Declining performance, and even the possibility of turning directly from profit to loss, has become an unacceptable fact for many machinery companies.

 

　　Listed company Shantui Co., Ltd. is one such case. Its released performance forecast shows that in 2013, net profit will be a loss of 320 million to 370 million yuan, with basic earnings per share at a loss of approximately 0.2729 to 0.3155 yuan per share. Yet this company was still able to profit 30.617 million yuan in 2012.

 

　　The company believes that one reason for the expected loss in last year's performance is "affected by the weak demand in the construction machinery industry and the adjustment of the company's international market sales policy, the sales of some high value-added products decreased, the sales structure changed, and the comprehensive gross profit margin of products declined."

 

　　Although not all machinery enterprises are as battered as Shantui, after more than a decade of rapid development, China's machinery industry has gradually entered a "red ocean," with overcapacity and weak demand becoming the norm in the industry.

 

　　On February 17, at a press conference on the economic operation of the machinery industry for the whole year of 2013 held in Beijing, Cai Weici, executive vice president of the China Machinery Industry Federation, said that in 2013, the domestic and international economic situation was complex, difficulties in the operation of the machinery industry increased markedly, and the pressure to transform the development mode increased sharply.

 

　　According to statistics from the China Machinery Industry Federation, last year the machinery industry achieved a cumulative main business revenue of 20.4 trillion yuan, an increase of 13.8% over the previous year, with the growth rate 4 percentage points higher than the previous year. "The growth rate of main business revenue slowly recovered month by month throughout the year, and the growth trend was better than expected." In addition, the total profit for the year reached 1.41 trillion yuan, an increase of 15.6% over the previous year, 1.8 percentage points higher than the growth rate of main business revenue over the same period.

 

　　However, the profit margin on main business revenue was only 6.93%. At the same time, the proportion of loss-making enterprises reached 10.9%, up 0.47 percentage points from the previous year, and the losses of loss-making enterprises also increased by 15.2%. "In 2013, the total profit of the machinery industry grew by more than 15%, but the profit margin remained low, which alone shows that the machinery industry has not truly escaped its difficulties," said Cai Weici.

 

　　One important manifestation of this is that although enterprise orders have increased somewhat, prices remain sluggish. According to statistics from the China Machinery Industry Federation, the cumulative order value of key contact enterprises in the machinery industry from January to December last year increased by 10.2% over the previous year, with the year-on-year growth rate picking up slightly month by month. However, under the pressure of oversupply, product prices remained persistently low. By the end of last year, the monthly price index had been below 100% for 25 consecutive months.

 

　　In addition, the phenomenon of machinery enterprises being owed payments has not significantly improved, and difficulties in payment collection have not eased. By the end of last year, the total accounts receivable of enterprises had exceeded 3 trillion yuan, a year-on-year increase of 17.6%. Accounts receivable accounted for 15.2% of main business revenue and as much as 31% of current assets over the same period, putting great pressure on enterprises to recover funds.

 

　　Cai Weici stated that under the pressure of rising costs, it is even more difficult for enterprises to improve the efficiency of their main activities: during last year, the year-on-year growth rate of main business costs continued to rise and remained consistently higher than the growth rate of main business revenue. Affected by this, the profit margin on main activities (the ratio of profit generated by main business to main business revenue) was only 6.57%, down 0.41 percentage points from 2012.

 

　　"In 2014, weak demand will remain one of the main difficulties facing machinery enterprises, and the overall tight external environment for industry development will be difficult to significantly improve." He believes that great difficulties in export growth, increased funding pressure, and rapidly rising costs of human and environmental resources will all constitute unfavorable factors.

 

　　However, he also stated that the basic stabilization of the macroeconomic environment and the stability of the policy environment will also be favorable for the development of the machinery industry. He expects that with the efforts of the entire industry, the growth rate of production, sales, and profits in the machinery industry in 2014 will reach about 12%, and the export growth rate is expected to reach about 8%.