Tunneling for growth

German entrepreneurs visit companies in Shenyang to look for business partners. Provided to China Daily

Chinese companies bank on cutting-edge technologies to stay ahead of competition

Unlike other Chinese heavy machinery makers contemplating strategies to overcome overcapacity problems in a saturated domestic market, the Shenyang-based Northern Heavy Industries Group is digging below the surface to unlock profits and growth potential.

The state-owned Chinese construction machinery maker is banking on China's massive infrastructure upgrade plan to drive demand for tunneling equipment in the short and long-term. Company officials believe that demand for tunneling equipment will come from new transport, energy, and water supply projects. Company officials feel that the buoyant domestic business provides a strong platform for the company to tap overseas markets.

The state-owend firm's tryst with tunneling equipment began in 2007 when it acquired a 70 percent stake in France-based NFM Technologies, which designs and makes high-tech equipment and systems for underground construction. In 2011, the Chinese firm became the sole shareholder of NFM.

"Companies from Europe, the US and Japan once dominated the Chinese market in tunnel engineering equipment for subway construction projects before 2005. However, 95 percent of these machines failed to fully meet the needs of Chinese clients, because labor, component and operational costs were far too high," says Geng Hongchen, the president of NHI.

The average cost of an NHI slurry-tunneling machine is 40 to 50 million yuan ($8.2 million; 6.3 million euros) - half the price of one made in Europe or the US.

NHI's 26 types of tunnel engineering products accounted for 50 percent of the Chinese market last year. They are also sold in advanced markets like Germany and Russia.

Last year, the company received five orders for tunnel-engineering equipment for railway and hydropower projects, and is continuing overseas expansion by supplying machinery for a Bolivian water project, reconstruction of an iron ore mine in Sierra Leone, and tunnel construction projects in Poland, Turkey and Azerbaijan.

The company, however, is not just banking on overseas and domestic business for growth. Instead, it is putting more emphasis on research and development to maintain its cutting edge in the market.

To further improve its R&D, NHI has set up research centers in Shenyang and at NFM in Lyon, France. The company plans to establish an institute for fracturing equipment soon and will also produce its first prototype machine this year.

"NHI has set a good example for a win-win situation between Chinese and European companies," says Liang Qidong, vice- director of Liaoning Academy of Social Sciences.

"Chinese enterprises have made some headway in going global, but still lack experience. European companies are more international and are strong in R&D, but their market demand is not as large as China's. SMEs in Europe also need ample funds to expand and market. Thus, the cooperation between the two sides is complemented."

NHI is not the only successful high-tech enterprise from Shenyang.

Shenyang Machine Tool Group Co Ltd purchased German firm Schiess AG, a 150-year-old heavy-duty machine manufacturer on the verge of bankruptcy, in 2004. The number of Schiess' employees increased from 120 to 365 after nearly 10 years.

SMTCL is the largest machine tool manufacturer in the world, producing 80,000, machine tools each year and with revenues of 16.5 billion yuan last year.

SMTCL set up its German subsidiary in Frankfurt in 2010. Schiess' advanced manufacturing technology and its brand, marketing channels have helped SMTCL enter the European and global markets.

"In the current global economic climate, some international heavy machinery makers may be short of cash to develop new products and would be keen to combine with Chinese companies to take advantage of the China market. As state-owned enterprises, NHI and SMTCL's strong financing and flexible investment strategies are advantages in competing with foreign rivals," Liang says.

"It is also a good choice for Chinese companies to gain high-end technologies to produce competitive products and expand markets at home and abroad."

liuce@chinadaily.com.cn

(China Daily European Weekly 04/11/2014 page16)