CHINA REPORT
Komatsu says it plans to restructure its business in China this year, cutting its annual production capacity of construction machinery equipment in China by nearly 40% to 10,000 units.
At the same time, due to sluggish market demand, it will merge its equipment production subsidiary and its parts subsidiary in Jining City, Shandong Province. The production subsidiary and casting subsidiary based in Changzhou City, Jiangsu Province, also will be merged.
Komatsu’s production subsidiaries in the two provinces previously terminated their joint venture relationship. Even if the annual production capacity is reduced to 10,000 units, it is expected that local production capacity will enable Komatsu to increase exports to Southeast Asia and other regions.
After the peak of COVID-19 in 2020, the demand for construction machinery in China recovered rapidly. However, due to the downward cycle of the industry and the slowdown of the real estate market, demand continued to decline. It is expected that the sales volume of hydraulic excavators (excluding local manufacturers) will decrease by 40% to 50% year-on-year in fiscal year 2022 (as of March 2023). Komatsu believes that the downturn in demand will continue for a long time.
Source: Construction Today Read The Article
PSR Analysis: Shantui and Changlin withdrew from the joint venture with Komatsu in 2021 and 2022. Similarly, in 2022, Komatsu sold four factories producing coal mining machinery to local Chinese companies. This sale include the China factory of the global coal machinery giant Joy Global, which Komatsu purchased for $3.7 billion in 2017.
This additional 40% reduction in participation reflects Komatsu’s poor performance in the Chinese market and its reduced optimism towards the Chinese market. In the face of sluggish demand and rapidly changing market conditions, Komatsu has increased its investment in new energy engineering machinery.
At the same time it has adjusted its business in China, it has expanded its exports to the Southeast Asian market.
The cost advantage and service system of Chinese construction machinery enterprises have made up for the slight gap between them and Komatsu in terms of product quality, which has reduced Komatsu’s market share in China from a peak of 15% to about 3% today.
Meanwhile, Chinese local enterprises are also engaged in fierce competition in the international market, especially in the Southeast Asian market. In the area of electric engineering of construction machinery, Chinese enterprises are also proceeding very quickly, causing considerable pressure on all foreign-funded enterprises in China. PSR
Jack Hao is Senior Research Manager – China for Power Systems Research
