The Chinese excavator market has grown at an average rate of 30% over the past decade, becoming one of the world's largest markets by volume. Currently, China is in a peak period of infrastructure construction in areas such as road transportation, energy and water conservancy, and urban construction. Market demand for excavators is rising year by year. In 2010, the actual cumulative sales volume of excavators nationwide exceeded 165,000 units, a year-on-year increase of 74.5%.

    Risks remain in the excavator industry

    In terms of market share alone, China's excavator products still hold a significant advantage. Since the first quarter of 2010, the market share of domestic excavator brands has been rising. After surpassing South Korean brands in the second quarter of 2010, they surpassed Japanese brands in the first quarter of 2011, reaching a peak of 54% in the fourth quarter of 2012, but have been continuously declining in 2013. Specifically, from January to September 2013, in the Chinese excavator market, Japanese brands achieved sales of 23,552 units, up 2.6% year-on-year, with a market share of 26.7%; South Korean brands achieved sales of 12,833 units in the first nine months of 2013, down 1.3% year-on-year, with a market share of 14.5%; European and American brands achieved sales of 13,090 units from January to September 2013, up 1.6% year-on-year, with a market share of 14.8%; domestic brands achieved sales of 38,888 units in the first nine months of 2013, down 2.9% year-on-year, with a market share of 44.0%.

    However, at the same time, an in-depth analysis reveals that the overall level of China's excavator industry is still at a market disadvantage, with a certain gap compared to foreign brands. Most notably, the premium capability of domestic brands is significantly lower than that of foreign brands, with gross profit margins only 50%~60% of Japanese and American brands, capital turnover at most 80% of foreign brands, and production efficiency at most 50% of Japanese enterprises.

    Dealers are also a weak point constraining the development of China's excavator industry. Foreign brands have accumulated and controlled most of the excellent dealers over the years, and weak dealers have become a bottleneck and risk source for the development of local enterprises. Currently, there are thousands of construction machinery dealers in China, but they are generally small in scale, mostly operating multiple brands, with very few operating a single brand. The problems currently plaguing Chinese construction machinery dealers are mainly prominent in employee quality, management of subordinate institutions, vicious market competition, and capital recovery. These problems also exist to varying degrees among dealers in China's excavator industry.

    In addition, inventory levels remain high. Since 2011, excavator manufacturers have added nearly 150,000 units of new production capacity, almost doubling the original capacity, with capacity significantly exceeding market demand. The sharp drop in demand caused by insufficient construction starts has directly led to ineffective release of enterprise capacity. Currently, a large amount of equipment is idle, and the operating rate of enterprises is less than 1/3. According to a rough survey, the inventory of complete machines is nearly 50,000 units, and the inventory of parts is nearly 20,000 units. Based on general sales conditions, even if enterprises do not produce, it will take at least 6 to 9 months to digest the current inventory.

    This is compounded by external environmental constraints on market demand. For example, the coal industry, one of the "major consumers" of construction machinery equipment, after a series of integrations, has gradually developed its production and operation models toward modernization and automation, leading to a significant decline in demand for excavators and other construction machinery. Recently, the State Council issued the "Air Pollution Prevention and Control Action Plan," requiring that by 2017, the proportion of coal in China's energy consumption be reduced to below 65%, which will inhibit demand for excavators.

    Therefore, to achieve new growth points in the excavator industry, we should start with innovation, combine short-term and long-term goals, so that China's excavator industry can leverage its strengths and avoid weaknesses, consolidate existing advantages, and achieve better development. Overall, the excavator industry should pay attention to risk prevention, establish good risk assessment and response mechanisms, and improve the ability of relevant enterprises to withstand market shocks.