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Our reporter Li Beibei (chinatimes.net.cn) reports from Shanghai

Recently, Japanese construction machinery manufacturer Kato Manufacturing Co., Ltd. announced that it will dissolve and liquidate its hydraulic excavator manufacturing and sales subsidiary located in Kunshan City, Jiangsu Province. Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd. will also gradually begin liquidation procedures in August.

As for the reasons for withdrawing from the Chinese market, Kato Manufacturing disclosed on its official website that it was due to the decline in China's real estate market, the decline in demand for construction machinery, and the intensified competition with local low-priced product manufacturers. "The difficulties have been continuing, the sales environment has become more stringent, and it is extremely difficult for the company to improve its profitability in the early stage."

On the morning of July 26, a staff member of Kato (China) Construction Machinery Co., Ltd. confirmed the company's dissolution to a reporter from the China Times. "The specific reasons have been announced to the public and are available online," but did not respond to questions about the specific time of dissolution and employee arrangements. A staff member of Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd. said, "It is recommended to go to the official website of Kato Works for relevant information, which is the most accurate."

In contrast, China's leading construction machinery companies are accelerating their move to the world stage and actively participating in global competition. Take Zoomlion Heavy Industry Science & Technology Co., Ltd., one of the top three construction machinery companies, as an example. On July 25, the company's official WeChat account disclosed that Zoomlion's overseas revenue in 2022 and 2023 will increase by more than 70% year-on-year for two consecutive years, and its exports in the first quarter of 2024 will increase by more than 60% year-on-year.

Two subsidiaries of Japanese industry giant in China are about to be dissolved

On July 12, the official website of Kato Manufacturing Co., Ltd. of Japan published a "Notice on the Dissolution and Liquidation of the Merged Subsidiary", announcing that it would dissolve and liquidate its hydraulic excavator manufacturing and sales subsidiary located in Kunshan City, Jiangsu Province. Kato (China) Construction Machinery Co., Ltd. confirmed the above news to a reporter from the China Times.

According to public information, Kato Works was founded in 1895 and is a well-known Japanese engineering machinery company. Its product areas cover various types of cranes, excavators, etc. According to the "2023 Global Top 50 Engineering Machinery Ranking", Kato Works ranks 48th with an operating income of US$483 million. In 2004, Kato Works invested in a factory in Kunshan, mainly producing hydraulic excavators. As of the end of 2023, the company has 75 employees and the factory building covers an area of ​​27,977 square meters.

Why did Kato Manufacturing, which has been in China for 20 years, suddenly dissolve its Kunshan company? The reporter saw that on March 8 this year, Kato Manufacturing had already explained in its notice on the suspension of production of its affiliated subsidiary Kato (China) Engineering Machinery Co., Ltd. (hereinafter referred to as the "Notice").

"The economic recession caused by the real estate downturn in China, the sluggish demand for construction machinery, and the rise of local manufacturers operating cheap products have intensified the price war, causing Kato China's performance to face a more severe situation. Therefore, Kato has decided to suspend the production activities of Kato China's factories and start digesting the inventory of machines." The "Notice" pointed out that the difficulties have been continuing, the sales environment has become more stringent, and it is extremely difficult for the company to improve its profitability in the early stage: "Taking into account the impact on the company's consolidated performance after the next period, Kato Manufacturing has decided to dissolve the company and advance the liquidation procedures."

Public information shows that with the rapid growth of China's economy, the demand for construction machinery has also increased. For a period of time around 2010, Kato Manufacturing's business in China even drove the entire company. But now, the company's Chinese business continues to lose money.

In fiscal year 2022, Kato's revenue fell and it suffered losses. Its financial statements show that in the first nine months of 2022, Kato's revenue in China was 1.884 billion yen and its loss was 589 million yen, equivalent to about 30 million yuan; in the same period of 2023, its revenue was only 1.489 billion yen and its loss was 888 million yen, and its losses widened.

It is worth noting that the Kato Group stated that not only Kato China, but also Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd., which is also facing a severe business environment and deteriorating profitability, will be dissolved and liquidated.

According to public reports, on May 14 this year, Kato Manufacturing Co., Ltd. announced that the joint venture contract of Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd. would not be renewed after it expires in June, and all shares held would be transferred. The joint venture in Xiamen will continue production until August and will gradually begin liquidation procedures. Regarding this news, a reporter from the China Times called the switchboard number published on the company's official website, and the staff who answered the call said, "It is recommended to go to the official website of Kato Manufacturing Co., Ltd. to learn more about the relevant information, which is the most accurate."

Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd. was originally a joint venture factory established in Xiamen by IHI Construction Machinery and Hong Kong Zhongjun Machinery & Electrical Holdings Co., Ltd. under Zhongjun Group, and officially started operations on April 1, 2005. On June 13, 2019, Zhongjun Group and Kato Manufacturing held a signing ceremony for a new joint venture contract. This signing ceremony was a renewal of the original joint venture contract after Kato Manufacturing acquired IHI Construction Machinery as a whole and expired. Kato Manufacturing currently holds 100% of the shares.

Currently, Kato Manufacturing Co., Ltd. has announced that it will radiate surrounding markets with India as the center to replace the Chinese market, and has established the "India Business Preparation Office" in January 2024. However, Kato Manufacturing Co., Ltd. emphasized that there are still a large number of Kato brand machinery and equipment in China that are operating normally, and the after-sales service for customers who own these equipment should be maintained, so the company will set up a new office in China to carry out post-maintenance and other work.

