China machinery makers diversify to beat downturn

China's construction machinery makers are opening banks, designing tractors and abandoning core business deals in an effort to diversify and stay profitable as a sputtering economy brings a sustained downturn to a once-booming market.

With domestic demand, government investment and the housing market all weakening, growth in the world's second-biggest economy slid to a 24-year low of 7.4 per cent last year. The head of the central bank's research bureau says growth could slow again this year, and all but one of the country's 30 provinces have cut their 2015 economic targets. At Sany, which cut staff by about 18 per cent in 2013 as the downturn started to bite, the firm's parent group is setting up a bank in partnership with privately owned firms.

In a stock exchange filing, Sany said it saw "huge growth potential" in banking, without disclosing details of its plans.

"It will be another tough year for construction machinery makers as the growth of the country's fixed-asset investment continues to slow," said Shi Yang, a senior consultant with industry intelligence firm Off-Highway Research.

That is bad news for an industry already burdened with chronic overcapacity. In 2013, Shi said, China alone had enough plants to make 420,000 wheel loaders, used to move materials around construction sites, nearly twice global demand of 240,000 for the year.

The machinery makers' response has been to cast their net far and wide in an urgent search for new business. Zoomlion, which warned in January its profit for last year might slump by four-fifths, has added snow ploughs, fire-fighting vehicles and even farm tractors and harvesters to its equipment portfolio. Encouraged to expand after Beijing fired up a four trillion yuan stimulus package seven years ago to help them beat the global financial crisis, manufacturers from Zoomlion Heavy Industry Science & Technology to Sany Heavy Industry are stuck with a glut of unsold equipment, factories they do not need and tumbling earnings.

Complicating the overcapacity situation is a swathe of industry outsiders that spent money building machinery-making plants in the years following Beijing's stimulus package.

Wuliangye Group, the parent of liquor maker Wuliangye Yibin, had halted production at a plant in Yibin, Sichuan province, that could make 10,000 construction site excavators a year, a Wuliangye Yibin executive said, adding that the firm was reviewing options for the business

"We are now transforming into a diversified manufacturer," Zoomlion spokesman Wang Xuhong said. The firm is awaiting regulatory approval to get into the heavy-truck business.

"If we can make it, Zoomlion could be five or six times as big in the future and won't be so vulnerable to a downturn in any particular sector," Wang said.

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