Machinery industry: Demand and policy work together to create a boom

Editor's note: The machinery industry is one of the pillar industries of a country and occupies an important position in the national economy. In recent years, the rapid development of China's machinery industry is mainly due to the rapid advancement of China's heavy chemical industry; China's sustained rapid development of the macro economy and a good world economic environment; the national industrial policy to revitalize the equipment manufacturing industry; the transfer of the world's machinery industry ,and many more. Recently, General Secretary Hu Jintao once again proposed to vigorously develop the equipment manufacturing industry in the report of the 17th CPC National Congress. This is a more positive signal. The factors that promote the development of the machinery industry will continue for a long time, and the pattern of sustained growth in the machinery industry will not change. The author of this article mainly analyzes the current boom of the machinery industry from both demand and policy perspectives. Based on this analysis, the factors affecting the machinery industry are analyzed to predict the trend of the industry.

The machinery industry is a basic and pillar industry of a country and occupies an extremely important position in the national economy. The relationship between the machinery industry and GDP is very close. It is a typical positive-cycle industry. During the period of economic growth, strong demand has driven the rapid expansion of the machinery manufacturing industry; even in the economic downturn, the industry has maintained a positive growth rate. In particular, since 2001, driven by a new round of upgrading of consumer structure, the rapid development of heavy chemical industry has made the machinery manufacturing industry, which serves as the middle reaches of the industry, show an accelerated development trend. From the perspective of the life cycle, the machinery industry has entered a mature period.

The machinery industry is a labor, technology, and capital-intensive industry. Its internal sub-sectors have a high degree of correlation. At the same time, it is a heavy industry-dominated industry; it is related to upstream industries (such as steel, coal, non-ferrous metals, etc.) and downstream industries. (such as housing, daily consumer goods, etc.) are closely related and have a strong ability to pull. At this stage, the demand for the products of China's machinery industry is mainly driven by domestic demand. However, in recent years, the high growth rate of exports exceeded our expectations. In 2007, China’s macroeconomic development was rapid. Driven by it, the machinery industry was operating at a high speed.

I. Current operation of the machinery industry

Since 2007, various industries in the machinery industry have made efforts to expand domestic demand and actively develop domestic and foreign markets. The investment, consumption, and export of fixed assets in the machinery industry have grown rapidly. Overall, the machinery industry started well.

(I) Steady increase in industry profits

In the first half of the year, the development of the machinery industry was all the rage. According to statistics from Wind Info, 136 companies listed in the comparable machinery industry achieved a total revenue of 143.687 billion yuan in the first half of the year, an increase of 33.02% year-on-year; realized main business profits of 25.114 billion yuan, an increase of 30.72% year-on-year, and a net profit of 10.910 billion yuan. The year-on-year increase of 57.64%. The average gross profit rate of mechanical listed companies was 17.19%, which was 2.24 percentage points higher than the industry average. In the past three years, the average net rate of listed companies in the machinery industry was relatively stable, with a significant increase in the first half of 2007. The net rate reached 7.42%, which was 2.88 percentage points and 1.76 percentage points higher than the end of 2005 and the end of 2006 respectively.

The industry believes that the overall performance of the listed companies in the machinery industry will increase significantly in the first half of the year due to the combination of intrinsic growth, expansion, and investment income. In the second half of the year and the next two years, the gross and net interest rates of listed companies in the industry will tend to increase. For stability.

(II) Good connection between production and sales

From January to August of 2007, the national machinery industry witnessed a rapid and steady growth in production. The growth rate of production and sales continued to be above 32%. The development of new products continued to accelerate. The sales rate of products reached a relatively high level during the year, and production and sales were well connected.

From January to August, the total industrial output value of the industry totaled 4,574.783 billion yuan, an increase of 32.21% over the same period of last year; the industry's total sales value was 4.416726 trillion yuan, an increase of 32.24% year-on-year. Looking at the growth rate of total output value and sales output value in each month of this year, production and sales continued to grow rapidly and steadily for 8 months. Although the growth rate in July and August fell slightly from June, the growth rate remained at 32% or more.

