Under China’s belt16 February 2017
In the second of a two-part series, Stuart Anderson, president of Chortsey Barr Associates, looks in more detail at the countries where Chinese crane exporters have had the most notable export successes, and breaks down some of the factors driving this demand.
For China’s crane manufacturers, the past five to six years have been something of a rollercoaster, with markets vacillating beyond all expectations. Not only has the country witnessed a sustained steep decline in domestic demand – mirrored only by the equally steep surge in demand in the 2005–10 period – but, for the first time, it has also experienced the vagaries of export marketing.
In the wake of the global financial crisis, some may remember that it was the BRIC group of nations – Brazil, Russia, India and China – that was seen as the saviour of the crane industry. The dramatic decline in the price of oil was the main factor in reducing crane demand in key producer nations in the Middle East, Africa, South America and Russia.
Many manufacturers had bought into the growth prospects and promises of Brazil, and witnessed its stark economic and political implosions. They faced a similar calamity in Venezuela, and there are now many new and empty factories in these countries.
The Belt and Road initiative Despite the recent string of turbulent global political and economic events, China has remained undeterred in its quest to develop a strong and lasting presence in resource-rich countries; it even redoubled its efforts with the unveiling of the Belt and Road Initiative (B&R). Named in reference to the famous Silk Route of the past, the initiative is perhaps the most ambitious and far-reaching infrastructure project ever conceived. Its long-term aim is to connect 65 countries across Asia and Europe using not only a long-distance rail network and roads, but also pipelines and shipping routes.
One of the key elements of the plan is the development of a rail network connecting China with markets far and near that will offer long-distance freight transport far cheaper than air freight and faster than sea freight. Significant elements in this network are already underway. Kazakhstan has already benefitted from oil and gas pipelines feeding China, and has become China’s third-largest truck crane market after Algeria and Saudi Arabia.
China has become the dominant player in international railway projects, which lay at the heart of many B&R projects. It is building Iran’s 926km Tehran-Mashhad railway as well as the 186km Abuja-Kaduna railway in Nigeria. In 2015, a China-led consortium won a $375-million contract to build a 770km rail link between Moscow and Kazan, as part of a project with a total estimated cost of $16.7 billion. China also plans to invest $46 billion in a new economic corridor between China and Pakistan.
In December 2015, Liu Jiansen, assistant president of XCMG and general manager of XCMG Import & Export, attended the official launch of the China-Thailand railway project, where he said, “XCMG will be providing the highest-quality machines and equipment to assist the construction of the project.” In September 2016, China and Thailand agreed the cost of the first phase of the project at $5.15 billion.
Working on projects in developing markets is not without its risks and challenges. China Railway Seventh Group (CRSG), a subsidiary of state-owned China Railway Group, has long been highly active throughout Africa and, in 2013, the company won the $265-million Kamwenge-Fort Portal road project in Uganda – but, in December 2015, the World Bank cancelled its loan, following sexual misconduct charges in towns on the route.
In November 2015, CRSG won the first Modjo-Meki phase of Ethiopia’s 202km highway project but, further South, the financial difficulties presently being experienced in Namibia recently caused CRSG to stop work on the Windhoek-Hosea Kutako International Airport for nonpayment of invoices amounting to $1.4 million.
‘Soft’ loans fundamental According to a study by Johns Hopkins University SAIS-China Africa Research Institute, China loaned over $86 billion to Sub-Saharan Africa between 2000 and 2014. Angola became the top loan recipient, having received an estimated $21 billion over the period. In October 2015, Angola – now Africa’s top oil producer ahead of Nigeria – received another $6-billion loan from China to support various projects.
Ethiopia, Sudan, Kenya and the Democratic Republic of Congo also received substantial loans. The third phase of the $13.8-billion East African railway is now nearing completion, opening up access to Kenya’s Mombasa seaport for South Sudan, Uganda, Rwanda and Burundi. And with railways come roads, bridges and local business development – all of which require cranes.
Since 2007, China state banks – primarily the China Development Bank – have provided $60–65 billion in loans to Venezuela against more than 130 projects. This has strengthened the country’s finances at a time of political and social upheaval, exacerbated by shrinking income due to low oil prices. Since 2010, Chinese companies have also invested as much as $2.5 billion a year in Venezuela.
In March 2011, XCMG signed the largest ever Chinese construction-machinery project, valued at $744.6 million, with Venezuela’s state oil company, PDVSA, for residential construction.
