Keep Alert about "Subprime Crisis" in Engineering Machinery Industry

BEIJING, June 15, 2011 -

The entire engineering machinery industry continued rapid growth
momentum in Q1 2011. As the first manufacturer to post its Q1
sales, Guangxi Liugong Machinery Co., Ltd. reported that both
production and sales volume of its various engineering machinery
exceeded 20,000 units, double the year-ago period. In particular,
both production and sales volume for loaders, excavators and
forklifts for a single month (March) achieved record results. The
excavators sold by Xiamen XGMA Machinery Co., Ltd. in March totaled
1,389 units, but only about 2,800 units were sold in the full year
of 2010. In the first quarter, the net profit of SANY Heavy
Industry Co., Ltd. is expected to increase by more than 135%; the
increase in net profit of Hebei Xuanhua Engineering Machinery Co.,
Ltd. is 497.85%~697.13%; the net profit of Zoomlion Heavy Industry
Science and Technology Development Co., Ltd. increases by
approximately 130%~170% year on year; and XCMG Construction
Machinery Co., Ltd. announces its expected growth of 98%~117%,
achieving profit of RMB 1~1.1 billion Yuan.

As the market becomes increasingly competitive, some companies
provided special offers in some network platforms like cmb2b.com,
including lucky draws of big household appliances to cars when
buying their products, to expand their influence across the
industry and win more market share. Today some companies are even
implementing more explosive and attractive promotions, such as zero
down payment mortgage to sell their products, excavator industry in
particular. Now the most common sales policy in the industry is 30%
down payment, but many excavator manufacturers actually permit “10%
down payment plus 5% deposit when taking delivery of products”;
namely, an excavator valued at RMB 800,000 Yuan can be driven home
after paying less than RMB 120,000 Yuan. Now that 10% down payment
exists, zero down payment isn’t surprising at all. Some crane
manufacturers even allow for “zero down payment, one-year free
using right and payment starting on the second year”.

Given the turmoil hampering the healthy development and
sustainability of the entire industry, China Construction Machinery
Association (CCMA) convened major industry media for an emergency
exchange and communication meeting to discuss how to tackle the
current situation. The attendees unanimously believe that such an
enticing promotion in the industry has led to a multitude of
behaviors to purchase engineering machinery irrationally. It will
not only compromise normal market competition, but also pose great
operation risks to manufacturers and their distributors.

At the meeting, President Qi Jun expressly stated that in terms
of irrational promotions appearing in the industry, he doesn’t
support the mortgage sales mode with zero down payment. He believed
that it is simply a suicide. It will evolve into a price war in the
entire industry, which will, in turn, severely affect the fair
market competition, hinder the improvement of products and service
quality, and finally cause damage to corporate brands and images,
provided that such a phenomenon can’t be effectively reined. He
urged companies to cherish their reputations and hard-won industry
prospect, abide by the industry’s self-disciplined pact, calmly
analyze the market conditions, maintain a rational operation
philosophy and consciously defend the industry’s fair and normal
market competition. They should aggressively win the market share
by adopting market-oriented marketing modes, and building upon
quality products, timely and effective after-sales services and
constant technical innovations to conduct competitions.

Ying Qian of China Construction Machinery Association (CCMA) , +86-137-5516-7448