The construction machinery industry experienced a strong growth phase in the spring of 2007 and maintained its upward momentum into 2008. However, the global financial crisis that followed had a significant negative impact on the sector. This downturn was partly driven by cost constraints from upstream industries, which became a major challenge for manufacturers.
Upstream cost pressures came from two main sources: rising steel prices and increased costs for imported spare parts. Both were closely tied to the inflationary environment triggered by the financial crisis. Inflation can be categorized into two types—demand-pull and cost-push. While demand-pull inflation typically stimulates economic growth and benefits businesses, 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, and rapid monetary expansion. The subprime mortgage crisis emerged due to declining repayment capacity and reduced demand. To address this, the U.S. injected capital into its financial system, further fueling expectations of dollar depreciation. As a result, many countries had to follow the U.S. currency expansion, causing their currencies to depreciate. In such an environment, physical assets like steel and other raw materials saw sharp price increases.
China’s construction machinery industry, being at a weaker link in the global supply chain, faced significant cost pressures. Approximately 70% of profits in the sector are eroded by imported components. For example, large construction machinery companies in China report that import costs account for over 40% of manufacturing expenses. A leading domestic company found that foreign parts made up 30% of its export product costs, yet these components accounted for 70-80% of its profits. This highlights the heavy reliance on foreign suppliers.
In addition, despite weak technical competitiveness, China’s large export volumes have led to resistance from overseas competitors. Key imported components include hydraulic systems, engines, control units, and transmission systems. Foreign suppliers, especially in hydraulic components and special steel, have leveraged market dominance to impose "overlord terms." Some international manufacturers even collaborate to produce parts that match Chinese products in quality, forcing them to compete on equal footing. In some cases, multinational companies in China sell outdated equipment that has been phased out in developed markets, but Chinese firms still struggle to acquire them.
Steel price increases also posed a challenge. Although China implemented measures to curb steel exports in 2008, global stagflation made it difficult to prevent a 10% rise in steel prices. Iron ore negotiations further pushed prices higher, with steel prices in Japan and the U.S. rising by over 10%, and ship plates increasing by $200 per ton. Steel accounts for 40-70% of manufacturing costs in construction machinery, depending on the product type. High-cost machines like loaders and cranes face limited pricing power due to market saturation and product homogenization.
Looking ahead, global stagflation is expected to persist for one to two years, influenced by the outcome of the U.S. election. A Democratic win could boost domestic demand and stabilize the dollar, easing inflation. A Republican win might maintain current policies, potentially worsening the situation.
To overcome these challenges, China’s construction machinery industry must accelerate technological innovation, build a more self-reliant domestic supply chain, and reduce dependency on foreign components. Improving product efficiency and developing resource-saving technologies will also be crucial. Japan serves as a model—despite limited resources, it has consistently adapted by exporting energy-efficient and material-saving technologies during crises. This strategy has allowed Japan to thrive in times of rising costs.
Ultimately, mastering core technologies is essential for long-term success. Only through innovation and self-sufficiency can China’s construction machinery industry remain competitive in any economic climate.
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