In August, the value added of the machinery industry increased by 23.2% year-on-year, and the growth rate slowed by 0.4% from the previous month. The output of automobiles increased by 21.7%, of which the production of cars increased by 17.1%. The output of CNC machine tools and power generation equipment increased by 33.8% and 33.2% respectively, and the output of solid waste treatment equipment increased by 80%. The output of automobiles was 5.93 million, an increase of 24%; among them, 3.19 million were cars, an increase of 25.3%. The output of power generation equipment was 81.56 million kilowatts, an increase of 16.2%, of which the hydroelectric generators increased by 68.1%.

In August, the production and sales rate of machinery products was 97.14%, which was an increase of 0.14 percentage points from the previous month but lower than the national industrial product sales rate of 0.69 percentage points. Looking at the sales of products in each month this year, the sales rate of products from January to August reached a high level during the year. In terms of sub-industries, the industries with higher production and sales ratios than the industry level are: agricultural machinery industry, internal combustion engine industry, construction machinery industry, cultural office equipment industry, mechanical basic parts industry and automobile industry.

(C) The import and export of all sub-sectors show an upward trend

From January to July, the total value of imports and exports of the machinery industry grew steadily. Exports increased significantly faster than imports, and the trade surplus was close to 10 billion. From January to July, the total import and export volume of the machinery industry was US$ 1971.79 billion, which was a year-on-year increase of 29.79%, which was 5.39 percentage points higher than the national import and export increase (24.4%). Among them, the export volume was US$104.35 billion, an increase of 40.95% year-on-year, which was 12.35 percentage points higher than the national export growth (28.6%); the import value was US$92.829 billion, which represented a year-on-year increase of 19.18%, which was lower than the national foreign trade import growth (19.5%) of 0.32 percentage points. The accumulated trade surplus reached 11.521 billion U.S. dollars.

From January to July, the import and export of machinery industry sub-industries increased year-on-year. From the perspective of exports, the highest growth rate was 66.19% in the food packaging machinery industry, followed by 61.18% in the construction machinery industry, 56.79% in the heavy mining machinery industry, 49.64% in the agricultural machinery industry, 48.28% in the automotive industry, 48.01% in the petrochemical general machinery industry, and other industries 44.56%. From the perspective of imports, the cultural and office equipment industry recorded the highest year-on-year growth rate of 95.72%, followed by the auto industry by 28.96%, the food packaging machinery industry by 26.27%, the internal combustion engine industry by 23.05%, the construction machinery industry by 21.59%, and the mechanical basic component industry by 21.36%. Seven industries have accumulated cumulative trade surpluses.

Since 2007, the material consumption and energy consumption of the machinery industry have been reduced, the unit cost of products has been effectively controlled, and the research and development of new products have been further accelerated. It can be seen that the continuous improvement of the industry's own competitiveness is an internal factor in the rapid development of China's machinery industry. However, the main factor driving the machinery industry to enter a high boom area is strong demand and government regulation and control policies.

II. Strong demand for machinery industry under heavy chemical industry

The Chinese economy has experienced rapid growth for more than two decades and it is expected that this momentum can be maintained for quite some time. Rapid growth is not a product of balanced growth of various industries, but a result of leading industries. Different leading industries are different in different periods, and the transformation of leading industries promotes sustained and rapid economic growth. The leading industries in the 1980s were light industry and textiles; the leading industries in the 1990s were basic industries and infrastructure, new generation of home appliances, and real estate. This situation changed to 2002, and a new batch of leading industries surfaced. Housing, automobiles, telecommunications, and urban infrastructure construction are leading industries that have stimulated the development of a number of industries (mainly iron and steel, non-ferrous metals, building materials, machinery, and chemicals, etc.) of intermediate investment products, which in turn have boosted electricity and coal. , oil and other energy industries and the growth of ports, railways, highways and other transportation industries. As a midstream industry, machinery manufacturing industry plays an important role in the entire industry chain. As long as the general trend of economic development remains unchanged, the prosperity of the machinery manufacturing industry will not drop. Since 2007, the high prosperity of the machinery industry has been closely linked with the current high macroeconomic trend.

