Report on construction machinery and heavy equipment industry

Development status and future potential of overseas markets for construction machinery

-Special report on the construction machinery and heavy equipment industry

1 The share of Chinese brands in the global market will be greatly improved, and the overseas market is huge.

China is the largest consumer market for construction machinery in the world, accounting for about 1/3 of the global market. However, from a global perspective, the construction machinery market exceeds 800 billion yuan, and the overseas market space is even broader. As the technical strength of China's construction machinery products increases, , the overseas channel layout has gradually improved, and going overseas has become an inevitable trend.

1.1 The global construction machinery market exceeds 800 billion yuan, and the overseas market space is vast

The global construction machinery market exceeds 800 billion yuan. According to the China Construction Machinery Industry Yearbook, global construction machinery sales in 2020 were approximately US$101.3 billion. According to data from the British KHL Group, the sales revenue of the top 50 construction machinery main engine manufacturers on the list in 2021 and 2022 increased respectively. 20.8%, a decrease of 0.4%. Assuming that the industry sales change is consistent with the top 50 companies, global construction machinery sales are expected to be 122.3 and 121.9 billion US dollars respectively in 2021 and 2022. Calculated based on the exchange rate of 1 US dollar = 7 yuan, respectively. A total of RMB 856.4 billion and RMB 853 billion.

The Chinese market accounts for approximately 34% of the global market, and the overseas market space is vast. Judging from historical data from 2006 to 2020, China surpassed North America and Europe for the first time after the 2009 financial crisis and became the world's largest market for construction machinery. Since then, it has experienced market shrinkage during the supply-side reform period, but it once again surpassed Western Europe in 2017. In 2020, the economy took the lead in recovering after the epidemic, surpassing North America in terms of revenue and returning to the world's largest market. However, overseas construction machinery is about twice the size of the domestic market, and there is still broad market space. According to construction machinery industry yearbook data, of the global construction machinery sales revenue of US$101.3 billion in 2020, the Chinese market reached US$34.16 billion, accounting for 33.7%, North America and Western Europe accounted for 26.4% and 11.8% respectively, and Japan and India accounted for 5.7%. %, 2.9%, and other regions accounted for 19.5%.

1.2 It is an inevitable trend for Chinese enterprises to go overseas, and their global market share is increasing year by year.

Since 2003, the British KHL Group has begun to publish the list of the top 50 global construction machinery every year. Based on historical data, we can roughly review the changes in the competitive landscape of construction machinery brands in various countries in the past 20 years. During the 2020-2022 epidemic, European and American supply chains were affected, but China's economy took the lead in recovering, and Chinese brands' global market share increased significantly. However, judging from the data in 2023, although the absolute export volume of Chinese construction machinery brands still maintains a rapid growth trend, from a relative perspective, the supply of overseas brands has gradually recovered, resulting in the market share of Chinese brands falling back. So, in the long run, how much room for growth do Chinese brands have? Here we can conduct preliminary discussions from two perspectives: vertical and horizontal.

1.2.1 Vertical comparison: In the past 20 years, Asian brands represented by China have risen rapidly, while the market share of North American brands has declined.

In the past 20 years from 2004 to 2023, the brand competition landscape in North America, Europe, and Asia has undergone major changes. North American brands are mainly American brands, with typical representatives being Caterpillar, Terex, John Deere, Ingersoll Rand, JLG, Manitowoc, and the Canadian brand Skyjack. In the past 20 years, the market share of North American brands has been in a downward trend. The market share dropped from 43.3% in 2004 to 27.2% in 2023. Several important market share decline time nodes were in 2008. Financial crisis, trade friction, and the outbreak of the COVID-19 epidemic in 2020. European brands are mainly represented by Sweden's Sandvik and Epiroc, Germany's Liebherr and Vik Neuson, Finland's Metso, and Austria's Palfinger. Over the past 20 years, the market share of European construction machinery brands has basically remained stable. The market share of European brands was approximately 25.9% in 2004 and approximately 27.3% in 2023. Asian brands mainly include Japan's Komatsu, Hitachi, Kubota, Sumitomo CIMC, and Kobelco Construction Machinery, China's XCMG, Sany Heavy Industry, Zoomlion, and Liugong, and South Korea's Doosan and Hyundai. In the past 20 years, the market share of Asian brands has increased significantly, and it has now become the home of enterprises with the largest market share of construction machinery brands. From 2004 to 2023, the market share of Asian brands increased from 30.4% to 44.8%, and this market share mainly came from the decline in the market share of North American brands.

The increase in market share of Asian brands mainly comes from China. Judging from the internal changes of Asian construction machinery companies in the past 20 years, 1) Japan: Although the market share has experienced large fluctuations in the past 20 years, the market share has remained between 20-25%. In 2004, the market share The rate is approximately 21.1%, and the market share in 2023 is approximately 20.9%. Only the 2008 financial crisis and China's supply-side reform experienced a certain decline, and then gradually recovered. 2) South Korea: The market share of Korean brands will increase from 2.2% in 2004 to 5.7% in 2023, mainly due to the increase in Doosan’s market share. This is due to its 2007 acquisition of Bobcat General Equipment and Ingersoll Rand’s subsidiary of the United States. Accessories and the subsequent acquisition of the forklift business are also related to a certain extent. 3) China: Looking back on the history of the past 20 years, the increase in the market share of Asian brands mainly comes from Chinese brands. The increase in the market share of Chinese brands represented by Sany, XCMG, and Zoomlion was accompanied by the 2008 financial crisis, the recovery of growth after the supply-side reform in 2017, and the shortage of global supply chains caused by the epidemic. Opportunities are waiting for these key nodes. Although in the short term, the supply of overseas brands will gradually recover in 2023, resulting in the market share of Chinese brands falling back, in the long term, the increase in market share of Chinese brands has become a trend, and currently Chinese brands are in the top 50 The market share level in the list is basically the same as Japan.

