An Active and Steadily Matured Chinese Construction Machinery Rental Market. Mr. Jia Li Cai - President of CCIA

Transcription

1 An Active and Steadily Matured Chinese Construction Machinery Rental Market Mr. Jia Li Cai - President of CCIA

2 The two concepts First, we must be aware of the differences in China s understanding of the construction machinery rental market and the understanding of the concept in other parts of the world. The construction machinery rental business in the rest of the world mainly covers both large equipment such as tower cranes and crawler cranes, and all sorts of smaller equipment and tools. It also includes road-building machinery, such as excavators and bulldozers. But the construction machinery rental business in China, which I am going to discuss today, mainly includes tower cranes, construction lifts, mobile cranes and concrete machinery. This is mainly a result of the formation and development history of China s rental market. We will come back to that later.

3 The two concepts Second, we must be aware of the nature of rental in China and other parts of the world. Construction machinery rental in the rest of the world chiefly refers to dry rental, that is, only the machinery or equipment is rented. Whereas in China, it mainly refers to wet rental that is, machinery or equipment rented with operators. And in China, in some cases, the rental company is even expected to supply a plan of work. This is also very much due to the developmental history of the rental business in China.

4 China s construction equipment rental market is emerging

5 The origin and development process Before the 1980s, that is, before the reform and opening up policy was adopted, the construction industry in China featured the owning and closed model. Its characteristics were as follows: 1. Construction companies were mainly state-owned 2. Construction contracts were allocated by higher authorities 3. Construction machinery was equipped by the state.

6 The origin and development process In the late 1980s, China s construction industry underwent a period of depression, with construction companies transiting from a planned economy to a market economy. They were unaccustomed to obtaining contracts by themselves. Severe under-use resulted in large numbers of machinery and equipment lying idle. To solve the problem, the then Ministry of Construction put forward a directive that construction machinery should be rented, and made the directive a major technological upgrading project in the state s Eighth Five- Year Plan, giving a big push to the construction machinery rental sector.

7 The origin and development process At the turn of the 21st century, China s construction machinery industry entered a period of rapid development and many forms of rental emerged:

8 The origin and development process Rental companies, rental centres and rental stations affiliated to stateowned construction companies; Specialized rental companies with independent legal status established by construction companies through restructuring and divesting; Sino-foreign joint venture rental companies and wholly foreign-funded rental companies; Manufacturers who rented as an alternative to selling; Household rental; especially the rapid rise of private-owned enterprises.

9 The origin and development process Compared with developed countries like the UK (which started rental in 1941) and Japan, China s construction machinery rental market was formed rather late, but has developed rapidly. It is an emerging market.

10 China s construction machinery rental market is a big market

11 Market machine population In 2012, this association was entrusted to carry out a survey of the construction machinery rental market by the Ministry of Construction. The survey revealed that: China s construction market then had 320,000 units of tower cranes and the number at present is between 360,000 and 380,000 units. There were around 120,000 units of construction hoists;

12 Market machine population There were 18,000 construction machinery rental companies in China, and among them: 1. Less than 10% were rental branches (centres) of the state-owned construction companies; 2. Around 1% were Sino-foreign Joint ventures or foreign-owned rental companies; 3. Around 1% were Sino-foreign Joint ventures or foreign-owned rental companies; 4. More than 80% were privately owned enterprises (including household rental entities).

13 Market machine population Rental market penetration for tower cranes was around 80%. That is to say, construction companies owned around 20% of the cranes.

14 Market potential What is the potential for future growth in China s construction market? The new-style urbanisation. The urbanisation rate in China is far below that of developed countries. It was 54.8% in 2014, and is expected to reach 60% by 2020.

15 Market potential Development of Western China. Public facilities in the vast rural areas and the west regions are far from complete. In 2014, the highways in China measured about 4.45 million km, and the highway density measured 0.46km/km2, which is four times less than the 1.82km/km2 figure for Germany. The length of railway in China was 110,000 km, with a network density of 1.15m/km2, and a per capita railway mileage of merely 8cm, which is about 1/10th that of the US. There were 202 civilian airports in China, while there were 17,000 in the US (whose population was less than a quarter that of China), which was 84 times more tha China.

16 Market potential China has put forward the One Belt, One Road policy initiative. How much investment will it bring? It is easy to find data from State media releases, so I will not go into details here. In a word, China is generally considered the largest construction market!

17 China s construction machinery rental sector is highly changeable and gradually maturing

18 In the past, construction companies paid a great deal of attention to scaling up, seeking size and capacity. But now, they are giving more consideration to cost reduction, showing greater flexibility. Therefore, they are more open to rental, rather than buying machinery themselves, in order to move forward without burdens and with enough competitive abilities. In other words, machinery rental in China is generally accepted in the industry.

19 Challenges Following the slowdown of the Chinese economy, the country s rental industry is faced with a series of challenges: There are too many household-based rental entities in the market, resulting in intense market competition and high pressure on rental prices; Rent recovery rate is low; High interest rates and low profits, as much equipment is purchased through financing schemes; Manufacturers face serious problems like excess capacity and poor liquidity; Rise in labour safety costs.

20 Changes in operational philosophies Facing the severe situation, the operation principles of the rental companies are also changing quietly: Due to the increasingly severe state supervision on equipment safety like cranes, safety costs have increased distinctly. When purchasing equipment, rental companies gradually turned to pursuing machinery with high quality + good performance + good service instead of pursuing low price as in the past. This is a good opportunity for machinery products from international brands.

21 Changes in operational philosophies Rental companies were used to being managed by the state. But now they have gradually become accustomed to industry regulation and are actively voicing their needs and conducting dialogues and communicating with the government through the platform of industry associations.

22 A prediction on the future construction machinery Rental market in China The structure of China s construction industry is a rental-dominated dualtrack system, i.e. co-existence of equipment owned by construction companies and rental equipment will continue for a while. The construction machinery rental market will not shrink: The necessity of the state s initiative in building a resource-conserving society; The necessity of the state s new-style urbanization and architecture industrialization initiatives; The One Belt, One Road policy initiative will not only promote the infrastructure construction of west China, but also bring forward infrastructure construction in countries neighboring China.

23 A prediction for the future of China s construction equipment rental market The reform program to replace the business tax with a VAT will have a huge impact on the rental market, and the rental industry will be confronted with a shuffle process. The manufacturers, under great pressure of excess capacity, are considering joining in the rental industry. Industry regulation is the direction for the future, and the government s supervision of lifting machinery will not weaken and will only become more severe. Aerial work platforms will surge in China s construction machinery rental market.

24 Thank you!