By Tom Hancock in Shanghai
Zoomlion, China’s largest heavy machinery company, is hunting for acquisitions in Europe to boost its technological prowess and win a greater share of the global market, with the construction segment at home expected to contract next year.
Overseas sales have been a bright spot for Chinese construction machinery makers, whose exports are set to exceed $20bn this year, up from just $1.6bn in 2001, according to the country’s heavy machine industry association.
Foreign acquisitions have allowed Chinese machinery groups to pose an increasing challenge to companies such as US-based Caterpillar and Japan’s Komatsu, especially in emerging markets where low-cost machinery is favoured.
Zoomlion, which has a HK$27.6bn ($3.5bn) valuation on the Hong Kong stock exchange, has made a series of overseas acquisitions including the $490m purchase of Italy’s CIFA, completed in 2012; German cement mixer maker M-Tec in 2013; and German tower crane company Wilbert last month.
“We are looking for more acquisition targets. In the future we will pursue small companies with special technology, who do very well in a particular field,” said Xia Jun, a vice-president at Zoomlion. He said the company was considering deals in Germany and France, but gave no details.
Attitudes to Chinese investment in Europe and the US have hardened in recent years, with lawmakers calling for curbs on acquisitions of technology.
Zoomlion was forced in 2016 to scrap a planned $3.4bn takeover of US construction equipment maker Terex. The Chinese company said the two sides could not agree on terms, but questions had also been raised about Zoomlion’s chances of getting approval from the Committee on Foreign Investments in the US. At that time the company was lossmaking and heavily indebted. Its debt to equity ratio was 89 per cent in 2016, which reduced to 76 per cent in 2017.
Mr Xia said such deals were beneficial for both sides.
“We acquire companies, absorb their technology and then we co-operate,” said Mr Xia, adding that machinery such as concrete pumps and cranes once made by M-Tec in Germany and CIFA in Italy could now be made in China.
“Four years is enough to absorb the technology, but we also try to use their research platforms to design new products,” said Mr Xia. Cheaper labour costs can give Chinese companies an edge in developing markets, such as south-east Asia, the Middle East, and Latin America, he added.
Zoomlion, which reported net profit of Rmb1.3bn last year mainly from sales in China, is joining local rivals such as Sany Heavy and XCMG in shifting to exports as growth slows in their domestic market, worth about $80bn last year, according to the industry association.
China’s property market drives construction, but with property sales having reached a historic peak, sales of excavators, loaders and dump trucks are expected to fall 7-8 per cent next year after growing 30 per cent in 2018, according to consultancy Off-Highway Research.
Francis Sum, head of China for Volvo Construction Equipment, said he expected the total Chinese heavy machinery market to shrink by as much as 10 per cent next year, though he added Volvo would continue to grow thanks to its higher-end offerings.
Beijing has vowed to plough more into infrastructure next year to prop up the economy, but few expect a repeat of the massive stimulus rolled out after the 2008 financial crisis, which caused a boom in construction equipment sales.
“The market will not have a stimulus like we saw before,” said Mr Xia.
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