This involved the supply of 6,025 pieces of construction machinery, including 82 100t QY 100K and 45 16t QY 160K truck cranes, supplied in 2012. In January 2015, Sany signed a $178.75-million contract with Venezuela’s Corpova for the supply of concrete machinery, cranes and excavators. The late President Chavez, who signed the deals, promised the creation of a vibrant manufacturing sector, but that has failed to materialise.
In 2015, China Railway Engineering halted the construction of Venezuela’s bullet train project, inflation reached 700% and Venezuela’s currency plummeted as its economy shrunk by over 15%. Venezuela still owes China approximately $20 billion and, since September 2016, China has cut off new loans to Venezuela, marking a major reversal of policy. The potential of a Venezuelan default on such a huge scale would set a dangerous precedent given China’s extensive lending over the past 15 years.
Beijing has also rolled out soft loans to numerous countries, from Myanmar to Zimbabwe. Nevertheless, during his tour in December 2015, President Xi Jinping pledged $60 billion in aid across Africa over the following three years, much of it preferential loans and state-backed investments in resource-rich countries prone to instability. In April 2016, Nigeria negotiated a $6-billion loan. In June, China wrote down a $5-billion loan it had made to Mozambique.
While the alarm bells may be ringing in China’s banks that are involved in overseas lending, over the past ten years, China’s global investment strategy has opened the door for Chinese construction contractors and machinery suppliers to establish themselves as major presences in many of the world’s emerging countries.
Middle East success
Of course, not all of China’s successes are attributable to investment and loan programmes.
Saudi Arabia has long provided happy hunting grounds for XCMG, which has developed a strong presence on the back of 137 truck crane sales in 2011 – including 97 50t cranes – followed by over 200 in 2012. Since then, XCMG consolidated its base in market leadership in 2015 with a share of almost 45%. Of the more than 700 Chinese truck cranes sold between 2013 and 2015, however, Sany actually edged market leadership with a share of approximately 37%, followed by XCMG with 31% and Zoomlion with 26%.
Sany’s strong position in the Saudi market is founded on its relationship with the large crane-rental company Al Areedh. In 2011, Al Areedh’s purchases included 102 75t Sany STC 750s and 30 100t STC 100s valued at $40 million, followed by further substantial purchases in 2012.
Between 2011 and 2015, 200 70–85t and 100 100–130t truck cranes were sold in Saudi Arabia, with Sany by far the dominant supplier. In fact, over 500 Chinese truck cranes of 50t capacity and greater were sold in Saudi Arabia from 2013 to 2015, representing a share of almost 75% of the total.
Sales of larger Chinese truck cranes have continued to expand globally. In the three years leading up to 2015, almost 150 Chinese truck cranes of 100–160t capacity were exported to approximately 30 different countries. Sany commanded the leading share of almost 45%, with XCMG edging past Zoomlion for second place and the lesser-known Shandong Aoqi contributing three of its 110t cranes.
While Sany, XCMG and Zoomlion are now well known throughout the cranes world, there remain over 30 manufacturers of truck cranes in China, most of them engaging in some form of export activity. Another of the lesser-known companies in the crane business is Beiqi Foton, China’s leading commercial-vehicle manufacturer, which displayed its latest FTC 55Q5 55t truck crane at Bauma China.
Zoomlion has a major Middle- Eastern presence with a 2015 share approaching 30%, thanks not only to its strength in Saudi Arabia, but also to its market-leading position in the region’s second largest market – the UAE, where it holds a share of around 50%. Zoomlion is also the market leader in Iran, with a 2015 share of almost 60%.
Qatar remained a very important crane market in 2015, with much of the work in preparation for the 2022 FIFA World Cup ongoing, and with XCMG the market leader. Meanwhile, in the equally important Omani market, Sany holds sway over XCMG.
The continuing conflicts in and around Iraq are reflected in vacillating demand for mobile cranes, but China has established a substantial presence in this market.
In 2014, almost 40 new Chinese truck cranes were sold, but in 2015, demand was down by 75%.
China has been Iraq’s biggest oil customer since 2012, and has poured over $2 billion a year into the country. China even built its own airport to ferry workers to the southern oil fields. The Iraqi Government has heaped high praise on the country for how easy it is to work with. In December 2015, Iraqi Prime Minister Haider al-Abadi flew to Beijing to sign a strategic partnership, where President Xi pledged Chinese assistance in energy, electricity, communications and infrastructure projects tied into B&R.