According to preliminary calculations, the gross domestic product in the first three quarters was 1664.3 billion yuan, an increase of 11.5% year-on-year, 0.7 percentage points higher than the same period of last year. Among them, the growth rate was 11.1% in the first quarter, 11.9% in the second quarter, and 11.5% in the third quarter. In terms of sub-sectors, the secondary industry has an added value of 8347.8 billion yuan, an increase of 13.5%, and an acceleration of 0.2 percentage points. In the first half of 2007, urban fixed asset investment increased by 26.7%, which increased by 28.5% in June, and its growth rate continued to expand. The current round of investment in fixed assets in China has continued for a long time, surpassing the length of any investment expansion period in the economic history of New China. According to past experience, the investment cycle of heavy chemical industry is about five years, but this round of investment boom has not yet shown signs of fatigue. In the first five months, the scale of construction under construction was still large, and investment in new projects started to rebound. According to the inertia measure of scale investment under construction, the high level of investment in fixed assets will continue for a long period of time. Due to the excess liquidity of the entire society, the source of funds for investment in fixed assets is abundant.

From the perspective of domestic and foreign market demand this year, although the industrial growth rate has slowed down in the second half of the year, the decline is limited. According to the market demand and comprehensive analysis of domestic transportation and energy security capabilities, it is expected that the annual industrial added value will increase by 17.6%, which is 1 percentage point higher than that of the previous year. Affected by the country’s export restriction policy for high energy consumption industries, heavy industry growth will slow slightly in the second half of the year. The annual heavy industry growth was 18.7%, 0.8% higher than the previous year. Under the guidance of the strong domestic consumer goods market, the growth of the light industry remained stable. The growth of the young industry was 15.3%, an increase of 1.5 percentage points over the previous year.

Third, the "revitalization of equipment manufacturing industry" policy provides a good opportunity

Over the past 50 years since the founding of the People’s Republic of China, especially in the past 20 years of reform and opening up, China’s equipment manufacturing industry has made great progress and its level has improved significantly. It has formed an equipment manufacturing industry system with complete categories, large scale and certain comprehensive strength. All sectors of the armed national economy have made contributions. However, due to various reasons, China's equipment manufacturing industry is large but not strong, and the gap between the advanced international level and the international advanced level has not only been reduced, but has further increased. The development of China's equipment manufacturing industry lags behind and has increasingly become a constraint factor in the development of China's national economy. With the further development of our country’s economy, this contradiction will become more and more prominent and it is time to resolve.

The CCP Central Committee’s proposal on the “Tenth Five-Year Plan” for national economic and social development stated: We must “vigorously revitalize the equipment manufacturing industry”. Revitalizing China's equipment manufacturing industry is a long-term strategic and overall task for China's national economic development, industrialization, and modernization.

Xinhua News Agency authorized the release of "Several Opinions of the State Council on Accelerating the Revitalization of the Equipment Manufacturing Industry" on June 28, 2006. The opinion pointed out that the equipment manufacturing industry is a basic industry that provides technical equipment for the development of national economy and national defense construction. Vigorously revitalizing the equipment manufacturing industry is an important task put forward by the party's 16th national congress. It is a strategic measure to establish and implement a scientific concept of development, take a new road to industrialization, and achieve sustainable development of the national economy. The opinions clarified the goal of accelerating the revitalization of the equipment manufacturing industry: By 2010, a group of large-scale equipment manufacturing enterprise groups with relatively strong competitiveness will be developed, and the manufacturing capabilities of major technical equipment with independent intellectual property rights will be enhanced to basically meet energy, transportation, raw materials, etc. Field and national defense construction needs. Rely on regional advantages and bring into play the effect of industrial agglomeration to form a number of equipment manufacturing centers with distinctive and well-known brands. We will build and improve a group of state-level major technical equipment engineering centers with advanced international standards, and initially establish a technological innovation system with enterprises as the main body. Gradually form an industrial structure of major technical equipment, high-tech industrial equipment, basic equipment, general machinery and equipment, and other specialized and rational division of labor, mutual promotion, and coordinated development.