However, China's market share in North America, Japan, Western Europe, India and other places still has much room for improvement. Looking at regions, we calculated the local market share of Chinese brands based on the sales of construction machinery in various regions around the world from 2007 to 2020 and the amount of construction machinery exported from China to the region. In 2020, the overall overseas market share of China's construction machinery products is approximately 31.2%. Among them, China has the lowest market share in North America, which is approximately 10.5%, followed by Japan, India, and Western Europe with 19.8%, 24.4%, and 27.2% respectively. %, both lower than the average overseas market share. It can be seen that Chinese brands still have great development potential in these areas. In other regions represented by Russia, the Middle East, Africa, and South America, the overall market share of China's construction machinery products has reached 66.1%. Although the market share in these regions has reached a high level, the growth potential of the market size is also large.

1.2.2 Horizontal comparison: Looking at the overseas expansion of Chinese brands from the development history of Komatsu

Compared with the United States and Japan, there is still room for further improvement in the market share of China's leading companies. The top three companies in the United States, Caterpillar, John Deere, and Terex, have market shares of 16.3%, 5.4%, and 1.9% respectively, while Japan's Komatsu, Hitachi, and Kubota have market shares of 10.7%, 4%, and 1.7% respectively. Compared with leading companies in the United States and Japan, the market shares of China's leading companies XCMG, Sany, and Zoomlion in 2023 are 5.8%, 5.2%, and 2.7% respectively. There is still room for further improvement in market share.

So, why has Komatsu’s market share remained stable in the past 20 years, and how does Komatsu expand its overseas markets and globalize its layout? Judging from the development history of Komatsu, after the company achieved a high market share in the local market, it expanded overseas. Its development strategy first started from 1965 to 1969 in the early stages of overseas exploration, setting up its own offices overseas and developing global businesses. dealers in various countries and established offices. In 1970, it established its own wholly-owned company in the United States. For countries with strict import restrictions, Komatsu chose to set up factories locally. For mature markets like the United States, Komatsu launched cost-effective and Innovative products to increase market share.

After 1985 was the period of Komatsu's global layout. The appreciation of the yen and trade frictions weakened the export competitiveness of domestic products. This is also similar to the current global trade pattern. Therefore, Komatsu chose to set up factories in many places in the United States, and then further entered overseas markets through equity participation, establishment of joint ventures, etc. From the perspective of Komatsu's path into the Chinese market, it can also be divided into several stages such as export of complete machines to support China's early construction, technical cooperation, and direct investment.

Comparing with Komatsu's development path, China's Chinese brands are currently in the transitional stage of overseas exploration and global layout. Leading companies have gradually deployed dealers and established offices in various countries around the world. For countries with strict import restrictions, they have begun to Build factories locally.

1.3 Export status: The proportion of Europe and South America has increased significantly, and excavators, forklifts, loaders, and cranes are the main export products.

The "epidemic dividend" ushered in opportunities for construction machinery to go overseas. Since 2017, construction machinery exports have grown rapidly. In 2020, they fell by 13.6% due to the epidemic. After 2021, they rebounded sharply with a growth rate of 61.8% and maintained rapid growth. Among them, Asia and Europe have the largest export growth. Before 2020, the market growth in the Americas and Oceania was slow, and the growth rate increased rapidly after 2021. From January to November 2022, the export growth rate of Europe, America, and Oceania was higher than the growth rate of total export volume.

Judging from the proportion of each region in China's total exports, Asia is China's largest construction machinery export market, accounting for 41% of total exports in 2022; the European market is second, accounting for 23.7%. North America, South America, and Africa accounted for 12.5%, 9.3%, and 8.7% respectively.

Excavators, forklifts, loaders, and cranes are China's main exported host products. Broken down by product, about 36.3% of China’s construction machinery exports of US$34 billion in 2021 will come from parts and components. Among the ten major categories of host products, excavators occupy a major position in exports. In 2021, the exports of crawler, tire and other excavators totaled US$5.07 billion, accounting for 14.9% of the total export value of construction machinery. Forklifts are the second largest category of construction machinery exports. In 2021, the total export volume of electric and internal combustion forklifts was US$3.59 billion, accounting for 10.6% of the export value of construction machinery. Loaders and cranes are the third and fourth largest export products, accounting for 7.2% and 6.3% respectively. Exports have a great impact on loaders, cranes, forklifts, excavators, etc., accounting for approximately 40-60% of total sales. Judging from the proportion of each product's export volume in total sales, loader exports accounted for the highest proportion of total sales, reaching 57.9%, crane exports accounted for 54% of total sales, forklifts and excavators accounted for 47% and 36.5% respectively. Exports play a decisive role in the sales of several major host products.

2 North American market: The return of manufacturing industry brings increased investment in production construction

The North American market is the world's second largest construction machinery consumer market. In recent years, the return of the manufacturing industry has brought increased investment in production buildings, commercial residences and infrastructure facilities, becoming an important driving force for the demand for construction machinery. High-cost labor in the agricultural sector, as well as the mining of strategic minerals such as important lithium ores in the mining sector, may become important driving forces in the medium to long term. From the supply side, compared with the oligopoly agricultural machinery field, the competition pattern of construction and mining equipment is more fragmented, and there are more opportunities for Chinese brands to enter.

