1. China's Export Machine Goes
High-End

2. From its sprawling manufacturing base deep in China’s
southwestern Hunan province, some 100 kilometers from
where Mao was born, construction-machinery maker Sany
Group plans to take on the world. While workers in blue
overalls and yellow hard hats crawl over huge mobile
hydraulic cranes and cement mixer trucks in a gleaming
factory, Sany President Tang Xiuguo sits in his expansive
office nearby, discussing the opening of Sany factories in
Brazil, India, and Alabama, as well as the soon-to-be-
completed $475 million acquisition of Germany’s
Putzmeister, the world’s largest maker of cement pumps.
The bespectacled Tang, one of four founders of the 22-year-
old company, aims to lift overseas sales, now some
5 percent of its $16 billion revenue, to up to one-fifth of
revenues within five years.

3. The phrase “Made in China” summons up images of
cheap shoes, plastic toys, and electronics assembled in
the vast factory complexes of Foxconn Technology
Group (HNHPF). While China built its powerful export
business—increasing 17 percent a year over the last
three decades—on such light industry and electronics
assembly, that is fast changing. Rising labor costs, up
15 percent annually since 2005, plus an appreciating
currency, are putting new pressures on China’s cheap
manufacturing model and driving textile, shoe, and
apparel factories to close or relocate to Vietnam,
Cambodia, or Bangladesh. “China’s share of the world’s
low-end exports has started to fall. This reflects a shift by
Chinese producers into sectors where margins are
higher rather than a failure to compete,” wrote U.K.-
based Capital Economics in a March 28 note.

5. Chinese-built ships, for example, dominated the global
market with a 41 percent share last year, well ahead of
South Korea and Japan, according to London-based
shipping services company Clarksons. Data from the
International Trade Centre, a joint agency of the United
Nations and the World Trade Organization, also show
strong gains in China’s global share of the markets for
railway locomotives and wagons, machinery, and industrial
boilers. In construction machinery, Sany’s specialty, three
Chinese companies (Sany included) now rank in the top ten
globally. Many of the new exporters are producing from
inland China, rather than the coast, the traditional region for
manufacturing.

6. Overall, the portion of China’s exports made up by heavy
industry, about two-thirds of which is machinery, has grown
from 29 percent in 2001 to 38.7 percent last year,
surpassing light industry and electronics, according to
Beijing-based economics consultants GK Dragonomics.
“They are making different products with higher technology,
things they can charge more money for,” says Andrew
Batson, GK Dragonomics’ research director, who estimates
that the new industries can help lift China’s share of global
exports from 10 percent now to 15 percent by 2020. “The
typical Chinese exporter is not a shoe factory in Guangdong
anymore. Instead it is some kind of equipment or machinery
maker.”

7. The Chinese makers of this machinery are targeting
India, South America, and the Middle East, as Europe,
still China’s largest export market, struggles with its debt
crisis. Europe, the U.S., and Japan accounted for
48 percent of China’s total exports last year, down from
56.1 percent in 2003, with developing countries now
taking the majority, says Louis Kuijs, an economist at the
Hong Kong-based Fung Global Institute. “We have an
advantage because our technology and our products
level are more suitable for these countries,” says Sany’s
Tang. “And our price is a bit lower than other
international brands.”
Policy makers have made upgrading industry a national
priority. Equipment manufacturing, shipbuilding, and cars
are among the industries slated to receive $2.5 billion
from the government

8. this year to improve technology and product quality.
Mergers and acquisitions inside China and overseas are
also being encouraged Says Shao Ning, vice minister of
the powerful State-Owned Assets Supervision and
Administration Commission of the State Council: “Our
position is we support Chinese companies investing
abroad.”
While China’s new manufacturers are not competing in
developed markets yet, already they are
challenging Caterpillar (CAT), Siemens (SI),General
Electric (GE), and other established equipment makers
in places like South America and Russia. China’s
construction-machinery industry is expected to overtake
Japan’s and Germany’s soon, making it the world’s
second-largest exporter in the category, behind the U.S.

9. Winning market share in the U.S. and Europe could take
years, in part because of concerns over Chinese quality
(the crash of a Chinese-built high-speed train in Zhejiang
province in July hurt China’s reputation as a
manufacturer). Sany says it spent $240 million last year
upgrading its factories, including the installation of
welding robots. As Sany expands overseas, it aims to
improve its products to match the quality achieved by its
newest acquisition, Germany’s Putzmeister, which will
share engineering know-how and suppliers with its
Chinese parent. Says Tang, “We know that ‘Made in
China’ doesn’t have a great reputation. We want to
change this through selling high-quality products.”

10. The bottom line: Chinese exports have
been rising 17 percent a year on average.
To keep that pace, China is trying to grab
market share in high-end machinery.