While Middle East demand for truck cranes dipped by 10% in 2015, it remained the largest regional market, with over 600 units imported.
A bumper year for India Asia is another major battleground for China, with almost 400 truck cranes sold in 2015. In terms of sheer volume of units, XCMG is the clear leader, with a market share approaching 60%. When it comes to the value of cranes sold, however, it’s a different story. Although the Indian crane market has been blowing hot and cold recently, 2015 was a bumper year, with almost 140 new truck cranes sold. Surprising to some, imports of new truck cranes significantly exceeded those of used cranes.
One factor that makes India such an attractive market to importers – beyond its political and economic stability – is its orientation towards larger truck cranes. Sany and Zoomlion are the joint market leaders, thanks in particular to the popularity of their larger cranes, and especially their 75 and 80t truck cranes.
Sany president Xiang Wenbo is also a very strong supporter of B&R, believing that it has already created new business opportunities.
“Overall, we believe that our overseas revenues will grow at least 10% in the coming years,” said Xiang. “We are doing very well in India, with our sales doubling in 2016 compared with a year ago.” India is a market in which Sany has laid deep roots with its large manufacturing plant in Chakan, Pune. Since 2014, Sany’s SPC line of 25–40t truck-mounted cranes has been assembled in Chakan from CKD kits and mounted on local AMW trucks, and has proved to be very popular.
Xiang is equally proud of his company’s crane sales in Southeast Asia, claiming, “Sany’s cranes have grabbed more than 50% of the Thai market.” Thailand has also grown to be an important crane market and, in 2015, Sany edged leadership over XCMG with a share of approximately 35% of the 76 truck cranes sold.
In 2016, the company continued to do well in Thailand, with sales including a $4.34-million deal with Maxcrane for 25 30 and 60t truck cranes.
In terms of sheer volume of units, Indonesia is currently Asia’s second-largest importer of Chinese truck cranes, with over 170 purchased in 2015. Here is another battle, with Sany and Zoomlion taking 85% of the market between them.
Mongolia is also an important market for Chinese truck cranes. China National Petroleum has a major presence in the country, with its subsidiary Daqing Petroleum International Engineering working oil and gas assets on 25,000km it acquired in 2005. There, it employs significant numbers of 25, 35 and 55t BQ-Tadano truck cranes.
African challenges and opportunities
As a region, Africa presents complex marketing challenges due to its huge regional variations and numerous countries, many of which are landlocked. Politically, China has a strong role in the continent, forging and leveraging top-level government-to-government relationships, with state-owned XCMG especially benefitting.
It’s a market that consumed almost 400 truck cranes in 2015, with XCMG taking a share close to 60%, followed by Zoomlion with over 30%. XCMG’s strength is thanks not only to its political connections but also, in large part, to its continent wide presence as well as the considerable successes of Chinese import/export traders.
XCMG has been supplying large quantities of cranes and equipment for Kenya’s largest ever project, the $13.8-billion Mombasa-Nairobi railway, which is planned to eventually link to South Sudan, Uganda, Rwanda and Burundi to provide easier access to the port of Mombasa. Chinese backed railway projects have also created previously unimaginable levels of crane demand in Ethiopia.
Turkish contractor Yapi Merkezi won a significant contract in 2015 that led to an order of 34 truck cranes, rough terrain and concrete machinery valued at $6.4 million from Palfinger-Sany. The following year, the contractor placed a follow-up order valued at $3.2 million. In 2015, around 60 truck cranes were sold in Ethiopia, with XCMG taking a 65% share, while the company won its largest African truck crane order in Nigeria, providing the manufacturer with a market share of over 90%.
Another market that has benefitted from large loans is the Democratic Republic of the Congo, which acquired over 40 new Chinese truck cranes in 2015, 85% of which were from Zoomlion. Previously, very small markets such as Djibouti and Kenya have also been purchasing significant numbers of new Chinese truck cranes.
In South Africa, Zoomlion’s dealer CraneLink has done an excellent job of establishing the manufacturer, which now has a leading share of over 45%. In addition to strong sales of its popular 25t crane, CraneLink has secured sales for new and used larger Zoomlion cranes in the 130–150t class.
While 2015 demand for truck cranes declined by 15% year on year, XCMG mounted a major challenge to Zoomlion’s leadership and became the top seller that year. At the same time, BQ-Tadano made major inroads, finding its roadable four-axle GT-350E-2 35t truck crane much to the liking of the market.
