2005 Machine Tool Exporters Guide to
China
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Overview
China acceded to the WTO four years ago and is currently in the process of completing
a seven-year transition. Accession to the WTO symbolizes China’s ongoing integration
into the world economy. There is no doubt that China’s transition from central planning
to market-based regulatory principles offers significant improvements in market access
for many American exporters. However, from an American supplier’s perspective, the
transition process is incremental at best and not without bumps in the road.
Meanwhile, China's macro economy continues to be extremely healthy. According to
China’s National Bureau of Statistics, China’s economy increased by 9.5 percent in
2004. Retail sales rose 14 percent last year and are expected to continue to rise
rapidly in 2005 as a result of increased consumer credit. Foreign currency reserves
exceeded USD 600 billion by yearend, up 52 percent from yearend 2003. After rising
sharply earlier in the year, inflation declined to a 3.9 percent rate at year’s end. In
2004, the government fiscal deficit declined. Total trade resulted in a small surplus.
Fixed asset investment rose rapidly (25 percent) to reach USD 846 billion (slightly more
than 50 percent of GDP). China attracted USD 60.6 billion in foreign direct investment
– mostly in manufacturing or real estate – ranking second only to the United States.
Despite the high level of interest, China remains a developing market, albeit one with
vast potential. Spread over a population of 1.3 billion, China’s 1.65 trillion USD
economy does not represent a large amount of disposable income for each person. By
the end of 2004, the Chinese government reported that the annual rural per capita net
income was USD 355 and urban per capita disposable income was USD 1,140 at
current exchange rates.
Rapid economic growth has fueled strong growth in imports. According to the National
Bureau of Statistics, the total value of imports increased to USD 561.4 billion, up 36
percent. China is now the world’s third largest trading nation behind the United States
and Germany.
According to U.S. Customs statistics from January to November 2004, China-U.S. trade
reached a historical high of USD 210.7 billion during the first 11 months of 2004. The
U.S. imported USD 179.2 billion of goods to the United States, up 29 percent. China is
our second largest supplier, after Canada. The U.S. exported 31.5 billion to China
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during the same period, up 25 percent from the year before. China has become our 5th
largest export market. As a result of these trends, the bilateral trade deficit with China
increased 29 percent to USD 147.7 billion in the first 11 months of the year.
Machine Tool Market in China
The dramatic growth and development in China’s manufacturing sectors over the past
decade has fuelled the country’s market for sophisticated machine tools. Currently the
world’s largest consumer and importer of machine tools, China is a growth market for
many U.S. manufacturers of technologically advanced machinery. Some of the leading
sectors driving machine tool consumption include automotive, aviation/aerospace,
shipbuilding, and information technology related manufacturing.
China is currently the world’s largest consumer and importer of machine tools. In 2004,
China’s consumption of imported machine tools reached more than $5.9 billion, with US
imports constituting $482.9 million or 8% of the total. Japan (33%), Taiwan (21%), and
Germany (15%) account for a substantial portion of China’s machine tool imports.
According to some estimates, nearly one-half of China’s machine tool market is
comprised of imports.
The growth in machinery exports to China over the past several years is driven by a
number of factors:
· Demand for superior quality and precision technology not available in China.
· Expansion of China’s manufacturing capacity and increased competition
among domestic manufacturers for quality output.
· Influx of foreign invested manufacturing facilities requiring world -class
machinery.
· WTO mandated tariff reductions.
Sampling of China’s Leading Machine Tool Imports
Grinders
Lathes
Spindles
Tool Carriages
Ball-screws
Tool System Manipulators
High Speed Protectors
Precision Tools
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In order to deal with the increased market opportunities and competition resulting from
entry into the WTO, China has placed high emphasis on upgrading its conventional
industries with more advanced high-tech machinery and equipment. China is also
moving rapidly to restructure the state-owned, exclusively invested and private
enterprises. The two initiatives, along with the start-up of numerous major national
projects, are stimulating rapid growth in the demand for machine tool and tooling
products in China. This provides market opportunities for machine tool builders, as
China is expected to import advanced equipment and technology valued in the tens of
billions of US dollars. The budget for the reconstitution of the conventional industries
into modern, competitive companies will total in the tens of billions of US dollars.
