Caterpillar lines up Chinese firms

Caterpillar lines up Chinese firms

by James Bowen, Construction Industry News

8th March 2006

CONSTRUCTION equipment giant Caterpillar is set to embark on a major acquisition drive targeting some of the biggest equipment manufacturers in China, according to reports from the country.

The SinoCast financial service reported industry sources had tipped Xiamen Engineering Machinery Co, Guangxi Liugong Machinery Co, Xuanhua Construction Machinery Co and Weichai Power Co as potential targets for Caterpillar.

The US company has long been interested in the Chinese market and chief executive Jim Owens told a business council meeting last month it would buy a controlling stake in a Chinese company next year.

Caterpillar has long had difficulty penetrating the Chinese market, however, and its manufacturing base within the country has been geared towards sales elsewhere in East Asia.

SinoCast quoted an analyst as saying the potential acquisitions were just a small part of Caterpillar's ambitions in China. The analyst said the company intended not only to take control of the Chinese market, but also to bring the Chinese machinery manufacturing industry under its global industry chain.

Caterpillar has also announced it will make an investment of $US10 billion in China to create a company integrating manufacturing, purchase, logistics, marketing and finance divisions.

The state-owned Xiamen Engineering Machinery has more than 40 years experience in manufacturing and is rumoured to be Caterpillar's biggest target.

The company has assets worth 1.9 billion yuan and has enjoyed rapid growth in recent years to have the second largest production capacity in the Chinese equipment market.

SinoCast said it was capable of manufacturing 20,000 loaders, 2000 grabs, 3000 forklift trucks, 2000 small engineering machines and 20,000 sets of bridge boxes each year.

Caterpillar faces stiff competition from Japan's Komatsu and South Korea's Hyundai in the $US12.5 billion Chinese construction equipment market.

It failed in its bid to buy into Xugong Machinery in September last year despite the companies having a longstanding business relationship and a joint venture making diggers and road-building equipment.