2.1 The North American construction machinery market is nearly US$30 billion, accounting for 26.4% of the global share

2.1.1 Market size of various categories of construction machinery

According to the China Construction Machinery Industry Yearbook, North American construction machinery sales in 2020 were approximately US$26.7 billion, accounting for approximately 26.4% of the global share. In terms of regions, the North American construction machinery market mainly includes the United States, Canada, and Mexico. According to Freedonia data, North American construction machinery demand will be approximately US$59.3 billion in 2022, of which the United States accounts for approximately 85.1%, Canada accounts for approximately 12.3%, and Mexico accounts for approximately 2.6%. It is worth noting that Freedonia's statistics on the North American market are somewhat different from the China Construction Machinery Industry Yearbook's statistics on North American construction machinery sales. They may take into account the demand for machinery in the mining and agricultural fields and represent construction machinery in a broad sense. Considering that foreign leading construction machinery companies such as Caterpillar, John Deere, and Kubota also have layouts in the fields of agricultural machinery and mining machinery, and have strong comprehensive capabilities, Chinese leading construction machinery companies have also already established their presence in the fields of mining machinery and agricultural machinery. Emerging, so here we will briefly analyze the demand for mobile machinery in the agricultural and mining fields.

The United States and Canada rank among the top six markets in the world. This is due to the two countries’ active construction activities, abundant minerals, energy, forestry and other natural resources, the increasing demand for machine replacements due to high labor costs, and the developed financial industry’s demand for construction and mining. Project financing and equipment procurement support are highly relevant. In contrast, although the Mexican market is quite large, its construction machinery usage intensity (relative to construction activities) is lower than the former two. This is mainly due to the fact that there are still many areas in Mexico that use rudimentary construction and mining technology and mechanization. The rate is low. In addition, due to financial constraints, Mexico also uses a large amount of second-hand equipment from the United States and Canada, which also suppresses the demand for newly purchased equipment to a certain extent.

2.1.2 Equipment classification

In terms of equipment classification, according to Freedonia, North American construction machinery includes excavators (Excavator), cranes and traction ropes (Crane & Draglines), loaders (loaders), bulldozers and off-highway unloading trucks (dozers & Off-highway Trucks), concrete mixing And paving equipment (Mixing & Paving Equipment), vibration and compaction equipment (Grading & Compaction Equipment), spare parts and other categories. From the perspective of demand that better reflects future trends, taking the United States as an example, excavators are the most demanded category and are expected to remain the largest category in the future. The demand in 2022 will be approximately US$9.24 billion, followed by cranes and traction ropes. etc., approximately US$8.23 billion, loaders US$7.78 billion, bulldozers and off-highway unloading trucks approximately US$7.17 billion, and concrete mixing and paving equipment approximately US$5.35 billion. It is worth noting that from the perspective of sales volume, more loaders are sold in North America. This may be related to the price difference between loaders and excavators. It can also be seen from the operating equipment that better reflects the inventory. , the proportion of loaders is higher. Excavators and loaders are the two most important types of construction machinery, and they are also considered to be functionally interchangeable. First of all, both are construction machines that can be widely used in earthwork engineering operations and are used to shovel bulk materials such as soil, sand and gravel. Secondly, both are equipped with digging shakers/buckets for loading, unloading, and excavation, and they are walking Decorations are available as wheeled units. Although excavators are not suitable for bulk material operations with wide distribution and variety, as well as self-loading and self-unloading operations at appropriate distances. Excavators and loaders cannot fundamentally replace each other, but overall, excavators The machine has obvious advantages such as stronger insertion force, high loading and unloading efficiency, and the ability to perform three-dimensional operations. Its application scenarios are also wider. Therefore, in terms of amount, the demand for excavators will maintain its first position.

2.2 Demand side: The return of manufacturing industry brings increased investment in production buildings, commercial residences and infrastructure facilities

From the perspective of downstream demand, according to Frost & Sullivan data, construction equipment accounted for 26.6% of North American off-highway equipment sales in 2021, mining machinery accounted for 2.6%, and agriculture accounted for 70.7%. Therefore, judging from the overall proportion of equipment categories, tractors account for 69.2% of the sales of generalized construction machinery and equipment in North America, while construction and mining equipment, such as loaders, bulldozers, excavators, unloading trucks, compactors, etc. account for 20.5% %. Considering that tractors are widely used in the agricultural field, the number is relatively large and the proportion is relatively high. However, from the perspective of the amount, construction equipment and mining equipment are more large-scale and more expensive. The market size proportion converted into the amount should be Higher than the caliber based on sales volume.

Generally speaking, we believe that the North American construction machinery market demand in recent years has mainly come from the return of the manufacturing industry, which has brought about increased investment in production buildings (such as factories), commercial residences, and infrastructure facilities such as highways and streets. In the agricultural field, rising labor costs and shortages in the United States and Canada will further promote the demand for agricultural mechanization. In the longer term, mining, especially the growing demand for lithium ore, will also become an important driving force for construction machinery in North America.

2.2.1 Construction industry: Expenditures on infrastructure such as factories, roads and streets have increased significantly, driving demand for construction machinery in the United States.

After the epidemic, the growth rate of non-residential construction expenditure in the United States was significantly higher than that of residential construction expenditure, and production construction expenditure increased significantly. U.S. construction expenditures mainly include housing, apartments, offices, health care, education, religious buildings, public safety, recreation, transportation, communications, energy, roads and streets, sewers and garbage disposal, water supply, production, etc. According to data from the Census Bureau of the U.S. Department of Commerce, the downstream construction expenditures (annualized) from December 2020 to June 2023 have a larger proportion and faster growth, mainly production, commercial residential, highways and streets. The production category mainly includes production bases and related buildings and structures. The significant increase in construction expenditures is closely related to the series of economic stimulus policies introduced by the United States after the epidemic and the encouragement of the reshoring of manufacturing industries.