Some of the major events, projects and other developments in China that will impact
machinery exports are as follows.
Beijing 2008 Olympics
The City of Beijing is planning to invest more than US$ 23 billion in preparation for the
Olympic Games in 2008. Much of this money will be spent on construction projects in
the following areas: Olympics facilities, transportation, telecommunications, and
environmental improvements. Some of the projects are continuations of city
improvements that have been planned for years. Others are entirely new projects that
will now come to fruition since Beijing has been officially selected to hold the Olympics.
Coupled with the Beijing municipal government promise that bidding on these projects
will be open on an equal basis to both foreign and domestic companies, the 2008
Games could be a very enticing business opportunity.
China's Machine Tool
Import Composition
Taiwan
21%
Japan
33%
United
States
8%
Other
Countries
23%
Germany
15%
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World Expo 2010
Shanghai recently won its bid to host the World Expo in 2010. Shanghai plans to invest
hundreds of millions of dollars in new urban infrastructure to prepare for this
momentous event.
Automotive
China’s automotive industry has witnessed rapid growth since the country opened to
the outside world and adopted economic reforms. Currently, domestic motor vehicles
have more than a 95 percent market share.
In order to keep costs down, most foreign-invested manufacturers in China are
localizing their supply chain. For the automotive industry, this has led many first and
second tier suppliers to set up operations in China. Increasingly, foreign-invested
manufacturers in China have been sourcing from local Chinese suppliers. Indeed,
these manufacturers are sourcing not only for the domestic Chinese market but also for
export markets. Therefore the demand is not only for price competitive components but
also for world-class quality production.
Currently in the Shanghai area, foreign invested manufacturers such as auto and other
industrial OEMs are actively nurturing local suppliers to help get them up to
specification so they can bring costs down.
The demand by foreign and high-end Chinese automotive producers for locally
manufactured, high-quality components has led to increased acquisition of advanced
manufacturing technologies throughout the supply chain and across many sectors in
China. These foreign and Chinese manufacturers should be the target clients for US
exporters of machinery and industrial equipment. US firms have a reputation for high
quality in the Chinese market. Many Chinese buyers have a favorable opinion of
American suppliers but often comment that US companies do not have the same
aggressive local presence as their Japanese and European competitors.
There is generally demand among local components manufacturers who are interested
in improving manufacturing technologies in order to move up the value chain in the
following areas:
· Deep drawn parts, high-precision screw machined parts
· Motors, engine assemblies
· Mold makers
· Extruded body castings
Energy Sector
China's overall energy consumption ranks second in the world. China's growing
demand for energy has caused this traditionally off-limits sector to gradually open up to
increasingly larger scale foreign participation. Reluctance to change has made progress
in the oil and gas sector slow for foreign firms in China, but government encouragement
has produced progress. The best opportunities for foreign participation are in natural
gas infrastructure development and offshore oil exploration and production. Onshore oil
projects are far less attractive due to lack of access to satisfactory leverage and
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geological data, and a greater tendency to source equipment, services and technology
domestically. Offshoot industries with high technology components are in high demand.
The development of China's petrochemical industry in the Tenth Five -year Plan period
(2001-05) will focus on increasing the production of refined oils. Demand for oil
products is expected to witness a sizable increase in the next five years, with total
consumption of gasoline, diesel and kerosene achieving an annual growth rate of 4.3 to
4.6 percent, reaching 136 million to 138 million tons by 2005. Structu ral reforms will be
carried out in major petroleum and petrochemical enterprises such as CNPC (China
National Petroleum Corp.), Sinopec and China National Offshore Oil Corporation to
sharpen the industry's competitive edge in the world market, while further opening-up
policies will be initiated to attract more foreign investment. China will try to bring the
overall oil refining capacity to 270 million tons, including over 75 million tons of sulfur
crude; build eight to nine oil refining bases, each with a refining capacity of 10 million
tons; adjust installations, optimize crude varieties, increase the output of diesel and
naphtha, expand gasoline export, raise the output of fuel oil, provide more quality raw
materials for ethylene production; and also produce more high grade road asphalt,
quality lubricants and paraffin. In 2003, China gradually opened its gasoline and diesel
market and increase the import of oil products, which have an import quota of 25.3
million tons (i.e. including 20 million tons quota for state trade and 5.3 million tons quota
for non-state trade).
