Caterpillar banks on China's B&R for sustained growth options

The global head of Caterpillar Inc, the US-based construction machinery behemoth, forecasts robust growth in China this year and plans to invest in several sectors in China, which he considers one of the company's most significant markets.

The bullish view on future sales expansion was buoyed by the country's sustainable economic growth, improved business environment and long-term opportunities related to infrastructure development, CEO Jim Umpleby told China Daily.

The world's largest construction machinery maker expects 2018 to be "another strong year" in China, said Umpleby, adding that major growth is likely to continue in the first six months while seasonality could temper demand in the latter half of the year.

Caterpillar will continue to explore opportunities related to the Belt and Road Initiative, and launch next-generation excavators with smart technologies, Umpleby said.

Apart from focusing on traditional sectors such as construction industries, the company plans to invest "across the board" in Chinese market this year, he added.

"We are investing for both domestic consumption and export in our three major businesses (construction industries, resource industries, and energy and transportation)."

He cited a plant in North China's Tianjin manufactures engine and genset products in applications including oil and gas. Traditionally, the products were only manufactured in one of its US facilities.

"Now we have a plant in China, and that will be busy this year to supply the market," he said.

The comments came after Caterpillar reported $45.5 billion in sales and revenue last year, an 18 percent increase over 2016.

China was an important driving force for the rapid expansion, according to Umpleby. "Our most significant driver to profit was higher sales volume, with nearly half that increase in construction industries, and the China market was an important contributor to that volume."

China's construction machinery sector started a recovery in its business cycle in 2016, after a recession that lasted for four years.

Last year, the total industry profit in China exceeded 1.71 trillion yuan ($269.5 billion), up 10.74 percent year-on-year, according to China Machinery Industry Federation. The sales growth for excavators, a major type of construction equipment, reached almost 100 percent.

In 2018, the growth rate of excavators is expected to decline to about 10 percent, said Lyv Juan, a senior analyst in construction machinery with Founder Securities Co.

"But we are not pessimistic about the sales volume this year, partly due to the demand derived from machine replacement and exports," Lyv said in a recent research note.

Umpleby said the construction industry in China "in general is expected to grow, in a more stable manner, in 2018 and beyond," citing factors like infrastructure investment, the stabilizing housing industry, the rebuilding of urban clusters and transformation of poorer areas, and machine replacement as key drivers.

The industry needs to continue to adhere to supply-side reform and offer higher-quality products in 2018, Chen Bin, vice-president of China Machinery Industry Federation, was quoted as saying by Economic Daily.

So far, Caterpillar has about 10,000 employees in China in more than 20 different facilities. It has three R&D centers, as well as logistics centers, and also offers a remanufacturing service and financial leasing service.

In the fourth quarter of last year, the company had a charge of $2.4 billion, like many other US companies did, as the new tax reform legislation in the US took effect.

Umpleby viewed the tax reform as a positive change.

"It is a long-term positive development for Caterpillar. It levels the playing field and gives us more flexibility to use our cash in different ways."