Market Analysis: What factors contributed to the recovery of China’s construction machinery industry in 2017?

　　At the very start of 2017, a wave of positive news swept through the sector: from sharp year-on-year sales gains in excavators, loaders, and other types of construction machinery to the rollout of large-scale national infrastructure investment plans—each development has injected fresh momentum into an industry that had long been mired in a prolonged downturn. With major companies securing substantial orders, the recovery trend in China’s construction machinery industry has become virtually unstoppable.

　　According to reports, since the beginning of this spring, Sany Group has seen a steady stream of sales orders, with market demand showing promising signs. In January, orders for road‑construction machinery and motor graders surged, doubling compared with the same period last year, while port‑handling equipment orders are already booked through the second half of the year. Meanwhile, numerous other construction‑equipment manufacturers, including XCMG, LiuGong, and Shantui, have also received large‑volume orders, further confirming the industry’s recovery.

　　The development of China’s construction machinery industry has been inseparable from the support of national policies and, even more so, from the stimulus provided by economic measures. Since 2016, policy initiatives closely linked to the sector—such as the Belt and Road Initiative, supply-side structural reform, infrastructure projects (railways, highways, and basic public facilities), real estate development, the 13th Five-Year Plan, new rural development, urbanization, and Made in China 2025—have been frequently cited. These favorable policies have offered robust backing for the industry’s growth. Yet, while celebrating the sector’s recovery, it is equally important to adopt a rational perspective on market dynamics and thoroughly understand the factors driving this rebound, so as to better prepare for future market conditions. Below, drawing on analyses and commentary from various sources, we have compiled an overview of the key factors contributing to the 2017 recovery of China’s construction machinery industry.

　　Both winter and the return of warmth have their causes.

　　To understand the factors behind the industry’s recovery, we must first revisit the causes of its downturn, as the two are mutually reinforcing and causally linked. Since 2011, China’s construction machinery sector has been on a downward trajectory, entering a period of adjustment marked by significant challenges. The primary reasons can be summarized as follows: with the phasing out of the 4-trillion-yuan stimulus package, reduced project volumes and insufficient new starts led to weak demand; meanwhile, overcapacity, an excessive installed base, and over‑development of the market resulted in a severe supply‑demand imbalance. Under the combined impact of these factors, China’s construction machinery industry inevitably faced a prolonged “winter.”

　　Faced with sluggish demand, China’s construction machinery industry embarked on a five-year adjustment period, enduring both anxiety and hope. Under these circumstances, transformation emerged as an effective strategy for breaking through the impasse; companies in the sector began to strengthen their core competencies, restructure their operations, and build momentum for future growth. Today, as outdated and excess capacity is phased out and technologies such as energy efficiency, environmental protection, and intelligent high‑tech solutions gain traction—coupled with supply‑side reforms and growing emphasis on customer needs—the Chinese construction machinery industry is gradually emerging from a structurally impaired state, laying a crucial foundation for the current recovery.

　　Recovery Factor No. 1: A Revival in Domestic Downstream Infrastructure Investment

　　Since 2016, China’s economic indicators have shown a rebound in growth rates, and infrastructure projects aligned with major national strategies such as the Belt and Road Initiative and the Yangtze Economic Belt have been steadily launched across regions, helping to stabilize demand in the infrastructure sector. Consequently, the construction machinery industry has also begun to show signs of recovery.

　　In 2016, fiscal and monetary infrastructure investment remained at a high level, posting annual growth of 15.7% and serving as a key pillar for boosting investment and ensuring stable economic growth. Specifically, the number of newly initiated projects and ongoing construction projects expanded by 20.9% and 10%, respectively—marks that represented substantial increases of 15.4 and 5.7 percentage points compared with 2015. Meanwhile, demand in the real estate construction sector rebounded markedly, with investment growth surging from 1% in 2015 to 6.9%, thereby driving a noticeable improvement in the utilization rates of downstream construction machinery such as excavators. After five consecutive years of decline, industry demand has begun to emerge from its trough and is steadily recovering.

　　As 2017 began, infrastructure investment continued the growth momentum of 2016, with a new wave of major projects breaking ground across the country. The scale of proposed investments has grown substantially, often ranging from hundreds of billions to trillions of yuan. For instance, in Hubei, Shaanxi, and Henan, the total investment in newly launched major projects all exceeds 100 billion yuan; in Jiangsu, the first batch of major projects boasts a combined investment of 1.33 trillion yuan. Meanwhile, Shaanxi plans to launch 600 provincial-level key projects in 2017, with a total investment of 3.7 trillion yuan and annual capital expenditure of 482 billion yuan.

　　Based on data released by various provinces, editors at the China Construction Machinery Commerce Network have compiled statistics showing that the 23 provinces that have already announced their 2017 fixed‑asset investment targets have collectively earmarked over RMB 40 trillion. Adding in the provinces that have yet to disclose their figures, total investment across the country is estimated to exceed RMB 45 trillion this year. This massive scale of investment has created a highly confident environment for the recovery of China’s construction machinery sector, making it one of the most critical contributing factors.