In contrast, U.S. residential construction spending slowed. After World War II, economic recovery drove the rapid development of real estate in the United States, with the number of newly constructed private residences exceeding 1 million units. Several economic crises in 1960 and 1969 brought about narrow fluctuations. After the 1970s, the coming of age of the baby boomers pushed U.S. real estate to another peak. However, the subsequent two oil crises in 1973 and 1979 brought violent shocks to the real estate market. After the 1990s, under policies such as easing credit and interest rates, increasing the homeownership rate, and more relaxed immigration laws, there was a long-term and great prosperity. Until the subprime mortgage crisis in 2008, the number of new construction starts dropped to a freezing point, but after the crisis, real estate recovered year by year. The outbreak of the epidemic in 2020 did not bring drastic fluctuations in the number of new private residential construction starts. This indicator was 1.379 million units, 1.601 million units, and 1.553 million units respectively in 2020-2022, but the growth rate has slowed down.

In addition, in terms of the number of housing units per capita, the number of housing units per capita in the United States was approximately 0.33 units per person in 1965, which continued to rise to 0.4 units per person in 1981, and has always been between 0.42-0.43 units per person from 1986 to 2022. There has been no significant increase, indicating that the number of houses per capita has reached a relatively sufficient level.

2.2.2 Demand for agricultural machinery: Rising labor costs drive further growth in demand for agricultural machinery

North America has a high level of agricultural modernization. The entire process of agricultural production has been mechanized, electrified, and chemicalized. It is one of the largest and most productive agricultural regions in the world. The main grains include corn, wheat, rice, oats, etc., and the cash crops include cotton. , soybeans, sugar beets, etc. According to Frost & Sullivan, agricultural machinery accounts for 70.7% of off-highway equipment sales. Therefore, tractors, as important agricultural machinery, are highly used in North America. Against the background of labor shortage, the rapid development of agricultural machinery technology has further improved the level of agricultural mechanization in North America. According to a report by the United States Department of Agriculture, the average annual hourly wage for field and livestock workers in the United States in 2022 will be approximately US$16.62, an increase of 7% from 15.56 yuan/hour in 2021. The continuing increase in labor costs has further boosted the demand for agricultural machinery. In Canada, according to data from the country's Agricultural Human Resources Council, Canada's agricultural labor shortage is expected to double by 2029 compared with 2021, resulting in a shortage of 123,000 agricultural labor workers. During 2020-2021, the cost of the country's labor shortage is approximately $2.9 billion, and the cost continues to rise.

In addition, the sustainable management of farms in recent years has also promoted the demand for highly mechanized agricultural machinery. Post-pandemic, in 2021, the USDA announced the 2021 Producer Pandemic Assistance Initiative, which includes 17 support projects for crop and livestock, timber producers, and some other commodity processors. However, considering that the agricultural machinery market in North America has experienced a series of consolidations and local giant brands have a relatively high market share, it is difficult for foreign brands to enter the local market. According to data from Frost & Sullivan, the U.S. Business Census Bureau, and Statistics Canada, in the North American agricultural machinery market, John Deere, Kubota, CNH, and AGCO accounted for 45%, 15.3%, 15.3%, and 8% respectively, and CR4 reached 83.6%.

2.2.3 Mine development: Growing demand for lithium resources will drive demand for mining machinery in North America

North America is rich in mineral resources and has strong production capacity. In 2018, the reserves of trona, coal and molybdenum in the United States accounted for 92.8%, 23.7% and 15.9% of the world's total reserves respectively, and the reserves of diatomaceous earth and gypsum ranked first in the world. Mineral reserves such as natural gas, gold and copper also occupy an important position in the world, accounting for 6.0%, 5.6% and 5.8% of the world's total reserves respectively. In recent years, as the penetration rate of new energy vehicles continues to increase, the importance of lithium batteries and lithium ore resources has gradually received attention. Lithium resource supply sources mainly include brine and hard rock mines. Among them, spodumene is mainly concentrated in Australia, Canada, the United States, Zimbabwe and other countries; salt lake brine is mainly concentrated in Argentina, Chile, the United States and the Qinghai-Tibet region of China. According to data from the Huajing Industrial Research Institute, among the global proven lithium resource distribution in 2021, the United States and Canada accounted for 9% and 3% respectively, and the remaining resources are mainly concentrated in the South American Lithium Triangle (Bolivia, Chile, Argentina). It is expected that the growing demand for lithium resources in the future will drive North American mining projects and its demand for mining machinery.

2.3 Supply side: Competition is sufficient, and Chinese brands set up factories locally or nearby to expand the market

From the perspective of competition, in construction and mining equipment, two major local brands, Carter and John Deere, account for nearly 40% of the market share in the North American market. Japanese and Korean brands such as Komatsu and Doosan occupy 9.5% and 6.6% of the market share respectively. Followed by Terex, Volvo and other brands. Among agricultural machinery, John Deere occupies a relatively high market share. Compared with the agricultural machinery field, the competition landscape in construction and mining equipment is more fragmented, and there are more opportunities for Chinese brands to enter.

In the past few decades, European and Asian brands have gradually occupied a certain market share in North America, and acquisitions and establishment of factories are important ways. For example, after acquiring Daewoo Machinery in 2005, South Korea's Doosan ranked 16th in the global rankings. In 2007, it further acquired Bobcat to enter the North American market. Chinese brands represented by XCMG and Sany are also gradually expanding their North American business. According to reports from Xinhua Finance and China Financial Information Network on March 21, 2023, XCMG is preparing to build a factory in Atlanta, Georgia, to achieve market integration. The site selection for the factory has been completed and is currently under consideration or planning. The factory focuses on assembly and recruits local workers to provide products for the U.S. market. The factory is designed to have an annual production capacity of two to three thousand units of equipment, but the construction of the factory will be carried out in stages. Currently, half of XCMG's products sold in the U.S. market come from factories in mainland China, and the other half come from factories in Brazil and Mexico, because shipments from Brazil and Mexico to the United States will achieve tariff preferences. The Brazilian factory is expected to have an annual production capacity of 10,000 to 20,000 units, and the Mexican factory can produce up to 10,000 units per year. Considering the cost and economics of building a factory in the United States, small and medium-sized and other products are planned to continue to be shipped from China, Brazil and Mexico. The selling price of large products is higher, and the profit margin may be higher. Large mechanical products can be assembled. Overall, the United States is a net importer of construction machinery. According to Freedonia data, in 2022, the output value of U.S. construction machinery will be approximately US$40.2 billion, while the trade deficit will be approximately US$10.3 billion (accounting for approximately 20% of demand). In 2022, the United States is the world's second largest supplier of construction machinery (after China) and the fourth largest exporter of construction machinery (after China, Japan, and Germany), but why does it still have a large trade deficit?

