Development potential of Sichuan machinery industry

China's economic development situation is sound and overall competitiveness is being continuously improved. China is placed twenty-forth in the international competitiveness among 60 countries and regions issued by the International Institute for Management Development in 2004, moving up 5 places from last year. The main reasons are: China's macro-economy remains in good shape with the rapidest economic growth in the world, and China has become the 4th biggest global trading export country; The government efficiency is improved, and the operability and competitiveness of policies is being continuously strengthened; The enterprise efficiency is rapidly enhanced and the investment in technical innovation is increased; Infrastructures are perfected to adapt to the rapid economic growth demands.

Since 2001,China’s machinery industry has maintained a good momentum of growth.The gross industrial output value of Chinese machinery industry was increased by 17.15% in 2001, 23.89% in 2002,31.90% in 2003,and 28.94% during Jan.-Sep.in 2004.(Please refer to Table 5).

Table 5 Gross Industrial Output Value of Chinese Machinery Industry during 2001-Sep. 2004

Source: CEI China Industry Development Report-Machinery Industry, Chinese National Economic Press (2005, P33).

Main reasons for rapid development of Chinese machinery industry: First, the rapid growth of China’s economy expands the demand on machinery products; Second, the East Asia has embarked on a strong momentum of economic development, so many developed countries transfer their technologies and research & development centers of traditional industry to China and so forth; Third, industrial restructuring and capital structure diversification evoke the industrial development potential and the localization rate of machinery products is being continuously improved.

Chinese machinery product market demand is being continuously increased. The sales revenue from Jan. to Sep. 2004 was 2279.99 billion yuan, up 30.58 percent on the previous year. The sales revenue of agricultural machinery, general petrochemical machinery, heavy mining machinery, automobile industry and instrument industry grows more rapidly than other industries in China. (Please refer to Table 6)

Table 6 Sales Revenue and Growth Rate of China's Machinery Manufacturing Industry during 2001-Sep. 2004
Unit: 100 million yuan, %

Industries	2001		2002		2003		2004.1-2004.9
Industries	Sales revenue	Increased by	Sales revenue	Increased by	Sales revenue	Increased by	Sales revenue	Increased by
Machinery manufacturing	13744.2	14.5	17186.5	24.1	24324.0	33.3	22799.9	30.6
Agricultural machinery	994.5	5.1	1082.1	23.5	1228.2	25.9	1065.4	29.4
Engineering machinery	226.5	19.3	335.8	48.2	520.2	55.0	448.1	11.0
Instrument	847.8	12.7	994.5	19.6	845.2	27.3	747.0	27.9
General petrochemical machinery	923.7	14.7	1131.3	18.0	1836.5	29.0	1647.2	37.3
Heavy mining machinery	607.6	23.3	795.8	24.5	1144.5	38.7	1117.9	41.3
Machines and tools	557.2	13.6	678.6	18.9	734.2	32.8	898.5	41.3
Electrical appliances	3103.8	11.6	3628.6	14.0	5284.4	29.2	5197.1	41.8
Commonly used basic spare parts	738.8	11.4	939.8	21.1	1391.2	30.5	1406.8	35.5
Food packing machinery	102.0	17.0	92.7	9.8	131.5	16.1	120.3	21.5
Automobile industry	4762.5	17.8	6458.0	33.4	8958.0	36.8	7937.4	21.0
Other civil machinery	883.0	17.3	1045.0	22.8	1483.0	32.0	1457.3	36.1

Source: CEI China Industry Development Report-Machinery Industry, Chinese National Economic Press (2005, P35-36)

The China's machinery product market will maintain its vigorous momentum of demand for the following reasons:

1.The investment in many China's industries is being continuously increased. The investment amount in such industries as steels, nonferrous metal, petrochemical industry and building is huge, and such industries have a huge demand on machinery products.

2.There are numbers of key national and local projects in China, e.g. the Three Gorges Project, West-East Natural Gas Transmission Project, West-East Electricity Transmission Project, and South-to-North Water Diversion Project, etc., which have brought huge demand to China's machinery industry. At present, three power equipment manufacturing groups in Sichuan, Harbin and Shanghai will have to operate at full capacity in next two years for the orders received.