　　Factor Two for the Recovery: PPP Projects Inject Vitality into Infrastructure Investment

　　Having discussed infrastructure investment planning, let’s turn to the issue of funding. Over the past few years, China has invested heavily in infrastructure, yet the construction machinery sector has remained mired in a prolonged downturn—largely due to financing constraints. Insufficient project commencement and inadequate capital allocation have undermined the momentum of infrastructure spending. Consequently, addressing funding challenges will be pivotal to determining whether the industry can rebound. Meanwhile, public–private partnerships (PPPs) entered a phase of tangible returns in 2016 and reached a peak in 2017, injecting fresh vitality into future infrastructure investment.

　　In 2016, PPP financing is expected to account for more than 25% of infrastructure investment, providing a significant boost to demand for construction machinery over the next three years. That year, the total value of PPP projects awarded exceeded RMB 4 trillion, with RMB 2–3 trillion entering the procurement and implementation phases, representing 15% of overall infrastructure investment; many central state-owned enterprises reported average order growth rates exceeding 20%.

　　According to experts, data show that China has become the world’s largest PPP market in less than three years. The scale of PPP projects expected to be implemented in 2017 could reach RMB 3.8 trillion, marking a peak in project rollout. In 2017, the National Development and Reform Commission (NDRC) will further intensify its approval and promotion efforts for PPP projects. Based on the NDRC’s division of responsibilities in the PPP sector and its recently issued policies, traditional infrastructure areas such as energy, agriculture, forestry, expressways, and major municipal projects will be the primary focus of the NDRC’s PPP‑related initiatives in 2017.

　　As the government increases its fiscal support and policy banks step up their backing for infrastructure projects, state-owned enterprises are becoming more active, and under the PPP model, local governments are leveraging industrial funds to attract substantial private capital inflows, the funding pressures on infrastructure investment will ease considerably. Given that infrastructure construction typically spans 3–5 years, this will provide strong support for demand for construction machinery over the next two to three years, with excavators, concrete‑mixing equipment, cranes, and other machinery closely tied to infrastructure projects expected to sustain rapid order growth.

　　Factor Three for the Recovery: Vast Opportunities in Overseas Projects and Infrastructure Investment

　　On February 28, the Asian Development Bank released a report emphasizing the need for large-scale public infrastructure development and modernization, as well as a significant boost to private investment. By 2030, emerging economies in Asia will require up to US$26 trillion in funding to build and upgrade infrastructure ranging from transportation networks to clean water systems.

　　China is working with countries along the Belt and Road to actively plan the development of six major economic corridors. As global infrastructure investment enters a new phase of accelerated growth, the construction machinery sector is poised for an upturn. In 2016, China’s Belt and Road Initiative gained significant momentum, with Chinese enterprises securing new overseas engineering contracts totaling US$126.03 billion—up 36% year on year—and making direct investments in Belt and Road countries amounting to US$14.53 billion.

　　In 2016, China’s core infrastructure projects and transactions in the 66 countries along the Belt and Road exceeded US$493 billion, spanning seven major sectors: utilities, transportation, telecommunications, social services, construction, energy, and the environment. China accounted for one-third of the total investment. Given the relatively low levels of economic development and underdeveloped infrastructure in these countries, coupled with significant advantages in population and land resources, the potential for infrastructure investment is immense. The 65 countries along the Belt and Road account for nearly 70% of the global population, yet they generally exhibit low economic development; 49 of them are developing economies with substantial needs for infrastructure reconstruction. Supported by policy incentives, favorable product cost‑performance, and strong general contracting capabilities—key elements of its international competitiveness—the construction machinery industry is poised for rapid growth in overseas sales.

　　Factor Four for the Recovery: The Phasing Out of Old and Outdated Construction Machinery

　　The typical service life of construction machinery is 8 to 10 years. Since the industry’s peak period from 2007 to 2009, a large number of machines have reached the end of their useful lives and are now due for scrapping or replacement. According to statistics from the China Construction Machinery Association, the current market inventory exceeds 7 million units, with more than one-third being outdated equipment—roughly 2.4 million units—ready for retirement. This trend will create new market opportunities for sales of new machinery, further boosting demand across the sector.

　　Factor 5 for the market recovery: Mandatory implementation of China III emission standards.

　　The “China Stage III” emission standard, officially implemented by the Ministry of Environmental Protection on April 1, 2016, has provided policy support to ease capacity pressures in the construction machinery industry. For this sector, the mandatory environmental requirements entail stricter pollution‑emission controls and higher production costs, while also forcing a number of manufacturers that fail to meet these standards out of the market. With the Ministry’s enforcement of the China Stage III emission standards for construction machinery, a comprehensive inventory‑and‑retirement program targeting 7 million in‑service units is now underway. This initiative marks the first step taken by the China Construction Machinery Association toward phasing out 2.4 million older machines that exceed emission limits. The natural process of survival of the fittest will undoubtedly create new opportunities for the construction machinery industry.

　　The curtain has risen on 2017’s investment landscape. After five years of adjustment, China’s construction machinery industry is moving toward greater health. Amid a host of favorable factors and a sector-wide recovery, and with orders surging, we must remain prudent, avoid repeating past missteps, and champion sound development principles to jointly propel the Chinese construction machinery industry forward—more steadily and more rapidly.