Slowing economy hits earnings at top Chinese machinery makers

Analysts say China's $40 billion support may not be enough to revive the heavy machinery sector

China's slowing economy has taken its toll on the first-half earnings of major construction machinery makers Zoomlion Heavy Industry Science and Technology Co Ltd and Sany Heavy Industry Co Ltd.

Encouraged to expand after Beijing unleashed a $644 billion stimulus package in 2008 during the global financial crisis, Chinese heavy equipment makers are stuck with a glut of unsold equipment and factories they do not need.

In January-June, Zoomlion booked a 309.8 million yuan ($48.51 million) net loss, in line with its own forecast of 300-380 million yuan, according to a stock exchange filing late on Sunday. It made 900.1 million yuan net profit a year earlier.

Sany reported a 75.6% fall in net income to 334.8 million yuan for the same period, according to a filing.

Even China's pledge to support the Silk Road infrastructure initiative with $40 billion worth of investments may not be enough to revive the heavy machinery sector, industry players and analysts said.

Projects under the Silk Road plan include a network of railways, highways, oil and gas pipelines and power grids across central, west and south Asia to as far as Greece, Russia and Oman.

"There are too many machines out there in the market," Zoomlion Chairman Zhan Chunxin told Reuters recently.

"Companies tended to get orders ahead of major infrastructure projects previously, but now we hardly get any inquires even if several projects kick off at the same time."

Zoomlion's Shenzhen-traded shares closed up 7.4% on Friday, leading a 4.9% gain of the benchmark index. Sany's shares ended up 7.8%.

Last year, China's production capacity for wheel loaders, a kind of earth-mover, amounted to 420,000 units, 2.6 times as much as global sales for the year. Capacity for excavators topped 538,000 units, far exceeding global sales of 418,500 units, according to industry consultancy Off-Highway Research.

The country's construction machinery sales, meanwhile, were only $17 billion last year, less than half the 2011 level. They are expected to fall further to $13 billion this year, it said.

"It's no exaggeration at all to say that the Chinese market is in the middle of a catastrophic long-term slump," Zeng Guangan, chairman of Guangxi Liugong Machinery Co, told a recent industry forum.

Despite growing concerns about the broader Chinese economy, the country is growing at a "reasonable" pace and the government can handle the risks, Premier Li Keqiang said in remarks published late on Saturday after a special cabinet meeting.

The government reported annual growth in the second quarter was 7%, a figure some economists doubt.

($1 = 6.3865 Chinese yuan)