China now is carrying out several huge oil and gas projects to meet its growing energy
needs. Major projects are being driven by a combination of political, environmental and
market factors. The ongoing Guangdong LNG Terminal and Supply Project, West to
East Gas Project, coal liquefaction, natural gas exploration, and the Bohai Bay
exploration projects will continue to provide export opportunities for foreign companies.
Good opportunities exist in both upstream and downstream engineering, project
supervision, licensing, equipment, technology, consulting, marketing and supply
sectors.
Downstream infrastructure development in China centers primarily on upgrading
existing refineries rather than building new ones, due to current overcapacity. In the late
1990s, the Chinese Government shut down 110 small refineries, which generally made
inferior quality petroleum products. Sixty two other small refineries owned by provincial
and local governments are also likely to be merged into CNPC and Sinopec (China
Petroleum & Chemical Corp.) in the near future. Another major issue in the Chinese
downstream sector is the lack of adequate refining capacity suitable for heavier crude
oil, which will likely becom e a necessity as Chinese imports rise in the mid-term.
Several existing refineries are being upgraded to handle heavier and the more sour
grades of crude oil.
Transportation Infrastructure Industry
The Chinese government is in the midst of a massive upgrade of their existing
transportation infrastructure. Until recently, China’s economy was able to continue to
grow despite deficiencies in infrastructure development. This is no longer the case, and
the Chinese government realizes that, in order to keep their economy moving forward,
they must have an efficient system in place to move goods and people across this
9.326 billion sq. km. land mass. According to World Bank statistics, goods lost due to
poor or obsolete transportation infrastructure amounted to one percent of China's GDP
as recently as the most current survey (mid 1990's). Logistics accounts for 20 percent
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of a products price in China, compared to 10 percent in the US
Passenger rail traffic has priority over freight on the many single-track rail lines across
China, extending trips which should last a few days to two weeks or more, and limiting
investment interests in all but a few coastal regions. Rail tracks are now being doubled
to alleviate the freight train conflict issues, expressways are being built to cut down on
vehicular travel times, sealed roads are being extended to new locations, ports are
being improved for greater use of China’s waterways, and airports are being improved
across the country. All of these projects bring opportunities to US construction
equipment, engineering, and electronics and safety devices companies, especially for
projects funded by the World Bank, Asian Development Bank, OECF, and similar
multilateral lending agencies that use transparent bidding procedures.
Distribution Services
Foreign companies have been barred from engaging in freight forwarding unless they
form a joint venture with local partners. Many have stayed away. With China’s
accession into WTO these and other structural issues are moving to positions more in
line with international standards. These changes are to be fully compliant with
negotiated accession terms within five years of the accession date.
Highways
China’s has been rapidly developing its highway system in the past few years.
Investment in highways for 2001 was US$ 37.66 billion. China added 36,000km of
highways and 3,152km of expressways in 2001 alone. In adherance to the
government’s stance on western expansion, Sichuan province plans to have 1,500 km
of expressways built by 2002 and 4,600 by 2020.
Ports
China has sixteen major shipping ports with a capacity of over 5 million tons per year,
combined for total country shipping capacity in excess of 1.4 billion tons. The Port of
Shanghai is going through a significant upgrade. The Shanghai Model Port Alliance, is
behind many of the upgrade activities that will make Shanghai a more automated port
facility, minimizing loss of goods and time while helping Customs collect more accurate
tariffs. If the Shanghai project accomplishes its goals, there is interest in replicating the
process in other Chinese ports.
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Suggested Market Entry Strategy
Do your due diligence and visit China often.