3.China's per capita consuming capacity is being continuously enhanced. In 2004, the average per capita disposable income reached 9,422 yuan for city dwellers, up 7.7%. So, the scale and grade of demand on machinery product is also being continuously advanced.

4.China's automobile industry has maintained a momentum of great-leap-forward development. Based on experts' estimate, 9-11 million automobiles will be on demand by 2010 and the total number of automobiles will reach 37.5-39 million. The strong production-related association of automobile industry must boost the development of upstream and downstream industries and expand the demand of upstream and downstream industries on machinery products.

The international competitiveness of Chinese machinery products has been remarkably improved and the international market share is also on increase. The exports of Chinese machinery products hit USD 61.272 billion from Jan. to Sep. 2004, up 51.85% on the previous year. The export in 2003 was USD 58.324 billion, with a growth rate of 48.88%.

The exports are led by electrical appliance industry, instrument industry, general petrochemical machinery industry and automobile industry, and the exports of such four industries have made up more than 75% of total exports.

The main export market is Asia, North America and Europe. The exports in such market account for more than 92% of the total exports. The main export countries include Japan, Hang Kong, Korea, Taiwan Region, US and Germany.

Reasons for rapid growth of exports of machinery products are: China's entry into the WTO has strengthened the foreign trade and improved the foreign trade export environment; The transfer of global machinery manufacturing industry has promoted the export of machinery products from China and other developing countries; China's industrial structure upgrade makes the products more internationally competitive; The export enterprises are diversified and the foreign-funded enterprises take the leading position.

Sichuan's foreign trade is No.1 in west China. The open economy has developed swiftly in Sichuan. Sichuan has cooperated with 187 countries and regions in terms of economy, scientific technology, trade, personnel and labor force. In 2004, the total import and export in Sichuan reached USD 6.87 billion, up 22 percent on last year's same period, where the export was USD 3.98 billion and the import was USD 2.89 billion, with a growth rate of 24.2% and 19.1% respectively. Both the total import and export rank first in west China. In addition, Sichuan signed 436 contracts on foreign economic & technological cooperation, up by 181.3%, and the total amount of such contracts was USD 1.11 billion, up by 11.0%.

2.3.3.2 Outstanding achievement in opening up of machinery manufacturing industry

By intensifying opening up to the outside world, introducing large numbers of technologies, strengthening joint venture cooperation and expanding export trade, Sichuan earned foreign exchange of USD 305 million through exports of machinery industry in 2004, with a growth rate of 35%.

1) Remarkable achievement in utilization of foreign investment. Sichuan Toyota Co., Ltd. was jointly funded by Sichuan Wagon Factory and Japan. Chengdu Kobelco Group was jointly funded by Chengdu Cheng Gong Construction Machinery Co, Ltd. and Japan, and Chengdu Wam Environment Engineering Equipment Co., Ltd. was jointly funded by Chengdu Cheng Gong Construction Machinery Co, Ltd. and Italy. Mitsubishi Heavy Industries Dongfang Gas Turbine (Guangzhou) Co., Ltd. was jointly funded by Dongfang Electric Corporation and Mitsubishi Corporation. By 2004, there had been totally 90 foreign-funded enterprises in Sichuan, with a total asset up to 13.635 billion yuan, making up 11.5% of total assets of Sichuan machinery manufacturing enterprises.

2) In-depth development of sino-foreign technical cooperation. By cooperating with Alstom and introducing its technology, Dongfang Electrical Machinery Co., Ltd. has independently developed a set with a manufacturing capability of 300,000kW pumped-storage set on the basis of subcontracting the manufacture of some generating sets. Dongfang Steam Turbine Works signed a technical licensing agreement about some wind-generator set with REpower. Dongfang Boiler Co., Ltd. has designed and manufactured a 2×600,000kW supercritical set boiler by introducing Hitachi's technology.

