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Caterpillar to Source More Parts From China

Caterpillar, the world’s biggest maker of earth-moving equipment, plans to switch “as much as possible” of its sourcing of complex parts for its Chinese factories from Japan to China.

“How quickly we can move from Japan to China depends on the ability of the Chinese supply base to do more,” Rich Lavin, Caterpillar’s head of emerging markets, told the Financial Times.

**FILE** Rows of heavy Caterpillar equipment sits ready for shipment at the Caterpillar plant in Decatur, Ill.,in this April 20, 2007 file photo. For American companies with operations that stretch overseas, the slumping dollar has become a fiscal life preserver amid slower domestic economic growth and waning sales. (AP Photo/Seth Perlman, file)
Seth Perlman
**FILE** Rows of heavy Caterpillar equipment sits ready for shipment at the Caterpillar plant in Decatur, Ill.,in this April 20, 2007 file photo. For American companies with operations that stretch overseas, the slumping dollar has become a fiscal life preserver amid slower domestic economic growth and waning sales. (AP Photo/Seth Perlman, file)

“As they show their ability to manufacture more complex components we’ll move capacity out of Japan and into China,” he said, adding that the aim was to move “as much as possible”.

Caterpillar’s plans are not only a blow to Japan’s industrial base but also a sign of China’s maturing manufacturing sector.

The company imports about 40 per cent of components for its Chinese excavator factories from Japan, but is planning to reduce that by at least a quarter within five years as a first step towards a bigger shift.

Mr Lavin’s comments will cause concern in Japan as they come shortly after Carlos Ghosn, Nissan chief executive, said the carmaker would shift the balance of its production and support functions towards dollar-linked economies to protect against currency volatility.

Caterpillar entered China in the 1970s and its fastest-growing market is home to 11 of its 175 manufacturing facilities worldwide and a workforce of 7,400.

China is expected to account for just under a tenth of the company’s annual revenues this year, which could reach $42bn. Caterpillar has a market share in the Chinese heavy machinery sector of about 7 per cent.

Mr Lavin said Caterpillar was running pilot programmes with its Chinese suppliers to determine their ability to manufacture complex parts currently imported from Japan.

The proposed shift in its regional supply base comes as Caterpillar is expanding its manufacturing operations in China. A new hydraulic excavator factory is due to start production in Wujiang in 2012, with a new large engine factory opening in Tianjin in 2013. It also has plans to expand its Xuzhou excavator plant by 2014.

Caterpillar last week became the first industrial multinational to issue renminbi-denominated debt in Hong Kong, placing Rmb1bn ($150m) of two-year notes with institutional investors. It will use the proceeds for customer financing.