Caterpillar Joins China Export Crawl 卡特彼勒加入中国装备出口潮
US construction equipment giant Caterpillar (NYSE: CAT) is taking an interesting new direction in China, following in the path of a growing number of firms that once relied on domestic sales but are now turning their attention to exports to offset a slowing home market. China’s big domestic car makers like Chery and Geely (HKEx: 175) have also increasingly looked to exports to offset their rapidly slowing sales at home, where they face not only weakening demand but also stiff competition from more experienced foreign competitors like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG).
Of course the big risk factor in all this is that the emerging markets that are receiving most of these exports could grow alarmed and start erecting trade barriers if they start to worry about becoming flooded with cheap Chinese goods. In fact we’ve already seen some signs of this kind of protectionism in markets like Brazil. (previous post) Another risk for the Chinese firms could also come if their foreign competitors also decide to export their products specifically developed for the China market, which also looks inevitable.
Let’s have a look at this latest news, which has Caterpillar’s top China executive saying the company has recently started exporting its made-in-China equipment to a number of emerging markets in the Middle East and Africa to offset its slowing sales in China. (English article) The move comes as China’s construction industry slows sharply amid Beijing’s efforts to cool the country’s overheated property market, and the executive insisted the new export strategy was only temporary until demand starts to pick up in China again.
Still, there’s no reason that big names like Caterpillar shouldn’t use China as a cheap production base for exports to other emerging markets, since many of those other countries have similar needs and thus would require similar types of equipment.
Caterpillar’s move comes as Chinese automakers have also embarked on a major export drive, selling their cars in markets like South Africa, Brazil and the Middle East. The country’s auto exports jumped 28 percent in the first half of the year to nearly 500,000 vehicles, putting the nation on track to cross the 1 million unit mark this year. That increase follows even more explosive export growth of 50 percent last year, with Chery, Geely and Great Wall Motors leading the charge overseas.
But those domestic automakers could soon face competition on the global stage from the same international rivals that have taken their market share at home, with GM previously saying it planned to export its low-end cars developed for the China market and others likely to follow. Caterpillar’s move onto the global stage could pose a similar challenge for its Chinese rivals like Sany Heavy Industry (Shanghai: 600031), which last year also announced plans to go global. At the end of the day, the road could be lucrative for many of these export-minded companies, but most will also face challenges of competition from other Chinese rivals and also the threat of trade protectionism.
Bottom line: Caterpillar’s decision to export its Chinese products is part of a growing trend that could see Chinese heavy equipment and automakers increasingly competing in emerging markets.
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