2014 Overview of the Construction Machinery Industry: Favorable Policies

Influenced by global economic developments, the construction machinery industry entered a phase of steady growth in 2014. To address this, the government introduced a series of mild stimulus policies aimed at boosting socio-economic development. The rollout of several favorable policies and major infrastructure projects has brought a glimmer of hope to the struggling construction machinery sector, instilling confidence in the industry's eventual recovery.

Let's review the series of favorable policies introduced by the national government in 2014, providing a deeper understanding of the development trends in the construction machinery industry.

This year, the Western Development Strategy is focusing heavily on infrastructure, with key infrastructure projects being tilted toward the western region.

On February 10, the National Development and Reform Commission stated that to effectively advance the Western Development Strategy in 2014, efforts should closely align with the central government’s overall plan for deepening this initiative. This includes drafting policy documents to further bolster the Western Development, conducting preliminary research for the "13th Five-Year Plan" aimed at the region, accelerating the construction of key infrastructure projects such as transportation and water resources, and launching a new round of the Grain-for-Green Program. Additionally, the commission emphasized fostering specialized industries, actively attracting domestic and international industrial transfers, and prioritizing advancements in science, technology, culture, and public welfare initiatives—all while continuously improving living and working conditions for local residents. Industry insiders predict that the central and western regions will soon emerge as the "main battleground" for China’s urbanization drive, particularly in the infrastructure sector, where significant investment opportunities are expected to arise.

Most analysts believe that urbanization in coastal and Northeastern regions will slow down in the future, while the central and western regions will enter a phase of accelerated urbanization, creating significant investment opportunities in the coming years. In particular, infrastructure development holds the greatest potential for growth, as these regions have already ramped up their investments in this area—showing no signs of slowing down this year. Recently, local People's Congresses across western provinces have also unveiled comprehensive plans aimed at boosting infrastructure projects.

The National New-Type Urbanization Plan (2014-2020) has been issued.

On March 16, 2014, the Central Committee of the Communist Party of China and the State Council jointly issued the "National New-Type Urbanization Plan (2014-2020)," calling on all regions and departments to carefully implement it in line with their specific circumstances. Liu Kun, Vice Minister of Finance, emphasized that the government would step up efforts to support urbanization projects through local government bonds, while also encouraging private capital to play a more active role in financing urban infrastructure development. Meanwhile, Wang Baoan, another Vice Minister of Finance, noted that China’s urbanization rate is projected to reach 60% by 2020, driving an estimated investment demand of approximately 42 trillion yuan—much of which is expected to come from social investments. It’s worth noting that the traditional urbanization model, which has long relied heavily on fiscal and land-based financing mechanisms, has begun to reveal significant shortcomings, making it increasingly unsustainable. As a result, there is an urgent need to establish a more standardized and transparent framework for urban infrastructure investment and financing. "The PPP model effectively addresses the critical challenge of meeting urbanization financing needs," said experts. Moreover, the advancement of the Beijing-Tianjin-Hebei integration initiative, coupled with the broader push for new-type urbanization, has been identified as a key national policy priority. Over the next 10 to 15 years, driven by the goal of steady economic growth, these developments are poised to usher in yet another golden era for the construction machinery industry.

"The 42 comprehensive transportation hubs planned under the '12th Five-Year Plan' will be completed."

On April 1, the National Development and Reform Commission released the "Guiding Opinions on Promoting the Development of Integrated Transportation Hubs," calling on regions across the country to prioritize transportation demand, combine new construction with renovation efforts, and advance the integrated development of China's comprehensive transportation hubs. According to the guidelines, during the 12th Five-Year Plan period, China aims to have essentially completed 42 nationwide integrated transportation hubs. The 42 cities identified as national-level integrated transportation hub centers are: Beijing, Tianjin, Harbin, Changchun, Shenyang, Dalian, Shijiazhuang, Qinhuangdao, Tangshan, Qingdao, Jinan, Shanghai, Nanjing, Lianyungang, Xuzhou, Hefei, Hangzhou, Ningbo, Fuzhou, Xiamen, Guangzhou, Shenzhen, Zhanjiang, Haikou, Taiyuan, Datong, Zhengzhou, Wuhan, Changsha, Nanchang, Chongqing, Chengdu, Kunming, Guiyang, Nanning, Xi'an, Lanzhou, Urumqi, Hohhot, Yinchuan, Xining, and Lhasa.