Domestic investment projects are not subject to tax-free imports of goods again revised. This revision is another comprehensive revision since 2000. The revised 207 articles are mainly aimed at improving technical specifications and equipment names, and are easy to implement by enterprises and customs. In addition, the technical specifications of the individual items in the original catalogue are high, and this time it has also been downgraded realistically. This policy adjustment is an important measure to implement the “Several Opinions of the State Council on Accelerating the Revitalization of the Equipment Manufacturing Industry”. Although it has little impact on the short-term profitability of the company, it will provide a relatively fair competition for domestic equipment manufacturing companies to carry out independent innovation. The environment is very beneficial to long-term development. Compared with the last revision, due to the improvement of the specifications of many non-tax-exempt equipment, the leading enterprises that produce high-end products benefit the most.

The VAT rebate policy was introduced. On December 5, 2006, the Ministry of Finance and the State Administration of Taxation issued a notice on the “Value Added Tax Rebate and Return Policy” for the CNC machine tools, forgings, and mold industries, respectively. The policy applied to the products listed in the appendix of each notification was from 2006 to 2008. The respective proportions of VAT refunds have made new regulations. The range of CNC machine tools that enjoy the policy includes CNC machine tools, numerical control systems, and functional components. Forging products that enjoy policies are Metal Parts produced using forging processes. Forgings are divided into large and medium free forgings, die forgings, extrusions, and rings. Powder metallurgy parts and head forming parts; mold products enjoying the policy include molds, mold standard parts, and die clamp integrated inspection tools.

At present, China has great demand for the upgrading and replacement of agricultural equipment. After years of exploring and practicing rural markets, agricultural equipment manufacturing industry should be the most experienced pioneer in participating in new rural construction. In particular, the introduction of the subsidy policy for the purchase of agricultural machinery in 2004 brought the level of agricultural mechanization in China to a new level. The China Agricultural Machinery Industry Association has proposed a preliminary plan for the technical support for the transformation of the national debt fund of the 2008 agricultural machinery industry. It is believed that the government will increase the support for government bond funds in the next year.

The news of "good" is far more than that. Recently, General Secretary Hu Jintao once again proposed to vigorously develop the equipment manufacturing industry at the report of the 17th CPC National Congress. This is a more positive signal.

"Strengthening policy support" is an important reason why the machinery industry has entered the high economic cycle. Strengthening policy support has enabled our national industry to have a market, which can gradually get rid of the status quo suppressed by foreign brands; tax incentives allow companies to have sufficient cash flow to invest in research and development, and then produce products that can replace imports. In this way, the entire equipment manufacturing industry will operate at the same high speed as a machine, and then enter a high boom area.

Fourth, situation analysis and outlook

In the first three quarters of 2007, the national economy continued to grow rapidly, GDP growth rate reached 11.5%, and macroeconomic regulation and control achieved significant results. However, the tendency of the economy to remain hot is still continuing. Some outstanding problems have the potential of turning the economy into overheating, which requires urgent attention. It is expected that the momentum of rapid economic growth in the fourth quarter will not change. As far as the machinery industry is concerned, there are many influencing factors that warrant attention.

(I) The favorable situation continued in the fourth quarter

Overall, the positive factors are still major. The factors that promote the development of the machinery industry will continue for a long time, and the continuous growth pattern of the machinery industry will not change.

At present, the overall macroeconomic environment and policies are conducive to the development of the machinery industry, and will maintain rapid growth throughout the year. In terms of sub-sectors, urban construction, construction of transportation and logistics facilities such as railways, ports, and logistics will continue to increase the growth of construction machinery and trucks; the output of automobiles, CNC machine tools, and power transmission and transformation equipment will continue to grow rapidly. Large and medium-sized tractors are lagging behind by subsidies from agricultural machinery and the impact of the off-season in the second half of the year. Output will remain unchanged from last year. The state's efforts to curb the excessive growth of the “two high and one capital” industry will gradually show effects, and the growth rate of power generation equipment, metallurgical equipment, mining machinery and other products will decline.