Continuous communication with contacts, agents, customers, suppliers and your
competition is key to assessing this market. China is not right for everyone, but you
need to be here to make that decision. A number of companies are here and losing
money, because they were lured by less than rational predictions and over-optimism.
Other companies that should be here are not, because they did not invest the time to
research the market.
Identify an agent or other partners.
This is a key step for making sales and setting up distribution and logistics channels.
The first steps should be low-risk. US companies need someone with Chinese
language capabilities, acting as either an agent or company employee, if they want to
sell to Chinese customers.
· Appointing an agent is a good step. But agents aren’t always as aggressive as
companies would like.
· Setting up a Rep Office in the market is a logical next step to support an existing
agent or to identify sales leads. Providing after sales service and maintenance
and engineering support is a challenge. A good agent should have these
capabilities.
· More and more firms are looking into setting up a wholly owned foreign
enterprise (WOFE) as a manufacturing, trading, service or consulting entity to
offer additional sales service and after sales support.
Recognize and Handle Challenges.
There are a number of challenges facing manufacturing exporters selling to China. The
US Commercial Service stands ready to assist US firms where possible to address
these problems. US manufacturing exporters in China commonly face the following
issues:
· Finding good information.
· Increased local and foreign competition, especially from Japan, Germany and
Taiwan.
· Protecting intellectual property continues to plague foreign companies.
· Shorter project cycle times for big projects .
· Getting paid.
· Other transaction costs like travel, negotiation, and shipping, letters of credit.
· Hiring and keeping good staff .
· Visas to the United States for buyers and technical experts.
· Export controls.
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Make a commitment to the market
China is a complex and potentially lucrative market for US manufacturing exporters.
The following information is important to keep in mind when evaluating your company’s
commitment to successfully selling into the market.
· Devote time to developing relationships.
· Be willing to train your agents and customers in China
· Have some type of local presence to build credibility.
· Be open to understanding the cultural, social and economic situation of your
potential buyers.
Model marketing plan for Company ABC (machinery exporter)
Goals:
1. Identify strategic channels to market machinery to end-users in China
2. Identify a company in China to act as an agent for Company ABC in the local market
Phase 1: Market Research
· Develop an introductory letter and basic marketing materials in Chinese
· Identify firms in machinery market in China
· FCS to conduct pre-screening of potential candidates
· FCS to conduct additional market research to identify key sectors and regions
Agent qualifications
· Extensive experience in machinery industry
· Interested to partner/serve as agent for US machinery exporter, complementary
interests
· In-house engineering capability to install and provide after sales service to
machinery in China
· Established marketing/sales networks
· Strong communication skills, English language capability desired
Phase 2: Establishing agent relationship
· Establish contact with firms identified by FCS China
· Evaluate firms according to above criteria
· Develop working relationship with one or more firms, set up points of contact
· Intensive "get to know you" including communication by email, telephone,
· Visit agent in China and/or host them at Company ABC’s headquarters
· Sign an agency agreement with selected candidate (exclusive or non-exclusive)
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Basic cooperation model:
The Chinese company represents Company ABC in China acting as their agent.
Company ABC will assign one person from their company to serve at the China
Account Manager. Likewise, the Chinese company would designate someone to work
with American contact to develop business opportunities. When an opportunity is in
sight, ABC and the Chinese firm would develop a proposal and bid on the job together,
maximizing and complementing the strengths of each company to be more competitive.
The terms of cooperation would be spelled out in an agency agreement or contract.
Phase 3: Find projects and making proposals
· Team up with Chinese company to network and begin marketing
· Develop hot list of clients with whom Company ABC has supplied to in the US
with emphasis on clients who have operations in China
· Identify strategic first project and go full-out
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How the Foreign Commercial Service Can
Help Your Company
The U.S. Commercial Service in China assists U.S. companies with U.S. exports to
China, emphasizing help for U.S. small and medium sized companies. We have five
offices in China - Beijing, Shanghai, Shenyang, Chengdu, and Guangzhou - offering
customized solutions to help U.S. companies enter and expand in the China market.
