2014 is called the “first year” of China's comprehensive deepening of reforms. On March 3, the Second Session of the 12th National Committee of the Chinese People's Political Consultative Conference opened in Beijing, officially kicking off the National Two Sessions. Analysts say that industrial restructuring, administrative reform, and the promotion of new urbanization will be key reform areas discussed at this year's Two Sessions.

Construction Machinery

Domestic economic growth is slowing, while European and American countries are recovering slowly; the “collapse theory” of the real estate market is once again rampant; overcapacity is prominent…… China's economy in 2014 is destined to be unsettled. As the Chinese construction machinery industry is most sensitive to economic fundamentals, after experiencing a slow recovery in 2013, what impacts or opportunities will 2014 bring? On the eve of the Two Sessions, the reporter interviewed Lv Ying, deputy secretary-general of the China Construction Machinery Association. Speaking of the impact of the macro situation on the industry, he said, “The key issues involved in the Two Sessions will certainly have an impact on the industry. Although the response will not be that fast, reform measures will inevitably affect the entire industry.”

The construction machinery sector moved collectively, with Zoomlion, Sany Heavy Industry, and XCMG quickly turning losses into gains. Many had been declining for a long time, or moved due to a single remark by a committee member or representative; short-term movements should be viewed as oversold rebounds. During the Two Sessions, most fluctuations are of this nature; one never knows which cloud will rain when, so there is no need to pay excessive attention. Those who have positions can reduce holdings on rallies.

New Urbanization May Drive the Construction Machinery Sector Upward

The Third Plenary Session of the 18th CPC Central Committee and the just-concluded Central Urbanization Work Conference both regarded new urbanization as the main pillar of economic development and the main driving force for promoting China's economic development in the future. Industry insiders predict that as China's new urbanization deepens and expands further, the Two Sessions may bring more favorable news to China's construction machinery industry, driving the entire sector upward and strengthening performance.

Luo Jun, CEO of the Asian Manufacturing Association, said that new urbanization is closely related to the construction machinery industry and will certainly create a period of opportunity that drives the entire industry. China's new urbanization is a long-term process, estimated to take at least about 10 years to complete, and the next 5 years will be a period of development opportunity for the construction machinery industry to “strive for rapid progress.”

Wang Min, Chairman of XCMG, also said that the construction machinery industry is an industry strongly correlated with economic cycles and national investment policies. Although the current development of the industry faces great challenges, from the long-term positive fundamentals of China's economic development, from the gap between China's urbanization rate and that of developed countries, from the huge demand in China for water conservancy construction, affordable housing construction, and other infrastructure construction, and from Chinese enterprises accelerating their going-global and internationalization processes, one can be very confident that China's construction machinery still has good growth prospects during the “12th Five-Year Plan” period.

Lv Ying, deputy secretary-general of the China Construction Machinery Association, said that industry sales are expected to maintain steady growth in 2014, with an increase of about 8%, and industrial vehicles such as forklifts will continue to maintain high-speed growth. Some analyses say that this year, with the continued progress of new urbanization, market demand for small and mini excavators will be strong, and the share of this segment in the entire excavator market will rise.

Two Sessions May Focus on Smog; Environmental Protection Construction Machinery Will Gain Support

Since the outbreak of smog, environmental protection has become a hot topic in recent years. In China, the pollution share of the construction machinery equipment industry is very large. Although China has been implementing “energy conservation and emission reduction” measures, they treat the symptoms but not the root cause.

This round of Beijing smog occurred just before the Two Sessions, which also makes environmental protection-related topics at the Two Sessions attract more attention.

Thus, the industry has put forward higher requirements for construction machinery products, and environmentally friendly green products will become the mainstream choice in the market. In addition, China's sanitation equipment will also continue to innovate in response to the requirements put forward at the Two Sessions, because environmental problems urgently need improvement, and the market prospects for environmental protection machinery and equipment cannot be underestimated.

Farmland Water Conservancy May Drive the Development of Construction Machinery Enterprises

Before the Second Session of the 12th National People's Congress, Fan Haitao, a deputy to the National People's Congress and Party branch secretary of Nanlizhuang Village, Mengzhuang Town, Huixian City, Henan Province, said in an interview with reporters that water conservancy is the lifeline of agriculture, and the quality of farmland water conservancy facilities directly affects agricultural production and farmers' income. However, since the household contract responsibility system, there has been a phenomenon of “emphasizing the large and neglecting the small” in water conservancy undertakings. The focus of water conservancy construction has mainly been on the management of major rivers, such as the construction, renovation, and restoration of coastal dikes, large and medium-sized reservoirs, and major river basins. However, insufficient attention and investment have been given to the construction of farmland water conservancy infrastructure in major grain-producing areas.

Fan Haitao believes that from water sources to farmland, the small ditches, small canals, small ponds, small dams, and small hydropower stations scattered across the fields of major grain-producing areas have always been called the “last mile” of water conservancy construction. This “last mile” phenomenon has multiple hidden dangers: first, drainage channels are severely damaged, and in many places channels are filled with debris, making drainage problematic when the rainy season and flood season arrive, causing some areas to experience blockages or poor flow where “they are not afraid of drought but afraid of waterlogging”; second, farmland irrigation equipment is outdated, with water hoses commonly used for water delivery and irrigation, and even many places still using the traditional “flood irrigation” method, causing massive waste of water resources. These problems cannot be addressed by the state and cannot be solved by the masses, and have become a major problem for grain production and agricultural development.

If these suggestions are implemented, for small construction machinery and Chinese construction machinery enterprises that have entered the agricultural machinery industry, new profit growth points are worth anticipating.

Development of General Aviation Benefits Sunward Intelligent

Zhang Xiaoqing, a deputy to the 12th National People's Congress and marketing promotion specialist of the Foundation Equipment Business Division of Sunward Intelligent (002097.SZ), will propose at this year's National Two Sessions that to truly promote the rapid development of China's general aviation industry, independent innovation and development of general aviation products should be increased, with key support and protection for national brand general aviation enterprises and other suggestions.

Sunward Intelligent is an international enterprise group with construction machinery as its core, and has already entered the civil aviation field. If the Two Sessions focus on civil aviation, it will benefit Sunward Intelligent and also complement the construction machinery industry.