From the demand side, the U.S. domestic construction machinery market has extensive demand for various types of equipment and the market is highly competitive. From the supply side, U.S. construction machinery brands have strong international competitiveness and strong economies of scale. They are close to Canada and Mexico. Markets that lack considerable demand such as local brands are conducive to exporting to all parts of the world. We believe that the above two characteristics also create opportunities for foreign brands to occupy a certain market share in the United States. However, the U.S. construction machinery trade situation has also fluctuated to some extent over the years. For example, in 2018-2019, domestic product sales surged, but exports were basically flat, leading to an exacerbation of the trade deficit. In 2020, the weak domestic market caused exports to outperform imports, and the trade deficit narrowed. In the long term, the domestic market demand in the United States is expected to show rapid growth, and the trade deficit may further increase.

3 European market: Demand is under short-term pressure, electrification and changes in Eastern European trade partnerships bring structural opportunities

In Europe, the trends in Western Europe and Eastern Europe are divergent. On the demand side in Western Europe, high inflation and gradually tightening monetary policies have affected the demand for construction machinery. The demand side is under short-term pressure, while the supply side is relatively mature, with net exports as a whole. With a strong emphasis on carbon emissions, electrification may become a factor. Structural opportunities in Western Europe. The demand side of Eastern Europe has been affected by geopolitical conflicts in the short term, but given its rich mineral resources and construction demand, the long-term demand potential is still considerable. On the supply side, Eastern Europe is not as mature as Western European construction machinery brands and is a net import region. Geographical conflicts have caused Changes in trading partnerships have also ushered in certain opportunities for Chinese brands.

3.1 Overview of European Construction Machinery Market

According to Freedonia data, the European construction machinery market will be approximately US$53.5 billion in 2022. The major market shares are Germany (16.8%), the United Kingdom (13.4%), Italy (10.1%), Russia (9.5%), France ( 9.3%) etc. Germany is the largest construction machinery market in Europe. This is due to Germany's huge economic size, fully competitive market environment and export-oriented economy, as well as Germany's huge and diversified construction industry and a large amount of existing infrastructure and large-scale buildings, as well as Germany's demand for workers. protection, strict construction standards and environmental regulations. The UK also has a developed economy, a large number of existing buildings and public infrastructure, and a large demand for non-residential buildings, which requires a high degree of mechanization. In addition, from a regional perspective, the demand for construction machinery in Western Europe accounts for nearly 80% of the European market. According to Freedonia data, the demand for construction machinery in Western Europe in 2022 will be approximately US$42.16 billion, while the demand in Eastern Europe will be approximately US$11.37 billion, accounting for 79% and 21% respectively.

In terms of equipment types, excavators will be the largest type of European construction machinery demand in 2022, with demand of approximately US$15.7 billion, accounting for approximately 23.2%, followed by loaders (US$8.89 billion), cranes and traction ropes ( $7.345 billion). As mentioned earlier, the sales and ownership of loaders in North America are more than those of excavators, about twice as much as the latter. In contrast, the number of loaders and excavators in Europe is basically the same, which shows that European excavators are relatively The penetration rate of loaders is higher than that in North America. In terms of demand, the ratio of excavators to loaders is about 1.77, and that in North America is about 1.19. And from the perspective of market size, the European excavator market is also larger than that of North America. This may be related to the industrial structure of Europe. According to Frost Sullivan data, construction and mining accounted for 49.6% of European off-highway equipment sales in 2021, and agriculture accounted for 50.4%. Compared with North America, the EU region has a higher proportion of construction and mining.

3.2 Demand side: The construction industry in Western Europe is under short-term pressure, electrification is expected to become a structural opportunity, and Eastern Europe has great growth potential

3.2.1 Western Europe: The construction industry is weak, but the electrification trend is expected to become a structural opportunity

High inflation and gradually tightening monetary policy have put certain pressure on the Eurozone economy, thereby affecting the demand for construction machinery. According to Freedonia data, the CAGR of construction machinery demand in Western Europe from 2017 to 2022 is about 7.5%, but the CAGR is expected to drop to 4.3% from 2022 to 2027, and the growth rate will slow down. In 2023, Fitch forecasts growth for the European construction industry at around 1.5%, below the global level of 2.5%. Although the growth rate will gradually pick up in 2024 as monetary policy eases, the average growth rate of the Western European construction industry is expected to be 2.1% from 2023 to 2027, which is still lower than the global level of 3.2%. This is mainly due to 1) poor returns from construction activities in Western Europe in recent years. High inflation and rising interest rates have a greater impact on consumer confidence, spending and investment decisions; 2) geopolitical conflicts have led to disruptions in trade and capital flows, which have also It will have a certain impact on the economy of Western Europe to a certain extent; 3) The continuous growth of construction machinery rental services has suppressed the demand for new machine purchases to a certain extent, and a large number of operators have purchased new construction machinery and equipment in recent years.

