BEIJING (Reuters) - China's pledge to support the Silk Road infrastructure initiative with $40 billion worth of investments may not be enough to revive the struggling heavy machinery industry as it battles over-capacity stemming from legacy investment.
Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, maritime and other infrastructure links across central, west and south Asia to as far as Greece, Russia and Oman.
Industry players and analysts said that although the contracts would bring benefits in the long run, they were not a quick fix for the heavy machinery sector's troubles.
"There are too many machines out there in the market," Zoomlion Heavy Industry Science and Technology Chairman Zhan Chunxin told Reuters.
"Companies tended to get orders ahead of a major infrastructure projects previously, but now we hardly get any inquires even if several projects kick off at the same time."
Encouraged to expand after Beijing fired up a 4 trillion yuan ($644 billion) stimulus package in 2008, Sany Heavy Industry Co, Zoomlion and others are stuck with a glut of unsold equipment, factories they do not need and tumbling earnings.
"We face unprecedented challenges. It's no exaggeration at all to say that the Chinese market is in the middle of a catastrophic long-term slump," Zeng Guangan, chairman of Guangxi Liugong Machinery Co, told a recent industry forum.
Zoomlion warned about a 300-380 million yuan loss in the first half, versus a 900 million yuan net profit a year earlier.
China's top bulldozer builder Shantui Construction Machinery Co expects to swing to as much as 310 million yuan loss from a 59 million yuan profit a year earlier. XCMG Construction Machinery's earnings could drop as much 99 percent.
Last year, China's overall production capacity for wheel loaders amounted to 420,000 units, 2.6 times as much as global sales for the year. Capacity for excavators topped 538,000 units, far exceeding global sales of 418,500 units, according to industry consultancy Off-Highway Research.
The country's construction machinery sales, meanwhile, were only $17 billion last year, less than half the 2011 level. They are expected to fall further to $13 billion this year and claw back to modest growth in the next two years, it said.
"While the sector consolidates, we expect more cases of mergers and acquisitions, and diversification in the coming years," said Alexious Lee, head of China machinery research at CLSA.