Resource-rich Algeria has long been the largest African market for Chinese truck cranes. Over 500 arrived in Algeria between 2013 and 2015, with 60% being three-axle 20–30t cranes, but these days, it has also become a good market for 16t-capacity two-axle truck cranes.
XCMG has held a strong grip on this market for several years, with a share of over 60%, with Zoomlion generally being the second-ranked player. The widely held image of the average Chinese truck crane being a small, low-capacity unit is now completely out of date. With the exception of a few markets like Algeria and Ethiopia, where 16t cranes are popular, demand is now heavily weighted in the 25–30t three-axle and 50–55t four-axle categories, with the former taking around 55% of the market and the latter almost 20%.
Heavy sales in CIS
For many years, customers in Russia and the Commonwealth of Independent States (CIS) had little choice but the small, short-boom Russian and Ukrainian truck cranes.
That’s been changing for some years now, with XCMG and Zoomlion carving out major market shares over the past 8–10 years.
For 30 years, Kato and Tadano established themselves in Russia, selling thousands of truck cranes.
However, as the Japanese domestic market transformed from truck to rough terrain cranes and Japanese truck crane production declined, XCMG was the first Chinese company to establish a strong position in Russia and the CIS.
In 2008, XCMG sold 385 truck cranes in Russia, but since the financial crisis and the more recent decline in oil prices, demand in Russia has been heavily constrained. However, the market did return to a degree of health in 2014, importing 240 Chinese truck cranes, before shrinking again in 2015 under the weight of low oil prices and international sanctions.
Nevertheless, demand for Chinese truck cranes has continued to flourish in many CIS markets such as Turkmenistan, Tajikistan, Kazakhstan and Uzbekistan, where region-wide demand exceeded 200 units in 2015.
Kazakhstan has developed into an important market for Chinese truck cranes, with XCMG establishing a dominant position.
In 2011, XCMG sold 175 of the 200 truck cranes purchased by Kazakhstan, 75% being 25t cranes and most of the remainder 50t.
This is a market where 25–30t cranes command a 60% share, with four-axle 50–55t cranes taking almost 30%. Kazakh demand soared in 2014, with almost 500 Chinese truck cranes purchased.
Around 80% of these were three-axle cranes, with XCMG’s popular QY 25K 25t series dominating with 270 units sold.
While XCMG has long held dominance throughout the CIS, that has begun to change with the emergence of Palfinger-Sany. These joint venture partners started out selling regular Sany truck cranes but have found increasing success with their SPC series of 25–40t cranes mounted on Russian KamAz trucks. Zoomlion has also developed a strong presence in Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan, and, in 2015, took the initiative to establish a joint venture with the famous Belarusian truck and truck crane manufacturer MAZ.
Under this agreement, the joint venture will rent the MTM special vehicle production plant of MAZ until the Chinese-Belarus Great Stone Industrial Park opens in 2019. In December 2015, the first 40 and 60t Zoomlion cranes mounted on MAZ 8×4 carriers were completed and subsequently displayed at Bauma Munich 2016.
Latin America development Latin America has been on China’s radar for over ten years now, with the main focus being once-booming Brazil, where Sany and XCMG established substantial manufacturing operations. Of course, none of the manufacturers who rushed into Brazil foresaw the collapse of the economy and market.
In June 2013, XCMG celebrated the sale of its 3,000th mobile crane in Brazil while Sany claimed a 35% share of the market of approximately 560 mobile cranes. That level of demand is now history, with 2015 demand registering fewer than 60 units – with XCMG’s Brazilian assembled 75t BR 750 dominant.
Although there are numerous rather empty factories in Brazil, that entry into Latin America has served as a launch pad for China to expand across the continent.
While the economic booms of Brazil and Venezuela have ‘bust’, Chinese truck cranes have established a significant presence across Central and South America. It will surprise some that, in 2015, Chinese truck cranes outsold the combined total of rough terrain and all terrain cranes of up to 200t capacity.
High-level political and business links have again been a characteristic, with close ties being nurtured between China and several Latin American nations, including Argentina, where Sany chairman Liang Wengen recently had a private audience with Argentinian President Mauricio Macri.
In 2015, 25 truck cranes were sold in Argentina, with XCMG taking over 50% – but lately, Sany has stepped up its efforts. The opening up of Cuba is another opportunity grasped by Sany, which, in 2015, sold 12 of the 14 new truck cranes imported.