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China's machinery sector may cool in step with economy

Source:   Time:

China's machinery industry has rebounded during the first half of this year, but the momentum is likely to slow as the country's economy cools.

The machinery industry has grown by 37 percent during the first six months of 2010, with a total output value of 6.59 trillion yuan, according to the China Machinery Industry Federation, a quasi-governmental institution that oversees growth of China's machinery sector.

The machinery industry, which has benefited from the government's 4 trillion yuan investment spending spree, enjoyed expansion in large-scale construction projects over the last year. The construction machinery sector reported 54 percent growth during the first half of this year, according to the federation.

The strong growth of the industry is based on preliminary statements by several listed machinery companies submitted to the stock exchange.

Shanghai-listed Zoomlion Heavy Industry Science and Technology Development Co, which is also planning to launch a listing in Hong Kong, predicted its profit would grow by 50 percent to 100 percent over the first half this year.

Sany Heavy Industry Co is also expected to record 85 percent growth this year, according to Ping An Securities. The maker has already reported a growth rate of 170 percent in profit during the first quarter of this year.

However, not all machinery industry sectors are reporting the same momentum as domestic demand has decreased this year. New orders in power generation equipment, transmission and substation equipment as well as heavy machinery, have rolled back this year.

"It is unlikely to see significant growth in the output of power equipment this year and it will probably stand around 117 million kW since the base figure is already huge," according to Cai Weici, vice-president of the federation, adding that China's output of power equipment already makes up half of the world's total.

"There is also less demand for heavy machinery used in steel production because the industry is eliminating outdated productivity, thus reducing market demand," Cai said.

Fixed-assets investment in the machinery industry which has maintained a growth rate of over 40 percent since 2004 slowed down by 27 percent to 79.8 billion yuan, signaling less reserved strength for further growth.

In term of exports, the machinery industry will be exposed to several uncertain factors including a more flexible yuan exchange rate as well as rising labor and raw material costs.

The federation forecasts the industry's growth rate will be 20 percent in 2010.

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