The construction machinery industry experienced a strong growth phase in the spring of 2007 and continued to show momentum throughout 2008. However, the global financial crisis that followed had a significant negative impact on its development. This downturn was largely driven by cost constraints from upstream industries.
Upstream industry constraints primarily came from two sources: the rising price of steel raw materials and the increased cost of importing spare parts. These challenges were closely tied to the inflationary pressures triggered by the global financial crisis.
Inflation can be broadly categorized into two types: demand-pull inflation and cost-push inflation. Demand-pull inflation typically stimulates economic growth and benefits businesses, while cost-push inflation raises production costs and reduces profit margins, often leading to stagflation — a situation where high inflation coexists with stagnant economic growth.
Since 2008, global inflation fueled by the U.S. dollar has led to weakened domestic demand in the U.S., excessive investment stimulation, and rapid expansion of money supply. The subprime mortgage crisis emerged due to borrowers' inability to repay loans and a tightening of credit. To address this, the U.S. government injected capital into the financial system, which further raised expectations of dollar depreciation. As a result, many countries had to follow the pace of U.S. monetary expansion, leading to the devaluation of their own currencies. In an environment where credit is under threat, the prices of physical assets like steel and other raw materials naturally rose.
Given that this inflationary cycle is stagflationary in nature, and China's construction machinery industry remains a weak link in the global supply chain, it inevitably faces pressure from upstream suppliers. With rising component costs, approximately 70% of the profits in China’s construction machinery sector are eroded by imported parts. According to data from the Hunan Provincial Mechanical Engineering Association, for large-scale construction machinery companies, import costs for components account for over 40% of total manufacturing expenses. A leading domestic company, for instance, found that foreign parts made up 30% of the export price of its products. In 2007, the company earned $500 million in exports, but spent 2 billion yuan on foreign parts — representing 40% of sales revenue, yet accounting for 70-80% of its profits.
Moreover, despite the weak technological competitiveness of Chinese construction machinery products, the sheer volume of exports has led to joint resistance from overseas competitors. Key imported components in China’s industry include hydraulic systems, engines, control units, and transmission systems. Foreign suppliers of hydraulic components and special steel have begun leveraging market monopolies to impose "overlord clauses." Some international manufacturers have even collaborated to produce parts that match Chinese products in quality, forcing them to compete on equal terms. In some cases, multinational firms in China sell outdated equipment that has been phased out in developed markets, yet Chinese companies still struggle to access these parts.
Regarding steel prices, China implemented measures in 2008 to restrict steel exports in an effort to lower domestic steel costs. However, amid global stagflation, steel prices still rose by around 10%, as expected. With the introduction of iron ore negotiations, both domestic and international steel prices surged sharply. In Japan and the U.S., steel prices increased by more than 10%, with some types, like ship plates, rising by $200 per ton. Steel accounts for 40% to 70% of the manufacturing costs in the construction machinery industry, depending on the product. High-value products such as pump trucks and trailers are less sensitive to steel price fluctuations, whereas machines like loaders, road rollers, and cranes are more affected. Due to overcapacity and product homogenization, companies have limited ability to raise prices.
It is reasonable to expect that the global stagflation will persist for one to two years, depending partly on the outcome of the U.S. election. If the Democratic Party wins, its focus on improving people's livelihoods may boost domestic demand and strengthen the U.S. dollar, easing stagflation. Conversely, a Republican victory could maintain existing policies, potentially worsening the situation.
The global stagflation has severely impacted the export of Chinese construction machinery. To overcome these challenges, China must accelerate technological innovation, build a more complete domestic industrial chain, and reduce reliance on foreign key components. In terms of raw material consumption, efforts should be made to improve product quality and efficiency, while developing resource-saving technologies. Japan serves as a prime example. Despite limited natural resources, Japan has consistently adapted by exporting energy-saving and material-efficient technologies during periods of rising raw material prices. This strategy has allowed Japan to profit significantly during crises. Ultimately, mastering core technologies is the only way to remain competitive in any economic climate.
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