From the perspective of domestic demand, there are many favorable factors. "Several Opinions of the State Council on Accelerating the Revitalization of the Equipment Manufacturing Industry" prohibits and limits the import of high-pollution, high-consumption, and technology that has been eliminated, limits the key technologies that have already been developed in the country, and cancels the tax exemption for complete machines and complete sets of equipment. Key taxation and tax exemptions for key components are good news for China's heavy mining machinery, construction machinery, machine tools and petroleum equipment; acceleration of construction of railways (including high-speed railways), average annual investment for 2007-2010 More than 300 billion yuan, during the "Eleventh Five-Year Plan" period, the construction of new rural highways will invest more than 400 billion yuan, which will greatly promote the construction machinery and railway equipment industry; closure of small coal mines and the development of large coal groups to form 5- The 7-billion-ton coal group will provide a broad market for the development of mining machinery and coal mining machinery.

From the perspective of external demand and import substitution, the process of urbanization in China is far from being completed. The construction of new rural areas is being accelerated. In addition, domestic construction machinery products have made great strides in both quality and service, and the substitution of foreign brands has continued. Therefore, it is expected that the first three years of the “Eleventh Five-Year Plan” will continue to be a period of rapid growth in demand for construction machinery.

In addition, in the overseas market, the infrastructure construction boom in Africa, South America, South Asia and Eastern Europe has just started, and the market space is huge. This will become the key market for overseas companies to expand overseas.

(B) The risk is worthy of vigilance

At present, the macroeconomic and policy environment are generally favorable to the development of the machinery industry. However, some of the reefs in the development of the machinery industry cannot but draw our attention.

On the one hand, the deepening of macroeconomic regulation and control may slow down the growth of the industry. At present, China’s economic growth is rapid, and the growth in fixed asset investment is relatively large. The correlation between the machinery industry and investment in fixed assets is relatively large. Macro-control may reduce the growth of investment in fixed assets, which will exert pressure on the growth of the performance of listed companies in the machinery industry.

At the same time, the appreciation of the renminbi has increased the export costs of the machinery industry. In the long run, the RMB exchange rate has entered an upward path, resulting in large losses for the complete set of electromechanical equipment projects with long contract periods, large amounts, and long settlement periods. This part of the project has increased the cost of converting RMB and the cost burden has increased.

In addition, the rise in raw material prices also brings certain operating pressure to the company. The rising prices of raw materials such as steel, non-ferrous metals, chemical products, and power products such as electricity, oil, coal, and gas that are required by the machinery industry will increase the company's production costs and bring pressure to the production and operation of industry and enterprises.

(III) Industry Outlook

Taking engineering machinery products as an example, China's construction machinery products have obvious cost-performance advantages compared with Europe and the United States and other countries. It can be expected that China's construction machinery exports will further increase. According to the prediction of China Construction Machinery Association, the growth rates of social fixed asset investment in China in 2008 and 2009 were 245% and 23%, respectively. The export of construction machinery in China will maintain a rapid growth due to its cost advantage. It is expected that the growth rate of exports in the next two years will be 44% and 34%; while the increase in imports will slow down, it is expected to be 15% and 13% respectively. In addition, it is predicted that the income of the construction machinery industry in 2008 and 2009 will be 282 billion yuan and 354.6 billion yuan, respectively, an increase of 30% and 26% year-on-year respectively. In terms of products, Tianxiang Gu believes that excavators, forklifts and truck cranes will continue to grow relatively rapidly in 2008, and the growth rate of loaders and bulldozers will tend to be stable.

At present, the overall macroeconomic environment and policies are conducive to the development of the machinery industry, and will maintain rapid growth throughout the year. Based on the above factors, it is expected that the machinery industry will maintain rapid growth in the fourth quarter of this year, and the annual growth rate of the machinery industry will still be maintained at around 20%. Large companies' net profit in 2008 is expected to increase by more than 30%. We have long been optimistic about sub-sectors such as machine tools, construction machinery, heavy mining, general chemical engineering, shipbuilding, power transmission and transformation equipment.