80 projects open to social capital to boost stable growth

On April 23, 2014, Premier Li Keqiang chaired the State Council Executive Meeting, where measures were outlined to further empower enterprises with greater autonomy in investment decisions. The meeting also decided to launch a series of projects in areas such as infrastructure, actively encouraging participation from social capital. As outlined in the Government Work Report, the first batch of 80 demonstration projects—aligned with national planning and poised for transformative upgrades—were unveiled for public bidding. These projects span key sectors including transportation infrastructure like railways and ports, next-generation information infrastructure, as well as major clean energy initiatives such as hydropower, wind power, and photovoltaic projects. Additionally, plans are underway to further open up more sectors—such as oil and gas exploration, water resources, and airport development—to broader involvement by social capital in the coming stages.
Li Keqiang emphasized that the transportation infrastructure, information infrastructure, clean energy projects, and oil-and-gas pipeline networks—projects now open to social capital—are generally aligned with societal needs, and social capital has shown strong interest in participating. Once the specific projects are finalized, they will be promptly announced, and a transparent public bidding process will be implemented to ensure that qualified enterprises have an equal opportunity to compete fairly. This is especially crucial for certain industrial projects, where fair competition must be guaranteed.

This newly launched project is open to social capital, unlocking existing private-sector investments and boosting market vitality—thereby further strengthening efforts to stabilize and boost economic growth. Xu Hongcai, Director of the Information Department at the China Center for International Economic Exchanges, noted that among the "three engines" driving economic growth—consumption, investment, and exports—consumer spending remains challenging to significantly increase in the short term, especially when household incomes haven’t seen substantial gains. Meanwhile, exports are heavily influenced by external factors. Given the fragile global economic recovery and China’s waning competitive edge in labor-intensive industries, it will be difficult for exports alone to inject fresh momentum into economic growth. Hence, the key to "stabilizing growth" continues to lie in "stabilizing investment."

The Beijing-Tianjin-Hebei Transportation Integration Symposium was held, aiming to create a 3-hour highway network.

On the afternoon of April 29, the Beijing-Tianjin-Hebei Transportation Integration Symposium and the Second Joint Meeting on Transportation Work were held in Tianjin. Attendees reached a consensus to collaboratively advance the alignment of transportation plans across the three regions, ultimately creating a unified regional transportation "single map."

Between Beijing and Tianjin, three major high-speed corridors will be established (Beijing-Tianjin Expressway, Beijing-Tianjin-Tanggu Expressway, and the Beijing-Taiwan–Beijing-Shanghai–Tianjin-Hebei Expressway). Meanwhile, every district and county will have direct access to highways leading into Beijing.

Tianjin will have two corridors leading toward Baoding: the Rongwu Expressway and the Binbao Expressway. For routes heading toward Shijiazhuang, Tianjin will offer three corridors: the Bin (Jin)Shi Expressway, the JinCang–ShiHuang Expressway, and the JinBao–Jinggangao Expressway.

A relevant official from Tianjin's municipal and highway department stated that the city will further accelerate the construction of its highway network to better integrate with the Beijing-Tianjin-Hebei region. By 2020, Tianjin aims to ensure that residents in the city center can reach Beijing within one hour via expressway, and major cities in Hebei Province within three hours. Additionally, each district and county in Tianjin will have at least one expressway and one first-class highway connecting them to neighboring counties and cities in the surrounding areas.

In 2014, China is expected to invest over 1 trillion yuan in slum redevelopment projects.

It is reported that this year, China will continue to vigorously advance various shantytown renovation projects, with plans to renovate more than 4.7 million households nationwide. The total investment is expected to exceed 1 trillion yuan. Currently, the government has already introduced supportive policies to accelerate these renovations. The 2014 Government Work Report explicitly stated that, in the coming period, approximately 100 million residents living in urban shantytowns and "urban villages" will undergo transformation. Meanwhile, central budgetary investments are set to increase to 457.6 billion yuan, with a primary focus on areas such as affordable housing projects.

