Three Major Favorable Policies Supporting the Machinery Industry in 2009

　　In 2009, the industry faced pressure from slowing domestic and international demand. However, next year will see three major positive factors driving industry growth: proactive macroeconomic policies aimed at "maintaining growth," declining input costs, and increased government support measures.

　　First, the "growth-boosting" macroeconomic policy. From the perspective of current macroeconomic policies, as the external environment continues to deteriorate, China’s domestic economic growth has also noticeably slowed down. This time, the central bank’s reduction of both interest rates, coupled with a shift toward a more proactive credit policy, clearly signals that the nation’s overall macroeconomic strategy is transitioning from "controlling inflation" to "safeguarding growth." We believe that the investment stimulus resulting from looser credit conditions will, in turn, drive demand for machinery. Moreover, amid the decelerating pace of real estate investment, the government may ramp up its own capital spending to reignite economic growth. For instance, increased investments in high-speed railways, highways, water resources, power infrastructure, and urban utilities are expected to spur fresh demand for construction machinery. Meanwhile, a significant rise in railway equipment procurement could further boost the market for rail-related products.

　　II. Declining factor prices ease cost pressures. Since August 2008, raw material prices—such as steel and energy—have begun to fall sharply. Meanwhile, the People’s Bank of China has also cut loan interest rates multiple times. These declines in the prices of key inputs like steel, energy, and capital will help alleviate cost pressures across the machinery industry. In particular, the drop in steel prices is a significant boost for companies with a high reliance on steel costs, including China Shipbuilding and Guangzhou Shipyard International in the shipbuilding sector, as well as LiuGong, XCMG Shares, Anhui Heli, and Shantui Shares in the construction machinery industry, and Taiyuan Heavy Industry and Zhenhua Port Machinery in the heavy machinery sector.

　　III. Increased Policy Support: Since August 2008, the government has stepped up its support for the machinery industry. In addition to previously announced measures—such as "implementing a 'collect-first, refund-later' policy on import tariffs and value-added taxes paid at the import stage for key components and raw materials imported by domestic enterprises developing and manufacturing ultra- and extra-high-voltage transmission and transformation equipment, large-scale petrochemical equipment, and major coal-to-chemicals machinery"—which have already provided significant benefits to the sector, the recent shift in VAT policy from a production-based model to a consumption-based one is also set to deliver substantial advantages. These policies will not only boost demand for machinery but also enhance the competitiveness of domestically produced equipment while reducing their manufacturing costs, ultimately contributing to the industry's long-term growth and sustainability.