One of China’s top construction equipment makers looks to India for new business, as profits plummet in its own oversupplied home market.
One of China’s biggest building equipment makers will invest up to $250 million on a production base in India, in a bid to diversify beyond its crowded home market plagued by overcapacity.
XCMG Construction Machinery Co. Ltd., a unit of China’s Xuzhou Construction Machinery Group Co. Ltd. (XCMG), plans to build the 200,000-square-meter manufacturing base in Chennai, a city located on India’s eastern coast off the Bay of Bengal, the company said in a June 13 filing to the Shenzhen Stock Exchange.
Founded in 1989, XCMG, formerly known as Xugong Group Construction Machinery, is the world’s fifth largest construction machinery maker, according to its website.
The Jiangsu Province-based company is still awaiting Chinese and Indian government approval for the project, according to the filing. The investment is part of Beijing’s “One Belt, One Road” initiative, which encourages investment in Asia and Europe, and also answers the central government’s call for Chinese companies to globalize, the state-owned company said.
XCMG Construction Machinery estimated that India’s demand for construction equipment will increase in line with its rapid economic growth. The domestic industry has been unable to meet local demand, creating opportunities for foreign machinery companies, the statement said.
Chinese companies are turning to emerging markets for growth as they wrestle with a supply glut in their own market, following two decades of breakneck construction of new buildings and other infrastructure. The slowdown at home has hit the listed company’s profit, which dropped around 88 percent last year to 51 million yuan ($7.7 million), according to the company’s annual report.
But its overseas migration has not been smooth either, taking it into unfamiliar terrain in other developing markets. Its first manufacturing base abroad was completed and began operations two years ago in Brazil, only to lose 230 million yuan in 2014 amid the country’s economic slowdown and currency devaluation, the company said in its 2014 annual report.
Rival construction equipment maker Zoomlion ran into another kind of obstacle last month, when local political opposition killed its proposed deal to buy U.S. crane maker Terex for more than $3 billion.
In announcing its latest move abroad, XCMG Construction Machinery said it is aware that social, political and cultural differences between China and India may pose difficulties, but it will study the local culture and seek professional help to avoid such risks.
