is not authorized to talk to the media.