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China's Machinery Industry Triggers New Opportunities: Structural Reforms Bring New Incentives, Tax Breaks

2019/07/25 09:00   |    阅读量:1636   |    来自: China Briefing

【导语】 Under the tension of trade friction, let's trigger new opportunities of China's machinery industry, policy initiatives affecting the industry, and challenges and opportunities for foreign investors.

China's machinery industry has maintained growth at above 30 percent over the past decade. Now, as China invests in upstream segments and high-tech manufacturing, new opportunities are emerging within the machinery industry's sub-sectors.

Growth sectors include the production and upgrade of industrial robotics, advanced machine tools, and agricultural machinery. China's industrial robot production, for instance, is expected to grow by 38 percent through 2018.

Overall, forecasts show that China's machinery production will grow at a compound annual growth rate of 7.5 percent for the next five years.

In this article, we provide an overview of China's machinery industry, policy initiatives affecting the industry, and challenges and opportunities for foreign investors.

China's mature machinery market

According to data from the China Machinery Industry Federation (CMIF), the industry's main business revenue jumped 9.47 percent to RMB 24.54 trillion (US$3.62 trillion) in 2017, while Chinese machinery manufacturers' profits increased 10.74 percent year-on-year to reach RMB 1.71 trillion (US$272.21 billion).

China is one of the leading machinery exporters in the world. Total exports of China's machinery industry rose 8.33 percent to RMB 2.75 trillion (US$406 billion) in 2017.

According to the EU SME Centre, foreign-invested enterprises contribute to 49.9 percent of the total export value. Chinese private enterprises and state-owned enterprises, respectively, shared 38.6 percent and 11.5 percent of China's total machinery exports.  

Chinese small and medium enterprises (SMEs) dominate the country's low-end machinery market due to their cost-cutting structures and price-based competition.

In comparison, Chinese state-owned enterprises, such as the China Machinery Engineering Corporation, possess significant intellectual property (IP) assets and brand building resources to prevail in the high-end machinery market and strategic sub-sectors.

The leading sub-sector for China's machinery industry is power generating machinery, which earned 24 percent of the industry's total revenue and reached RMB 4.8 trillion (US$708.46 billion) in the first three quarters of 2018.

Other key sub-sectors in the industry include basic components, heavy machinery, and machine tools, accounting for nine percent, 5.4 percent, and 4.7 percent, respectively.

Geographically, China's machinery industry is concentrated in the eastern coastal regions. Jiangsu tops China's machinery industry output, followed by Shandong and Guangdong provinces.

However, over the last few years, the Chinese machinery industry has been gradually moving inwards – to central and western China. Under the Belt and Road Initiative, we expect an increase in machinery output from these regions, as China seeks to develop its inland regions and export to Eurasia via land routes.

Structural reforms open prospects in China's machinery industry

In recent years, the Chinese government has rolled out a series of ongoing structural reforms to better equip the machinery industry to simultaneously move up the value chain while addressing the challenges of an aging population and severe air pollution.

Sub-sectors within China's machinery industry, including robotics, machine tools, and agricultural machinery, will see greater investment incapacity for a transformation into high-end production.

Machine tools

While China continues to import high-end machine tools from developed countries in the near term, the government is keen to raise the localization rate of Chinese mid-range and high-end computer numerical control (CNC) machine tools to 80 percent by 2020.

CNC machining involves the use of computers to control machine tools in the manufacturing process. It facilitates the efficiency of China's strategic industries, such as aerospace, telecommunications, and shipbuilding industries.

China's high-end CNC system market will have a demand for 12 million units – with a market value in excess of RMB 300 billion (US$44.16 billion) – between 2016 to 2020.

China is the largest producer, consumer, and importer of machine tools in the world.  China's imports of machine tools reached US$8.74 billion in 2017, most of which are CNC machinery and core components from Germany, Italy, Japan, and South Korea.

This is why the government's growth targets need to be considered more aspirational than achievable. Presently, less than 20 Chinese companies can manufacture CNC machine tools and only 30 percent of China's machine tools make use of CNC systems. In developed countries, the CNC system facilitates more than 70 percent of their machine tools.

Many municipal governments in China have released policies to encourage R&D investment in the sector as well as compete with key local enterprises, such as Shenyang Machine Tools, China's largest machine tools manufacturer.

A large demand for technology transfers

As illustrated above, China has a huge demand for technology transfers from developed countries in the high-end machinery sector. Leading foreign machinery manufacturers can make use of these opportunities to export, both, equipment and expertise that is urgently-needed by China.

The Chinese government is offering financial and tax incentives for introducing advanced technologies from developed countries. For instance, China has exempted import duties and related value-added tax (VAT) for the import of key R&D equipment, raw materials, and components. Since November 1, 2018, the average tax rate of imported machine tools was reduced from 12.2 percent to 8.8 percent.

To enter the Chinese market, foreign companies must find potential Chinese distribution partners.

Seeking professional commercial and research services, participating in sector-specific exhibitions, and utilizing business matchmaking programs will allow foreign machinery manufacturers to eliminate networking uncertainty, facilitate transparent interactions, protect IP, and make sustainable investments.


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