When will the China access market reach maturity?
By Euan Youdale19 October 2021
Although the access rental sector in China is growing at a fast rate, it is far from mature and there are a range of requirements to be met before it can reach that point. AI provides an industry update from manufacturing and rental points of view.
The Chinese access equipment rental sector has seen incredible growth in recent years, with a 40% year-on-year rise in its total MEWP fleet.
While, as manufacturer XCMG estimates, there are now 300,000 aerial platforms working in the country, with that figure likely to increase significantly and quickly, there are challenges in the market.
For example, the effects of Evergrande, China’s second largest property developer, which is $300 billion in debt, and is at risk of collapse, on the rental sector are not yet fully known. However, it does reflect the borrowing culture that is part of the country’s economic climate.
Outbreaks of Covid-19 have also been affecting the country in recent times, and again it is unclear what the long-term ramifications of this will be to the industry.
In addition, China’s access market is not yet mature. In one sense this is can be taken as a positive, as it demonstrates the country has prospects of continued growth. On the other hand, it presents challenges in the market that need to be overcome before it can truly become mature.
Nevertheless, with a human population of 1.4 billion, the current MEWP population falls far short of the numbers that will be needed when it does reach maturity.
Forming a large part of the access market are a handful of very large manufacturers, most of which have sprung up in the last five years and are access divisions of major general construction manufacturers like LGMG, XCMG, Zoomlion and Liugong. Of course, there is also Dingli, a specialist access manufacturer that has helped pioneer the market. Together, these companies are dominating the market at present, along with a few giant rental companies, with which they now have major supply deals. (See the XCMG/Horizon box story in this feature).
This has but pressure on the established medium-sized rental companies.
As the owner of one of those, Wang Shi Jin, founder, chairman and CEO of China Construction Bright Futures Machinery (CCBF), explains, “Although the domestic industry has experienced rapid development in recent years, the expansion of small and medium-sized rental companies has slowed down due to the pandemic and intensified industry competition.”
Based in Shanghai, the company has branches and offices in Nanjing, Hangzhou, Wuxi, Chengdu, Chongqing and Shenzhen. There are more than 2,000 MEWPs in its fleet, including JLG telescopic booms and Dingli scissors. It also provides sales, after-sales service and spare parts.
The situation, says Wang, could result in a period of lower activity in which there will be replacement, rather than extreme growth. Nevertheless, he believes the MEWP population can reach reach 750,000 to 800,000 units in five years. “And, I do not change my 2018 forecast that it will reach 1 million units in 10 years, from then.”
The market in China, he says, is becoming more mature. The importance of safety and efficiency in relatively developed cities has been realised, and there is an increase in labour costs.
However, 70% of sales of MEWPs are still to the construction sector, and the third- and fourth-tier cities, with relatively underdeveloped economies or smaller investment projects, have seen little aerial platform penetration.
Compounding the situation, Wang adds, is “disorderly” competition among the manufacturers, leading to similarly extreme competition between rental companies. He adds, “The non-profit model of giant rental companies has led to the unhealthy development of the entire industry.”
And, he says, there is no standardisation across the industry and little activity from associations. “The next five years will depend on the development of the domestic market. It is uncertain whether it will expand or contract. The current consideration is to maximise revenue and ensure cash flow as much as possible.”
As has been widely reported, the rental rates have fallen severely in recent years and they are close to pushing rental companies to run at a loss. In particular, boom lift rental rates have fallen by more than 15%-20% this year, and scissor prices have fallen by 5%. “The impact is mainly on small and medium-sized rental companies. The turnover has decreased, and the profit has decreased.”
According to manufacturing major XCMG, it will produce more than 20,000 aerial platforms this year. This is an incredible increase, considering XCMG has only established its MEWP in division in very recent years.
And, in the next five years, the company will continue its five-year plan to achieve its RMB 10 billion revenue goal and increase exports to 30% of production. This, believes the company will bring it into the top three access manufacturers in the world by 2025.