In terms of countries, the output value of the construction industry in Western Europe is mainly contributed by countries such as the United Kingdom, Germany, France, Italy, Spain, and the Netherlands. According to Global Data, these six countries are expected to account for approximately 75% of the construction market in Western Europe in 2023. share. The contraction of construction activities in Germany and France is more obvious, and Italy is also affected to a certain extent. However, as the largest beneficiary of the EU RRF (Recovery and Recovery Fund), Italy’s private sector investment and major public project investment (especially infrastructure) have all received got better support. The contraction in UK construction industry activity is not as significant as in previous countries, but is still relatively weak overall due to the weakening economy, the continued impact of Brexit, and the impact of the Superduction project on commercial investment activities until the end of March 2023.

The electrification trend may become a structural opportunity for the Western European market. Europe generally attaches great importance to the goal of net-zero emissions. As an advocate and pioneer of global carbon emission reduction goals, Europe is expected to become a research and development center for lithium batteries and hydrogen fuel cells, and an important market for various OEM brands to launch electric products. According to Frost Sullivan data, the number of electrified products launched by various OEM brands in Europe will nearly double every year from 2020 to 2022. Among them, excavators, loaders, and dump trucks have become the focus of various OEMs to launch electrified products due to their multi-functional characteristics, high fuel consumption, and high average annual utilization hours.

3.2.2 Eastern Europe: The demand side is under short-term pressure, but has great growth potential

Eastern Europe accounts for approximately 21% of the European construction machinery market. According to Freedonia data, the Eastern European construction machinery market demand will be approximately US$11.4 billion in 2022, with a CAGR of approximately 6.5% from 2017 to 2022. It is expected that the CAGR from 2022 to 2027 will continue to maintain a high growth rate of 6.4%. In the short term, geopolitical conflicts have a greater impact on the import demand for construction machinery, causing the Russian, Ukrainian, and Belarusian markets to experience violent fluctuations. The impact of the conflict is mainly reflected in two aspects: 1) Uncertain economic growth prospects lead to a reduction in foreign investment, and domestic and foreign trade are also subject to certain restrictions due to sanctions; 2) The conflict leads to an increase in energy and other costs for end users of downstream application of construction machinery. The disruption of the supply chain has also inhibited users' willingness to purchase equipment. But in the long term, Eastern Europe is still a market with great growth potential. 1) After the conflict, some companies will return to the regional market and gradually restore economic vitality; 2) Eastern Europe is rich in natural resources, and construction, mining, and forestry activities are booming. Increased energy production will drive the demand for construction machinery; 3) the need to replace old equipment with new equipment with more powerful functions. From the perspective of product types, cranes and traction ropes, bulldozers, and other off-highway equipment are expected to achieve solid growth in the long term as there are more newly developed models of equipment in the region. Loaders and excavators will benefit from the growth of mining and energy production in the region.

3.3 Supply side: Changes in Russia’s trade partnerships bring opportunities for Chinese brands

The same as the North American market, the European construction and mining machinery market is also highly concentrated. According to Frost & Sullivan data, the CR3 of construction and mining machinery is about 44%, and the CR5 is about 53.2%. The top three suppliers are Caterpillar in the United States. (22.5%), Germany’s Liebherr (12.2%), Sweden’s Volvo Construction (9.3%). In the second echelon are John Deere of the United States, Komatsu of Japan, and Manitou of France.

If we look at the construction field alone, the market concentration of construction machinery brands has decreased, and the brands have become more diversified. According to Freedonia data, the European construction machinery market concentration CR3 is approximately 21.1%, which are John Deere (8.2%), Caterpillar (7.4%), and Volvo Construction (5.5%) in the United States.

According to Freedonia data, the output of construction machinery in Western Europe in 2022 will be approximately US$47.5 billion. Compared with its demand scale of US$42.2 billion, Western Europe will have a trade surplus of approximately US$5.3 billion, making it a net exporter of construction machinery. Western Europe has demand for high-end construction machinery, modern advanced factories, the most cutting-edge technology, and the promulgation of new regulations such as emissions and technical standards. It is also close to markets such as Eastern Europe, the Middle East, and Africa. Therefore, in addition to local brands, many well-known global brands Establish production base in Western Europe. Germany, Italy, the United Kingdom, Austria, and the Netherlands are the main exporters of European construction machinery. At the same time, Western Europe will also import some construction machinery from Eastern Europe, Asia, and American brands. Of course, this also includes the parts of Western European local brands that have set up factories overseas and re-imported to Europe. This is mainly due to the high cost of local manpower and energy. However, in recent years, foreign brands represented by China have gradually entered the European market and expanded their business layout in central and western Europe. In 2017, John Deere of the United States acquired the Wirtgen Group to expand its business in Europe. XCMG also established a European research center in Krefeld, Germany, and announced plans to develop excavators, cranes and other products. In addition, as Europe attaches greater importance to the goal of net-zero emissions, it is expected to become the research and development center for lithium batteries and hydrogen fuel cells in various countries in the future, and become an important market for North American and Asian brands to launch electric products.

According to Freedonia data, the output of construction machinery in Eastern Europe in 2022 is about US$6.8 billion, which is still small compared to its demand of US$11.4 billion. Therefore, the trade deficit in Eastern Europe is about US$4.6 billion, making it a net importer of construction machinery. Accounting for nearly 40% of total demand. Eastern Europe has great potential for market demand growth, but there are few local manufacturers. Russia is the largest producer of construction machinery in the region, with shipments of US$2 billion in 2022. Poland is the second largest producer, followed by Belarus, the Czech Republic, Hungary, Ukraine, etc. Since the market size in Eastern Europe is relatively objective and local brands lack high-end and special construction machinery products, a large part of the demand for construction machinery in Eastern Europe relies on imports. Before the Russia-Ukraine conflict, brands from Austria, Germany, Italy and other Western European countries were important sources of construction machinery in Eastern Europe, while China, Japan, South Korea and the United States were also their overseas suppliers. After the conflict, Russia's foreign trade partnerships changed, which also brought certain opportunities for the market expansion of Chinese construction machinery brands. Generally speaking, European construction machinery is a net exporter, and the trade surplus mainly comes from Western Europe. However, in recent years, rising energy costs and construction machinery equipment prices in the region, as well as the impact of geopolitical conflicts, have reduced the trade surplus, and Asian and American brands occupy a certain market share. . However, construction machinery in Eastern Europe, represented by Russia, has a trade deficit, lacks local brands, considerable market demand, and a relatively good competitive environment, making Eastern Europe one of China's most potential export regions.