The new construction target for affordable housing is 7 million units, with 4.8 million units expected to be basically completed.

Li Keqiang, delivering the Government Work Report at the Two Sessions, emphasized aiming for housing security for all citizens. He stressed the importance of adopting a tailored, phased, and tiered approach, while significantly ramping up efforts to build affordable housing projects. This year, more than 7 million new housing units will be initiated—over 4.7 million of which will target various types of dilapidated urban areas—and critical supporting infrastructure will be strengthened. Additionally, the proportion of subsidized housing in major cities will be increased, and public rental housing will be integrated seamlessly with low-rent housing programs. To bolster funding for these initiatives, innovative policy-based housing investment and financing mechanisms and tools will be introduced, leveraging market-oriented approaches to deliver long-term, stable, and cost-effective financial support for affordable housing construction. Governments at all levels are urged to boost fiscal investments, ensure superior construction quality, guarantee equitable distribution, and refine both entry and exit mechanisms. By year-end, it is expected that approximately 4.8 million units of affordable housing will be completed, providing much-needed relief to families struggling with housing shortages and enabling them to move into their new homes sooner rather than later. Meanwhile, this year’s robust surge in infrastructure development has already ignited enthusiasm across the engineering machinery sector, creating a powerful momentum that is poised to drive the industry forward with unprecedented energy throughout 2014.
The Beijing-Tianjin-Hebei free trade zone plan may be unveiled soon, providing a short-term boost to the construction machinery industry.

Recently, plans for a free trade zone related to the coordinated development of the Beijing-Tianjin-Hebei region are expected to be unveiled. Experts analyze that the "main battlegrounds" for the Beijing-Tianjin-Hebei free trade zone will likely be Jingtang Port and Caofeidian, with numerous substantive policy measures linked to these areas set to roll out over the next two months. Both Jingtang Port and Caofeidian could soon reap significant policy benefits, such as the anticipated launch of Shougang's Phase II project, the potential transformation of Caofeidian Port terminals into major cargo hubs, and the possible entry of several large central state-owned enterprises worth hundreds of billions of yuan. Currently, there are two main approaches being considered for the Beijing-Tianjin-Hebei free trade zone plan: one involves integrating Tianjin's and Hebei's existing free trade zone proposals into a unified Beijing-Tianjin-Hebei framework, while the other suggests approving both Tianjin's and Hebei's plans separately. If the first approach is adopted, the Beijing-Tianjin-Hebei free trade zone would leverage Hebei as its economic hinterland, with Beijing and Tianjin at its core, seamlessly merging the key elements of the previously submitted Tianjin free trade initiative—particularly its focus on financing leases aimed at supporting the real economy—and connecting Tianjin's free trade zone directly with Jingtang Port and Caofeidian, creating a cohesive regional development strategy.

36 city rail projects approved, unlocking a 220 billion yuan infrastructure boom

According to statistics from China's National Development and Reform Commission, the number of cities in China that have already received approval for urban rail transit construction plans has reached 36. This year, China's investment in urban rail transit is expected to hit 220 billion yuan, an increase of 40 billion yuan compared to last year. Experts warn that, as local governments rush to build rail transit systems, it’s crucial to carefully manage and mitigate financing risks.

It is reported that by the end of 2013, 19 cities in China had subway systems, with a total mileage reaching 2,366 kilometers. By 2020, the number of cities across the country equipped with rail transit systems is expected to grow to 50, and by that same year, China's rail transportation network is projected to expand significantly.

The network is set to reach nearly 6,000 kilometers in scale, with investments in rail transit expected to total 4 trillion yuan—meaning urban rail transit investments will continue to grow significantly over the coming years.

Railway investment has increased to 800 billion this year, with equipment investment rising to 143 billion.