3) Trend of increased export of products. The products of Sichuan Air Separation Plant (Group) Co., Ltd. have been exported to more than 30 countries and regions. Its complete set of equipment has taken its place in the world market, and some single components have also entered the international market. The products of CSR Ziyang Locomotive Works have exported to Vietnam, Southern Africa, Central Asia, India and Korea, and its locomotive and rolling stock repair service is, for the first time, available in foreign country (countries): it has successfully repaired two sets of Namibian U20 locomotive; it was deemed as the best bidder in a bid for train set of north England, laying a sound foundation for China's locomotive and rolling stock entering developed countries. CSR Meishan Rolling Stock Works has opened up the markets in South America, Africa and other countries.

4) Stable development of foreign investment. Chuanyou Guanghan Honghua Co., Ltd. established a construction machinery assembly factory in Houston, with the aim of exploring the market in the U.S. and its neighboring countries. Furthermore, Sichuan Yinhale Automobile Co., Ltd. has established an assembly factory in Vietnam.

According to the relevant document on swap and reform of state-owned enterprises, Sichuan has made great progress in the swap and reform of machinery manufacturing enterprises. More than 90% local state-owned small-and medium-sized enterprises have been swapped. The reform of medium-and large-sized state-owned enterprises is being continuously deepened.

The private machinery enterprises are rapidly developed while state-owned enterprises are reformed. Taking private enterprises as an example, the number of private enterprises was increased to 464 in 2004 from 269 in 2003, an increase of 72.5%; the asset amount was increased to 9.636 billion yuan from 5.56 billion yuan, an increase of 73.3%. Also taking enterprises invested by Hong Kong, Macao and Taiwan and foreign-funded enterprises as an example, the number of such enterprises was increased to 90 in 2004 from 79 in 2003, an increase of 13.92%; the asset amount was increased to 13.635 billion yuan from 10.05 billion yuan, an increase of 35.67%.

With the continuous adjustment and optimization of ownership structures of enterprises, Sichuan machinery industry is becoming more vigorous.

Sichuan has always enjoyed its laudatory title of "nature's storehouse". As the most powerful economy in West China, Sichuan plays an important role in the implementation of Strategy of Developing the Western Regions. It covers an area of 485,000 km2, ranking fifth in China, and has a population of 87.246 million, coming in third in China.

Sichuan is No.1 in west China in terms of total economic volume. In 2004, its GDP reached 655.6 billion yuan, representing an increase of 12.7% and ranking 9th in China and first in west China. Moreover, Sichuan's gross output value, gross cereal output volume, added value of industry and total volume of retail sales of consumer goods take more than a quarter of the total in the 12 western provinces, municipalities and autonomous regions. Its 6 pillar industries, namely IT, hydroelectric power, mechanical metallurgy, medical chemistry, food & beverage, and tourism are playing important roles in China's economic development.

Sichuan ranks first in west China in utilization of foreign capital. By the end of Oct. 2005, Sichuan has approved 7,552 foreign-funded enterprises with an actual paid-in amount of USD 6.111 billion, ranking first in west China. With multinational companies actively involved, 104 of the world's top 500 enterprises have invested to set up ventures or located offices in Sichuan, of which 40 have invested and established businesses. Renowned companies settled in Sichuan include Intel, Motorola, Ericsson, Toyota, Bayer, DuPont and so forth.

Sichuan is the biggest commodity and factor market in west China, and also an important material collecting-and-distributing hub in the southwestern region. Its commercial and trading circulation is flouring, thanks to which the economic radiation effect is obvious.

In 2004, the investment in fixed asset of Sichuan machinery industry was 9.94 billion yuan, representing an increase of 85.7% over the previous year and a growth rate of 32.2 percent above that in Sichuan industries. Therein, the investment in upgrade was 7.49 billion yuan, posting an increase of 99.8% and a growth rate of 56.6 percent above that in Sichuan industries. In Sichuan machinery industry, there were 56 key technological upgrading projects above provincial level, with a total investment of 6.22 billion yuan (up 38.1% on the previous year) and an accumulated investment of 980 million yuan (up 41.1% on the previous year). By 2004, the total of foreign-funded asset utilized by Sichuan machinery industry reached 13.635 billion yuan, making up 11.5% of the total of Sichuan machinery manufacturing enterprises.