4 Southeast Asia: Manufacturing drives demand for production buildings, and urbanization drives demand for infrastructure and real estate.

Statistics from the China Construction Machinery Association show that from January to May 2023, China's construction machinery exports to ASEAN were US$3.214 billion, a year-on-year increase of 9.9%; exports to India were US$735 million, a year-on-year increase of 35.1%. Currently, the economies of countries along the Belt and Road are growing rapidly, accelerating infrastructure and real estate construction, and promoting the growth of the construction machinery market. From January to November 2022, China’s contracted project turnover for countries along the “Belt and Road” was US$71.95 billion, and the value of newly signed contracts was US$98.19 billion, accounting for 54% and 50.2% of the total foreign contracted projects respectively.

4.1 Vietnam: Rapid growth in urbanization and manufacturing investment has brought demand for infrastructure and production buildings

From the demand side, investment in public infrastructure has been one of the key driving forces for Vietnam's economic development in recent years. According to OECD data, infrastructure accounted for 53% of total official development assistance during 2010-2017. In addition, Vietnam's rapid urbanization has promoted the development of infrastructure. It is estimated that 50% of the population currently lives in large cities, and the growing population has exceeded the capacity of existing connectivity networks and utility systems. In 2021, the Vietnamese government approved the road network development plan for 2021-2030, during which it will invest US$43-65 billion to build and upgrade roads, railways, inland waterways, maritime and air transport infrastructure. In 2030, Vietnam's highway mileage will increase from 3,841km in 2021 to 5,000km, national highways will increase from 5,474km to 29,795km, and coastal roads will increase by 3,034km. In addition, Vietnam's manufacturing investment has increased rapidly, and the demand for factory buildings and other constructions will also become the driving force for local construction machinery demand. In 2021, manufacturing accounted for 24.3% of Vietnam's total investment, ranking first among all categories. Vietnam is undertaking a large amount of manufacturing production capacity, and the demand for factories and other infrastructure is increasing. In 2021, the transportation and warehousing industry accounted for 10.7% of Vietnam's total investment, second only to manufacturing and other service industries. From the supply side, Vietnam lacks competitive local construction machinery brands, but this also brings certain opportunities for Chinese brands. After experiencing a brief decline caused by the epidemic in 2020, China's construction machinery exports to Vietnam will reach the fastest growth rate in 12 years in 2021.

4.2 Malaysia: There is ample investment in infrastructure and the construction market is relatively active.

The Malaysian construction market is beginning to recover post-pandemic, driven by investments in large transportation and energy projects. GlobalData predicts that the Malaysian construction market AAGR will reach more than 6% from 2024 to 2027. The Malaysian government has established a Public-Private Partnership (PPP) 3.0 mechanism to cooperate with enterprises to raise funds and invest in infrastructure projects under the 12th Malaysia Plan (12MP) from 2021 to 2025. The major sectors of the Malaysian construction market include industrial construction, energy and utility construction, institutional construction and residential construction. The industrial construction sector continues to expand as the government relaxes taxes to attract continued investment from multinational corporations and manufacturing; the energy and utility construction sector continues to grow due to the execution of large-scale oil and gas projects and the increase in tier-1 renewable energy capacity; while in healthcare Institutional development will continue to grow, supported by investments in the health and education sectors, which will see average growth of more than 6% between 2024 and 2027. In addition, the government's target of building 500,000 affordable housing units by 2025 will also help boost output in the housing sector. In addition, the Malaysian government announced an infrastructure development budget of US$20.43 billion in October 2022, and plans to develop 7,615 projects of various types in 2023, an increase of 25.7% over 2022. The plan will prioritize infrastructure projects such as road construction, as well as road maintenance and upgrades in rural areas. Previously, the Malaysian government planned to improve transportation connections with neighboring Indonesia and Thailand, and will jointly develop new international highways with neighboring countries to promote transportation throughout the region, so the demand for construction machinery will further grow.

4.3 Indonesia: The infrastructure investment budget has increased after the epidemic, and the project completion time will support the demand for construction machinery in the next two years.

The increase in infrastructure budgets after the epidemic supports the growth of the construction machinery market in the next two years. Indonesia's draft national revenue and expenditure budget for 2023 shows that the infrastructure budget is 392 trillion Indonesian rupiah, a year-on-year increase of 7.8%. Fifty-five additional infrastructure projects are expected in 2022-2024, with the 2023 infrastructure target including 297 kilometers of toll roads, 24 dams, as well as irrigation networks and apartment construction. The government stipulates that national strategic projects (PSN) using the national budget (APBN) must be completed before 2024, unless the project is a long-term investment project with a multi-year contract, which will help ensure the demand for construction machinery within the next 2 years. In 2021, China's exports of construction machinery to Indonesia were US$1.63 billion. From January to November 2022, China's exports of construction machinery to Indonesia were US$2.49 billion, a year-on-year increase of 76.9%, accounting for 6.18% of exports. Indonesia is also the third largest country in China's construction machinery exports. 

4.4 India: There is an urgent need for national highway construction, and infrastructure projects such as road construction are the main driving force for construction machinery.