On April 30, China Railway Corporation held a teleconference to implement the relevant decisions made by the State Council. The meeting highlighted that this year’s total investment has been increased to over 800 billion yuan—surpassing the initial "baseline" of 630 billion yuan set at the beginning of the year by more than 170 billion yuan, and coming tantalizingly close to the all-time high of 842.6 billion yuan recorded in 2010. Additionally, the number of projects slated for construction has risen to 64, while the newly operational railway lines this year are expected to exceed 7,000 kilometers. Meanwhile, equipment investment has also surged from 120 billion yuan to over 143 billion yuan, marking the highest level in history.

Data shows that in the first quarter of 2014, China's railway transportation sector completed fixed-asset investments totaling 71.3 billion yuan, representing a year-on-year increase of 6.4%. According to the China Railway Corporation's plan mentioned above, railway investments in the first quarter of this year have already reached just 9% of the targeted 800 billion yuan for the entire year. As a result, it is expected that railway fixed-asset investments will accelerate and significantly ramp up in the second half of the year.

Industry insiders believe that the repeated increases in railway investment are highly beneficial for railway stocks. Among the three key sub-sectors—transportation, infrastructure, and equipment—the equipment manufacturing industry is expected to benefit first. Railway equipment manufacturers have already released their quarterly reports one after another, with many companies reporting year-on-year earnings that have more than doubled. Looking ahead to the full year, thanks to the ongoing upward revision of railway investment targets and tenders that may significantly exceed expectations, companies across the railway equipment supply chain are poised to sustain their robust growth trajectory.

Accelerating the advancement of 172 major water conservancy projects

On May 21, the State Council held an executive meeting and decided to accelerate the construction of major water conservancy projects focused on water conservation and supply. The meeting outlined a phased approach to building the 172 major water projects included in the national plan over the next year, the following year, and during the 13th Five-Year Plan period. Of these 172 key water conservation and supply projects recently outlined by the State Council, 40 are already under construction, while preliminary feasibility studies are currently underway for the remaining 132 projects.
Once the 172 major water projects are completed, they will add an annual water supply capacity of 80 billion cubic meters and enhance agricultural water-saving capabilities by 26 billion cubic meters. Additionally, these projects will increase irrigated farmland by more than 78 million mu, significantly strengthening China’s core water infrastructure system. The State Council meeting also emphasized that future efforts will focus on advancing key agricultural water-saving initiatives, with particular attention paid to upgrading irrigation systems in priority regions, as well as constructing water-efficient irrigation facilities in areas facing severe water shortages, ecological vulnerability, and critical grain-producing zones.

It is reported that 17 provinces have already unveiled their 2014 water conservancy investment plans, with a total investment of 271.7 billion yuan—representing a 7.04% increase compared to last year. Once these projects are completed, they will add an annual water supply capacity of 80 billion cubic meters, enhance agricultural water-saving capabilities by 26 billion cubic meters, and expand irrigated land by more than 78 million mu. As a result, China's core water infrastructure system will be significantly strengthened.

The NDRC: Next year's plan to delegate approval authority moved forward to this year.

"This year, we will further streamline and delegate administrative approval procedures, and continue revising the government-approved list of investment projects. Originally scheduled for 2015, the task of updating this approval catalog has now been moved forward to be completed this year," said Li Pumin, Secretary-General of the National Development and Reform Commission, at a press conference on deepening reforms of the investment approval system on June 12.

Since last year, with the revision of the government-approved investment catalog, 44 administrative approval items have been canceled or delegated—ranging from investment approvals to production and business operation permits, as well as qualifications and licensing approvals. According to the 2014 Government Work Report, an additional 200 administrative approval projects will be further canceled or delegated this year. As per the State Council’s directives, building on the revised catalog approved in 2013, the NDRC is tasked in 2014 to collaborate with relevant departments on another round of revisions, with the finalized list to be submitted to the State Council within the year.

It is understood that, in this round of reforms, approval authority for projects such as steel, cement, and shipbuilding is expected to be devolved. Industry insiders, however, worry this could exacerbate overcapacity in these sectors. In response, Huang Min explained, "Relying on the administrative approval system to curb overcapacity may not be very effective—and it’s certainly not the best approach for making adjustments. There are plenty of alternative methods available, starting with market-based mechanisms, followed by coordinated constraints from related areas such as land use, environmental impact assessments, and social resources."