The aim of human society is to transform nature,” says Lang Yun, general manager of John Deere China, “and in so doing improve the prospects of the human race. This cannot be accomplished by hand or by physical strength alone, so every society creates tools. This is the construction equipment industry.”
Yun is speaking at the opening ceremony for the biennial Changsha International Construction Equipment Exhibition (CICEE). Changsha, the capital of Hunan Province in southern China, is home to a number of major equipment manufacturers, which comprise a major segment of the provincial economy. Hunan is actually projecting a construction equipment industry worth CNY 210bn (USD 31bn) by 2020, and the government sees the trade show as a chance to build something akin to brand recognition for the region. The aim being to attract more manufacturers and suppliers to the area and further strengthen the supply chain.
For the Chinese construction equipment industry, currently enjoying full political backing, these are exciting times. For its rivals, the times might be better described as ‘interesting’.
Belt and road
Western readers may have read the news earlier this year that Italy has become the first G7 country to sign up to the Belt and Road Initiative (BRI). Formerly called One Belt, One Road (until Beijing decided that the translation placed too much emphasis on ‘one’), the scheme is one of the largest investment projects in human history. Flush with its new wealth, China has embarked on a lending and investment splurge that when complete will total significantly over USD 1tr (figures quoted vary enormously, as the project is due to complete in 2049 and the schemes are so varied in scope and location).
This investment is targeted at improving the infrastructure of around 60 neighbouring countries (both near and not-so-near) along so-called strategic economic corridors stretching outwards from China.
Journalists typically prefer the allusions to the ancient Silk Road trading route first mentioned by Xi Jinping when he announced the programme in September 2013. The ancient trade path (although it was actually a number of routes) connected East Asia to Western Europe and Africa, as well as all of the countries in between.
However, the image of the camel caravan under a desert night gives way to a more practical reality for the modern BRI, which serves a number of purposes. Aside from the political capital it gives China through investment in smaller countries, it serves to improve the infrastructure of these countries, giving a stability that enables further economic growth and cooperation. The BRI also places China at the hub of an interconnected network of countries that until recently were struggling for decent infrastructure. But as far as the construction industry is concerned, it is an enormous uptick in demand, and an immense boost for the Chinese equipment sector.
How big? reflections on the BRI
Most of the major Chinese manufacturers relevant to tunnelling only began exporting in the last 20 years, some in the last 10. But industry leaders suggest that the mature European and North American markets are a long-term target. The BRI countries are the immediate focus and are seen as a proving ground for these companies.
Take Sany Heavy Industries as an example. It had 2018 revenues of CNY 55.8bn (USD 8.1bn), an increase of 46% on the previous year and profit CNY 6.1bn (USD 890M), which was close to 200% up on the previous year. The company sends 70% of its exports to BRI countries but is largely displaying its automated/ unmanned excavators (and other plant) and engineering to achieve the CE mark and meet Euro IV standards.
Liugong launched in 1958 but only began going abroad in 2002 with factories in India, Brazil and Poland. It claims to be the first Chinese manufacturer to focus on foreign markets and has less reliance on the BRI for its exports, selling to more than 130 countries. Consequently, it sees about 30-35% of export sales to BRI countries.
The company opened a new R&D centre in 2015 which houses 1,500 engineers and support staff, but when asked about this Wang Shuguang, deputy general manager for domestic sales complained that with 19 product lines, this was not enough. Liugong will be launching a range of electric excavators and wheel loaders in 2020, but it also has a major components business and many of its sales are to other manufacturers.
For Shantui, a manufacturer valued at USD 2bn, European business began in 2005 but the European market is small. For North America, rental is a focus. Most exports are going to the BRI countries and it prioritises these, especially Russia (which is picked out by a number of the companies as a key focus). Although a assistant general manager Jimmy Cheng says that the world economy can be a limiting factor on export strength. The company says it is not in a hurry and will establish a reputation through the BRI, using them as “strategy countries” to build trust before trying to properly crack the Western markets. It is also developing an electric range with intelligent controls.
Zoomlion sends 80% of its exports to the BRI, but its 20 factories are at production capacity and the backlog is growing. It launched a new series of excavators with new cabins and a new colour scheme, but Tunnels and Tunnelling picked up on a research project to produce an aerial work platform suitable for underground environments (i.e., with anti-explosion technology). The project will be complete in two years according to aerial work platform business development manager He Yu Ming.
On this point, readers may be interested to see the letter from Donald Lamont of Hyperbaric & Tunnel Safety. In it he raises the importance of plant being developed to be appropriate for underground use, an issue which is regularly overlooked.
Underground excavation
A few of the manufacturers that spoke with Tunnels and Tunnelling have begun to enter the underground excavation market, although this is relatively recent. Creg TBMs notably coming out of the purchase of Wirth TBM and shaft boring technology from Aker Wirth a few years ago, but now joined by Sunward, XCMG and CRCHI.
Sunward, a company that specialises in mini/compact excavators and piling rigs (as well as small aircraft) launched into the TBM market three years ago with China Railways. It produced eight TBMs in 2019 at the time of Tunnels and Tunnelling’s visit in May, but has produced up to 20 in previous years. These are typically in the 7-8m diameter range (for Chinese metros).
Domestic demand outstrips supply at the moment – Sunward’s hometown of Changsha has three metro lines under construction – and so the company’s exports only account for 15% of revenue. Tunnelling equipment accounts for about 5% of its revenue, despite an order backlog of 20 TBMs.
Sunward managing director Avery King says “Piling rigs and excavators will keep growing and I think are the future for the company. We’ve seen 75% average growth for the last four years. We have around 200 piling rigs in Europe and 3,000 in China, but I would like to see us begin to sell the larger units to Europe from this year onwards.
“For me, the Latin American market is more the future than Africa, but we are not pushing too hard there at the moment. We need a distributor and service centre. We have been adapting to Europe, looking at service expectations and aftersales and so on – you have to build a good reputation relationship to work well with Europeans. The key components of equipment are usually the same, or at least similar, so service is the differentiator.”
On the subject of adapting to European ways, King adds that there is a growing need for automation on the manufacturing side of things, as he expects China will soon follow the West and become see higher labour costs.
CRCHI is another company set to become a major player in the TBM market, having recently launched 20 new models of TBM. But at CICEE it launched its first ‘boring-cleaving jumbo’ into its Super Underground Engineering Equipment range. The rig uses two booms to drill and split rock, before performing bolting and other support operations. The idea is that it reliably churns out 1m advances per cycle in situations where blasting is not appropriate, for example under an urban development. It operates primarily in hard rock. CRCHI said it felt that this piece of kit filled a niche that was poorly served until now.
Domestic demand still holds much of the attention of the companies that Tunnels and Tunnelling spoke to, and that will likely hold true for the next couple of years, but as more than one company said at the event when asked about a five-year plan: “who can really see so far ahead?”