In addition, Kato Group said that the amount of losses incurred by the dissolution and liquidation of the two subsidiaries is difficult to estimate at this stage, and the specific data will be released in the subsequent performance report. As of press time, the "Tianyancha" platform shows that Kato Manufacturing's two companies in China are still in a "surviving" state.

Overseas markets become the main battlefield for leading engineering machinery companies

Behind Kato Manufacturing's farewell to the Chinese market, the Chinese construction machinery market has also declined as the real estate market has been in a deep adjustment period in recent years. Taking the excavator data, the "barometer" of the construction machinery industry, as an example, according to statistics from the China Construction Machinery Industry Association, from January to December 2023, a total of 195,018 excavators were sold, a year-on-year decrease of 25.4%; 89,980 of them were sold domestically, a year-on-year decrease of 40.8%.

Correspondingly, in recent years, overseas markets have become the main growth point for China's construction machinery. According to the data from the General Administration of Customs, in 2023, my country's exports of construction machinery products reached US$48.552 billion, a year-on-year increase of 9.59%, and the trade surplus increased by US$4.468 billion year-on-year, and achieved double-digit growth in Europe, South America, Africa and other regions.

On July 23, according to customs data compiled by the China Construction Machinery Industry Association, in June 2024, my country's import and export trade volume of construction machinery was US$4.846 billion, a year-on-year increase of 5.35%. Among them, the import volume was US$197 million, a year-on-year decrease of 13.7%; the export volume was US$4.649 billion, a year-on-year increase of 6.35%. In addition, CME (Construction Machinery Magazine) predicts that 14,000 excavators of various types will be sold in July 2024, a year-on-year increase of 11.1%. Among them, 6,000 units were sold domestically, a year-on-year increase of 17%; and 8,000 units were exported, a year-on-year increase of 7%.

Dongwu Securities Research Report pointed out that from January to July 2024, the overall sales volume of excavators decreased by about 3% year-on-year, and the decline continued to narrow. Looking ahead, domestic downstream infrastructure investment continues to improve. With the continuous advancement of large-scale equipment renewal, the excavator market is expected to gradually move out of the bottom of the cycle; in terms of overseas markets, benefiting from the destocking of domestic brands in overseas markets, the low base of exports in the same period last year, and the moderate recovery of demand in some overseas regions, the export market is expected to maintain positive growth.

Judging from public data, the overseas market has become the main battlefield for leading domestic engineering machinery companies.

Take the industry's "top three" Sany Heavy Industry, XCMG Machinery, and Zoomlion Heavy Industry Science and Technology Co., Ltd. as examples. In 2023, Sany Heavy Industry achieved revenue of 73.222 billion yuan. Among them, overseas revenue was 43.258 billion yuan, accounting for about 59% of total revenue. Sany Heavy Industry said that benefiting from the increase in overseas sales and the improvement of product structure, the company's overseas main business gross profit margin has steadily increased. During the reporting period, the company's international business gross profit margin was 30.78%, an increase of 4.42 percentage points, higher than the domestic business gross profit margin of 23.04%; since the beginning of this year, Sany Heavy Industry has continued to exert its strength in overseas markets. As of now, product sales have covered more than 180 countries and regions around the world, of which Europe and the United States have become the fastest growing regions overseas, and it has successfully designed and built the industry's first overseas "lighthouse factory" in Indonesia;

Zoomlion's momentum in overseas markets is even stronger. On July 25, the company's official WeChat account disclosed that Zoomlion's overseas revenue in 2022 and 2023 will increase by more than 70% year-on-year for two consecutive years, and exports in the first quarter of 2024 will increase by more than 60% year-on-year; as of now, Zoomlion has built more than 30 first-level business airports and more than 350 second-level outlets around the world, with a total number of more than 3,000 localized employees worldwide, and products covering more than 140 countries and regions. By the end of 2024, the number of second-level outlets is expected to exceed 400.

This reporter previously learned from Zoomlion that in terms of overseas revenue in major regional markets, the original advantageous markets of Central Asia, the Middle East, and Southeast Asia grew rapidly, and exports to Latin America, Africa, India, Europe, and North America all achieved rapid growth of more than doubling, and the regional structure of the company's overseas sales was further diversified and optimized.

On July 21, XCMG announced that its main export regions are Southeast Asia, Central Asia, Africa, South America, Europe, North America, West Asia and North Africa, Central America, Oceania, etc. The company's international revenue will account for 40% in 2023 and 44% in the first quarter of 2024.

It is worth mentioning that for the Indian market that Kato Manufacturing wants to "replace the Chinese market", most of the domestic engineering machinery leaders have already made corresponding arrangements.

For example, Sany Heavy Industry has completed the localized production project in India and started production. It has also sent Indian workers to its factory in Loudi, Hunan for training and established an after-sales service mechanism at the same time as the production layout. XCMG Group has developed customized products based on India's construction conditions and formed a localization team. After the establishment of the factory in India, its sales doubled. The company plans to use India as a manufacturing center for Southeast Asia and South Asia and expand to neighboring countries.

Editor-in-charge: Zhang Bei Editor-in-chief: Zhang Yuning