Chinese construction machinery enterprises have begun diversifying into non-construction machinery industries. Fangyuan Group is engaged in the wine and catering businesses, while Sany, Sunward Intelligent, and Zoomlion have moved into more profitable sectors such as real estate development and small civil aircraft manufacturing.

    Chinese construction machinery enterprises have begun diversifying into non-construction machinery industries. Although they are not raising pigs, producing cement, or mining coal like steel companies, large enterprise groups such as Fangyuan are likewise engaged in the wine and catering businesses, while Sany, Sunward Intelligent, and Zoomlion have moved into more profitable sectors such as real estate development and small civil aircraft manufacturing.

    Recently, the Shanghai Securities News published an article titled "Steel Mills Earn Only 4.81 Yuan per Ton of Rebar—Just Enough to Buy a Bottle of Cola," which drew great attention from people in the machinery industry.

    The article pointed out that whether at the recently held First Non-Steel Industry Conference of the Steel Industry or in the 2013 semi-annual reports of listed steel companies, "non-steel industries" was a red-hot term, especially against the backdrop of the steel industry's "winter." Looking at the semi-annual report of industry leader Baosteel, the share of its non-steel businesses rose sharply from 23% in 2012 to 33% in the first half of this year. "For steel enterprises to develop non-steel industries around their core business and achieve moderate diversification is no longer a local or tactical issue, but a comprehensive and strategic issue concerning the sustainable development of enterprises," Zhang Changfu, vice chairman and secretary-general of the China Iron and Steel Association, commented at the First Non-Steel Industry Conference of the Steel Industry.

    Faced with the harsh reality that for every ton of rebar produced, steel mills earn a mere 4.81 yuan—just enough to buy a bottle of Coca-Cola—companies from Baosteel, Wuhan Iron and Steel, and Maanshan Iron and Steel to Tangshan Iron and Steel have no choice but to seek a way to survive the winter while their "red-hot business" endures the agony of an industry downturn—raising pigs, producing cement, mining coal, and even making wine, as well as the "trendy" fields of e-commerce and the Internet—they are active in almost every industry. "From the perspective of capital flow, investing in a field with better returns is entirely natural." Although analysts in the New Fortune steel industry consider this quite normal, in fact the road to non-steel survival for steel enterprises has not been easy.

    After the peak of the "4 trillion yuan" investment in 2009, the Chinese economy is seeking a new direction. With large-scale stimulus policies no longer possible, China's construction machinery industry, like the steel industry, faces the dilemma of overcapacity and insufficient demand. Some enterprises are already unable to repay maturing bank loans, and some have even tried through various connections to sell excavator assets at low prices.

    Of course, like steel enterprises, some leading construction machinery companies have begun attempting non-construction machinery industries: Sany Heavy Industry has moved into real estate, Sunward Intelligent into small civil aircraft, Zoomlion into five major industries including agricultural machinery and finance, and LiuGong OVM into prestressing project contracting. While we worry about how Chinese construction machinery enterprises will cope with the industry downturn, they have already begun to make their mark in non-construction machinery industries.

    Sany Heavy Industry Builds a National Real Estate Business

    On September 20, 2012, media reported that Shanghai Zhushengyuan Real Estate Co., Ltd. (hereinafter "Zhushengyuan"), a real estate company under Sany Heavy Industry, signed a strategic cooperation framework agreement with Jinyu Real Estate Co., Ltd. on September 8, formally entering the Chongqing real estate market. In fact, Sany Group's involvement in real estate had long been evident; entering Chongqing this time was only a small part of Sany's national real estate layout.

    According to reports, at Sany Group's 2004 business development report meeting, Group President Tang Xiuguo explicitly proposed taking machinery manufacturing and automobile manufacturing as the two main businesses, with leasing, finance, and real estate as three synergistic industries.

    In this regard, Gong Sheng, assistant general manager of Zhushengyuan's Hunan region, said: "The group has high expectations for us and has proposed the overall framework of 'one body, two wings,' with construction machinery as the main body and real estate and finance as the two wings. We have also set our own targets: real estate sales of 8 billion yuan by 2013 and 20 billion yuan by 2015."