Xu Xiao Dong, vice general manager of XCMG Access, technical, agrees that China’s aerial platform market is not yet mature, which is highlighted by the fact that there is still some way to go before the number of MEWPs in the market equals the populations in Europe and North America.
Secondly, the company points out, in the mature markets of Europe and America, boom lifts account for more than 30% of an average fleet, but in China, the typical proportion of booms has not yet reached 15%. And, the challenges can differ, based on the manufacturer and the region.
“At present, both the mainstream manufacturers and rental companies are engaged in fierce market competition in terms of grabbing market share and improving market position,” says Xu.
This means the market has entered a stage of re-invention, in which extreme competition, product quality challenges, production capacity, after sales service and financing will all lead to a new, more mature market pattern.
“The symbol of a mature market is that it has a development cycle that can guide the industry, which includes certain laws unique to the industry. At present, China’s aerial work platform industry is an emerging industry, in the process of rapid development, and has not experienced a complete development cycle.”
Currently, exports at XCMG account for less than 10% of total sales. “We will invest more resources in the overseas market in the next five years. It is expected that there will be a significant increase in sales in those five years, and the proportion of export is expected to breakthrough as we become a true international enterprise,” explains Xu.
As far as Europe and North America are concerned, and regions in the immediate area, for example, Southeast Asia, the company is seeking reputable distributors. “According to the characteristics of the industry, we look to take on large rental companies as the main way to find channels into the markets for construction and maintenance.”
The company adds that is it highly motivated to achieve a breakthrough to these key overseas markets.
The company’s products include 4m - 18m scissor lifts, 14m - 26m articulated boom lifts and 20m - 58m telescopic boom lifts. In the future, it will upgrade its large load capacity and electric drive products, based on its existing models.
In terms of boom lifts, the latest launch is the K series, which offers large load capacities. In terms of scissor lifts, the company has just upgraded the AC version of its electric models and upgraded them to meet Europe and North America standards.
The company is also planning an investment in spider lifts, an increasingly popular product in China, for which there will be a technical breakthrough in the next two years, says Xu. “This kind of product [spiders] is common in the European market, and most of the main spider lift manufacturers are from Europe. At present, the China domestic spider lift market is relatively small.
“According to a rough estimation, there are about one hundred spider lifts in China, mainly used in big cities, but there has been an upward trend in the past two years.”
There is also a continues move to more electric products in China. “We have completed a whole series of lithium battery configurations, including two rough terrain scissor lifts.
“With China’s environment protection and pollution emission reduction policies, most of the customers choose to use cleaner energy.”
Has Covid-19 affected the delivery of key components, as it has in other parts of the world, despite the fact that China recovered quickly from the pandemic in 2020?
“Yes,” says Xu, “due to the impact of Covid-19, there has been a delay in delivery of parts, such as motors and engines, and the price increase in raw materials has also led to an overall cost increase.
“For the relevant parts and raw materials, which are in large demand and have long purchasing cycles, we prepared a large number in advance, according to market demand, to ensure products can be delivered on schedule.”
XCMG and Horizon partnership deal
Manufacturer XCMG and Chinese rental company giant Shanghai Horizon Equipment have signed a partnership deal that aims to make their operations and services more “sustainable”.
Described as “strategic”, the deal will see the two companies work together more closely in the development of products, and in the areas of industry finance and “globalisation” planning.
According to XCMG, the partnership represents “a milestone and solid step” towards building a development strategy that will benefit both companies.
Qianjin Li, general manager of XCMG Fire-Fighting Safety Equipment, said, “It is hoped that both parties will give full play to their respective advantages, sincerely cooperate, and supply high level products and business practices.”
Echoing the sentiment, Horizon said that XCMG’s experience and resources in the construction machinery sector and the rental industry will “further broaden the field of cooperation”.
Chunyu Zhang, general manager of Horizon Equipment, said that Horizon would actively deepen its communication and cooperation with XCMG, particularly when it comes to resource integration.