India's demand for construction machinery mainly comes from infrastructure projects such as road construction. In terms of total road length, India has the second largest road network in the world. Its road length increased from 2.7 million kilometers in 1998 to 3.3 million kilometers in 2008 and reached 6.9 million kilometers in 2019. It has developed rapidly in the past decade. The length of its national highways has also doubled from 50,000 kilometers in 2001 to 133,000 kilometers in 2020. Although from the perspective of the total length of the road network, national highways only account for 2% of the entire Indian road network, they carry 40% of the country's traffic. However, only about 12% of national highways in India are four-lane, and only 22% of the lanes are With two lanes, the traffic problem is very serious. Therefore, the Ministry of Road Transport and Highways (MoRTH) of India is conducting a comprehensive review of the domestic road network and has approved the Bharatmala project, India's second largest highway construction project, which will be constructed in two phases of approximately 65,000 kilometers. The first phase of the national highway is underway and the second phase will begin in 2024.

In addition, India also has great potential for rural infrastructure development. Currently, the Indian government is also paying attention to rural development through initiatives such as Pradhan Mantri Gram Sadak Yojana (PMGSY). In cities, contractors tend to prefer large equipment. For example, new loaders with multiple functions, such as backhoe loaders, are very popular in India, and crawler excavators are also among the most versatile earthmoving machines.

5 The Middle East and Africa: Benefiting from high energy prices and infrastructure development potential, it is expected to become one of the regions with the fastest infrastructure growth

5.1 Middle East: Higher energy prices bring good financial support for infrastructure investment

Since 2020, the Middle East economy has continued to recover. The GDP growth rates of Saudi Arabia and the United Arab Emirates in 2022 will be 8.7% and 7.6% respectively. The International Monetary Fund predicts that the economic growth rate of the Middle East will be 3.2% in 2023 and will rise to 3.5% in 2024. . Benefiting from factors such as rising energy prices and the start of new projects, Fitch predicts that the infrastructure industry in the Middle East and North Africa will grow by 5.0% year-on-year in 2023, higher than the global year-on-year growth rate of 2.3% and ahead of other regions. According to statistics from the Forward-looking Economist, the infrastructure project market in the Middle East will be US$55.5 billion in 2020. Saudi Arabia, as the largest contracting project market, is promoting the NEOM New City (US$500 billion) and Red Sea Tourism (US$10 billion) in the "2030 Vision" and other large-scale projects, among which "The Line" future new city plan will cost one trillion US dollars and will become Saudi Arabia's largest transportation and public infrastructure project.

The main reason for promoting infrastructure construction in the Middle East and North Africa is not only the economic recovery and relatively stable investment environment in the region after the epidemic, but also the high global energy prices, because higher energy prices allow oil-exporting countries in the region to invest more funds. Non-oil economy, especially infrastructure projects that will help diversify the country's economy. According to Fitch's forecast, the average crude oil price in 2023 will be US$95/barrel. Although it is lower than US$99/barrel in 2022, according to IMF calculations, the fiscal break-even oil prices of Oman, Saudi Arabia, and the United Arab Emirates are US$75.1, US$66.8, and US$66.8 respectively. 65.8 US dollars per barrel, therefore, oil-exporting countries in the region still have sufficient fiscal space to support the construction of infrastructure projects. Of course, there will also be certain imbalances in development within the region. For example, Libya, Egypt and Iran are expected to be markets with faster actual growth rates in the industry in the region, while Qatar is already developing in transportation, commerce, and public services in preparation for the World Cup in 2022. The construction of infrastructure and other fields is relatively saturated, new investment is limited, and population growth is relatively weak. Therefore, its main investment projects are also related to energy projects such as LNG expansion. Overall, according to Fitch's infrastructure key project database, the Middle East and North Africa will have a large number of projects under construction and in preparation in the infrastructure field in the next five years, and are expected to maintain a relatively optimistic growth rate.

In 2021, China's construction machinery exports to the Middle East amounted to approximately US$1.53 billion, with a growth rate of 15.3%. Saudi Arabia and the United Arab Emirates are the main countries exporting Chinese construction machinery to the Middle East, and their export proportion is significantly higher than that of other countries in the region. According to statistics from the Forward-looking Economist, from January to November 2022, China's construction machinery exports to Saudi Arabia were US$766 million, a year-on-year increase of 109.5%.

5.2 Africa: A region with great potential for infrastructure development. “One Belt and One Road” brings opportunities for construction machinery to go overseas

In recent years, the African infrastructure construction market has continued to grow, and the “Belt and Road” policy has promoted infrastructure investment in African countries. China is the largest investor outside state governments, with about one-fifth of Africa's infrastructure projects financed by China in 2020 and one-third built by China, according to the Silk Road International Capacity Promotion Center. The African infrastructure development plan planned by the African Union is expected to be completed in 2040, with a total investment of US$360 billion. Among them, the first phase of the priority action plan from 2012 to 2020 includes 51 projects, such as the 1,081-kilometer-long African infrastructure project worth US$15.6 billion. The Bijan-Lagos Expressway Project, the second phase of the priority action plan for 2021-2030 will promote 71 priority projects. In 2021, China's construction machinery exports to Africa increased by 70.7% year-on-year. According to statistics from the Forward-looking Economist, from January to November 2022, China's construction machinery exports to Africa were US$3.543 billion, a year-on-year increase of 24.2%. South Africa, the Democratic Republic of the Congo, Nigeria, Tanzania, and Egypt are the main countries to which China exports to Africa. On the whole, except for the impact of the epidemic in 2020, China's construction machinery exports to Africa have shown a steady growth trend. The region's infrastructure and construction have great development potential, and there is a relative lack of local brands. In the future, China's construction machinery exports will still be important market.