    Gong Sheng revealed that Sany's real estate business currently has three regional centers nationwide: Shanghai, Shenyang in the northeast, and Changsha in Hunan. "At present, the Shanghai center has a project in Changshu, Jiangsu that has already opened, we have two projects opened in Shenyang, and in Hunan we have three projects. One is Sany Block in Changsha, another is Geyajun in Zhuzhou, and the other is Sany Emerald Bay in Changde. These projects are all selling well."

    In the view of industry insiders, affected by the overall environment, traditional cyclical industries in China are facing rapid contraction, and Sany Heavy Industry also needs to find new profit growth points, with real estate being the best opportunity to enter.

    Judging from Zhushengyuan's national layout, there is indeed momentum to push into real estate. Gong Sheng told reporters that Zhushengyuan's Hunan region achieved revenue of 1 billion yuan last year. In addition to projects currently on sale, they have also reserved land in several cities in Hunan. "The cities and prefectures we are preparing to develop and enter include Shaoyang, Loudi, Yiyang, and Ningxiang; we already have land reserves and are just waiting for the market to recover before launching."

    Zhushengyuan also has land reserves elsewhere in the country. "This time we have formed a strong alliance with Chongqing Jinyu Real Estate, and we also have land reserves in Chongqing. In addition, our farthest locations include Xinjiang in the far west and Zhuhai in the far south. The Zhuhai project is expected to involve several billion yuan and also includes an ocean park; the Xinjiang project is still selecting a site. All of these are currently in the planning stage."

    Regarding Sany's real estate layout, Wang Yigao, a member of the Hunan Provincial Committee of the Chinese People's Political Consultative Conference and chief economist of the Hunan Provincial Real Estate Association, said: "Sany Real Estate's national layout reflects its strategic transformation. Machinery performance across the country is now declining, making transformation somewhat urgent. Sany intends to rely on its currently strong cash flow to enter the real estate market and achieve a successful transformation." However, he also believes that "in the Hunan real estate market, they are still at the exploratory stage, and once real estate regulation continues, the pressure will be even greater."

    Sany Group Formally Enters the Financial Industry

    Sany Automobile Finance Co., Ltd. was formally established on December 8, 2010. It is the only automobile finance company in China's construction machinery industry and the second Chinese-funded automobile finance company in the country.

    Sany Automobile Finance Co., Ltd. (hereinafter "Sany Finance") was formally established on December 8. It is the only automobile finance company in China's construction machinery industry and the second Chinese-funded automobile finance company in the country. Industry insiders said the establishment of the company marks Sany Group's formal entry into the financial industry.

    Sany Finance has registered capital of 800 million yuan, and its controlling shareholder is Sany Group Co., Ltd. In 2011, the company will carry out mortgage loans, financial leasing, and dealer inventory financing in the domestic market, gradually develop dealer showroom construction loans and used equipment and parts loans, and actively engage in intermediary businesses such as agency and consulting.

    Tang Xiuguo, president of Sany Group and chairman of Sany Finance, said that Sany Automobile Finance will gradually integrate all of Sany Group's financial businesses, covering many fields such as loans, leasing, insurance, and trusts, and will be able to provide customers with one-stop, full-process overall solutions while developing distinctive financial products, services, and business models in various markets around the world.

    According to forecasts provided by Sany Finance, by 2015 Sany Finance will manage the financial business assets of the entire group. Calculating self-operated business and agency business at 50% each, the financial business segment is expected to contribute cumulative net profit of more than 5.5 billion yuan from 2011 to 2015. By then, the scale of financial assets under management by the financial business segment will exceed 100 billion yuan.

    According to reporters, Sany's financial industry will start domestically and gradually expand to the United States, Germany, India, Brazil, Hong Kong, and other places, and further deepen its development to establish a globally unified, mutually coordinated financial business layout that supports enterprise development.

    Sany Group is the parent company of Sany Heavy Industry (600031.SH) and the world's largest manufacturer of concrete machinery. In 2009, Sany Group's sales revenue was 30.6 billion yuan.

    Chinese construction machinery enterprises have begun diversifying into non-construction machinery industries. Fangyuan Group is engaged in the wine and catering businesses, while Sany, Sunward Intelligent, and Zoomlion have moved into more profitable sectors such as real estate development and small civil aircraft manufacturing.