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Chinese construction machinery sales witness sharp drops in April

According to Mr Kang Zhiqian deputy secretary general of China Construction Machinery Association, the excavator sales volume of China's main construction machinery enterprises in April 2011 stood at about 20,000 sets, down by 50% MoM from March 2011. In addition, the sales volume of loaders and bulldozers also saw sharp drops in April, with that of loaders plunging 30% MoM, the largest drop since April 2001.

In April 2011, loader sales volume of Guangxi Liugong Machinery Co Limited, Xiagong Machinery Co Limited and Longgong Machinery Co Limited dropped by 35.21% YoY, 6.62% YoY and 3.8% YoY, respectively.

Mr Wang Hexu, an analyst with equipment manufacturing department of Fortune Securities, said that "Since Mar 2010, loader monthly sales have never seen a YoY growth rate of lower than 22%, it is the first time to witness a MoM sales slide in the past 14 months." He pointed out that MoM sales drop in April is normal seasonal fluctuation, however, a decrease of 30% is rare.

As to the reasons for the sales slide in April 2011, Mr Wang Song, a commissioner with Sanyi Heavy Industry Co Limited, said that it may be attributed to the financing constraints in engineering construction fields like real estate after China issued financial policies.

While Mr Kang Zhiqian said that it was due to the irrational development of the whole industry in the first quarter. He added that "Some enterprises employed irrational promotion methods to grab more market shares, some even adopt measures like zero down payment mortgage."

Mr Zhang zhongjie, an analyst with Essence Securities, expressed that many traders carried out vigorous promotion in the first quarter, as a result, the accounts receivable balance of the industry reached CNY 100.37 billion, up 69.5% from the beginning of the year, while at the same time, the operating cash flow is tightening.

According to Mr Wang Hexu, the sharp decrease of April’s sales shows the shrinkage of actual demand behind the normal seasonal fluctuation. By communicating with part construction contractors, he found out that credit tightening has influenced the progress of many construction projects.

A leader from Guangxi Liugong Machinery Co Limited said that the possibility that sales will enter a stage for low growth or even slide in the months to come can't be excluded. In May, it is likely to see a decline compared with last May. He added that "The situation of construction machinery industry outshining other industries is likely to change."

While Mr Wang Song pointed out that the short-term downward trend of construction machinery demand will last for a period of time. However, the construction of high-speed railways and urbanization construction will see an overall development, at that time, the industry may witness a trend of rebound and maintaining certain growth in the long run.

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