THE US COMMERCIAL SERVICE (US&FCS)
The US&FCS, assists US firms in realizing their export potential by providing: 1)
exporting advice; 2) information on overseas markets; 3) assistance in identifying
international trading partners; 4) support for trade events; and 5) advocacy, among
other services. US&FCS trade specialists work in more than 100 Export Assistance
Centers across the United States and in more than 150 overseas posts, in
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approximately 80 foreign countries, which combined represent more than 96 percent of
the world market for exports. Lists of trade specialists by US city or country can be
found at
http://www.export.gov
.
CS Core Services
Export Promotion
International Buyer Program (IBP)
Supporting 28 major domestic trade exhibitions annually and bringing more than
125,000 visitors from around the world, the International Buyer Program undertakes for
each show a worldwide promotional campaign aimed at maximizing international
attendance through work with the overseas network of Commercial Service and
Embassy offices. Qualified buyers and prospective distributors, many brought as part of
delegations led by overseas commercial staff, are assisted in meeting with interested
exhibiting firms and provided services aimed at helping them find new suppliers and
trade partners. Each show features an International Business Center at which export
counseling, matchmaking, interpreter, and other business services are provided to
international visitors and exhibitors.
Video Conferencing Programs
Most of our overseas and domestic offices offer video conferencing services and use
that equipment to create programs that provide an effective tool to help US companies
assess an overseas market or overseas business contacts before venturing abroad to
close a deal. Companies can use these cost-effective video services to interview
international contacts, get a briefing from overseas industry specialists on prospects
and opportunities, or develop a customized solution to international business needs.
Business Facilitation
• Gold Key Matchmaking
• International Partner Search
• International Company Profile
Trade Promotion Events
· Catalog Exhibitions
· International Buyer Programs
· Trade Missions/US Pavilions
Market Research
•Market Research Library
•Customized Market Research
•China Commercial Brief
Customized Programs
•Advocacy
•Business Consulting
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Trade Missions
U.S. Government-sponsored trade missions offer great promotion potential at a
relatively low cost. A government official escorts a group of U.S. companies to one or
more foreign markets where they are provided a schedule of meetings with potential
foreign agents, distributors and/or joint-venture partners. Meetings may also take place
with in-country government and regulatory officials, depending on the scope of the
trade mission. Check the latest calendar on export.gov for a list of upcoming missions.
Commercial News USA (CNUSA)
CNUSA, a catalog-magazine containing advertisements of US products serves to
promote US products and services to more than 400,000 potential buyers and partners
in 145 countries. This service was temporarily suspended fall of 2003, soon to
reemerge in early 2004. Please contact your local US Export Assistance Center for
more information.
Trade Information Center
The International Trade Administration’s Trade Information Center (TIC) is an excellent
first stop for new-to-export companies seeking export assistance from the federal
government. TIC Trade Specialists: 1) advise exporters on how to find and use
government programs; 2) guide businesses through the export process; 3) provide
country and regional business counseling, foreign import tariff/tax rates and customs
procedures, trade opportunities and best prospects for US companies, distribution
channels, standards, and common commercial difficulties; 4) provide information on
domestic and overseas trade events; and 5) provide sources of public and private
sector export financing. TIC trade specialists also assist exporters in accessing reports
and statistics from the computerized National Trade Data Bank and direct them to state
and local trade organizations that provide export assistance. To contact the TIC, call 1-
800-USA-TRADE; FAX (202) 482-4473; e -mail:
[email protected]; or visit the Web site
http://export.gov/tic.
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List of Key Chinese Trade Associations
Shanghai Non-Ferrous Metals Industry Association
Mr. Le Shen Tong
Tel: 86-21-6205-6287
Fax: 86-21-6205-6287
Email:
[email protected]
Shanghai Automotive Trade Association
Mr. Hu Ling Zhang
Tel: 86-21-2201-1507
Fax: 86-21-2201-1777
Email:
[email protected]
China Association of Automobile Manufacturers
Mr. Yan Chen
Tel: 86-21-5426-2002
Fax: 86-21-6485-2542
Email:
[email protected]
Automotive Parts Circulating Trade Association
Ms. Mei Xia Zhang
Tel: 86-21-5919-3807
Fax: 86-21-6919-1685
Email:
[email protected]
Shanghai Foreign Investment Enterprise Association
Mr. Zhao You Zhan
Tel: 86-21-6275-1309
Fax: 86-21-6275-1423
Add: Suite 615, No.55 Lushanguan Road, Shanghai 200336
Shanghai SME International Cooperation Association
Mr. Xu Wei - Secretary of General
Tel: 86-21-6336-6547
Fax: 86-21-6320-3807
Add: Suite 324, No.22 Zhong Shan Road (E.2), Shanghai 200002
Shangahi Die & Molds Industry Association
Mr. Gao Hou Shen
Tel: 86-21-3301-1579
Fax: 86-21-6325-7006
Email:
[email protected]
Add: 3/F,No. 35 Tianmu road east, Shanghai 200071
The Plastic Trade Association of Shanghai
Mr. Yang Han Jun
Tel: 86-21-6298-5029
Fax: 86-21-6298-5029
Add: Suite 409, No. 84 An Yuan Road, Shanghai 200060
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Shanghai Electronic Components Trade Association
Mr. Li Xue Zhao
Tel: 86-21-6252-3309 ext. 245
Fax: 86-216251-7323
Add: No. 68 Zhao Hua Road, Shanghai 200050
China Foundry Association
Mr. Zheng Ling - Foundry 2004 show Manager
Tel: 86-10-8851-1712,8851-4539
Fax: 86-10-8851-4540
Email:
[email protected]
Add: No.5 Xi-san-huan Bei Lu, Beijing 100089, P.R.China.
Casting Association of Shanghai
Mr. Zhang Fang Tao - Secretary of General
Tel: 86-21-5662-3698
Fax: 86-21-5698-8408
Add: 960 Zhong Xin Road, Shanghai
Shanghai Steel Tube Trade Assoc iation
Mr. Jian Chu Shen
Tel: 86-21-6467-0065
Add: Rm. 3046 No. 679 Xujiahui Road Shanghai 200023
Shanghai Electronic Machinery Industry Association
Mr. Xu Chen Sheng
Tel: 86-21-6546-2374
Fax: 86-21-6545-8339
Add: No.178 Wu Huang Road, Shanghai 200086
China National Hardware Association
Mr. Zhang Dongli
Tel: 86-10-6426-9040
Fax: 86-10-6426-0466, 6426-0160
Email:
[email protected]
Add: No.6 Dixing Ju An Wai, Dong Cheng District, Beijing 100011
China General Machine Components Industry Association
Mr. Du Guosen
Tel: 86-10-6859-4863
Fax: 86-10-6857-2092
Email:
[email protected]
Add: Rm 1011, No.46 San Li He Road Xicheng District Beijing 100823
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China Machinery Related Trade Events
The Fourth China International Equipment Manufacturing Expos ition
Dates: August 30- September 3, 2005
Venue: Shenyang Exhibition Center
U.S. Commercial Service Shenyang
Ms. LIU Yang
Tel: 86-24-2322-1198 Ext. 8142
Fax: 86-24-2322-2206
E-mail:
[email protected]
Website:
http://www.buyusa.gov/china/en/cieme05.html
Metal Working China 2006
Date: October 11-14 2006
Venue: Shanghai New Int'l Exposition Center - Pudong
Organizer: Hannover-Messe Int'l GmbH
Address: 24A, New Shanghai Int'l Tower
Tel: 86-21-68863286
Fax: 86-21-68863797
Email:
[email protected]
Website:
http://www.hfchina.com
Metallurgy China 2006
Date: April 18-21 2006
Venue: China International Exhibition Center, Beijing
Organizer: Metallurgical Council of CCPIT (MC -CCPIT)
Address: 46 Dongsi Xidajie, Beijing, China 100711
Tel: 86-10-65220753
Fax: 86-10-65233861
Email:
[email protected]
Website:
http://www.metallurgy-china.com
