Solid as a brick, unpredictable as the economy

When uncertainty lingers, forecasts are difficult, especially in construction machinery industry. Even prestigious analysts like Morgan Stanley and Bank of America Merrill Lynch differ blatantly on how to judge the future of this industry. The former is relatively pessimistic, the latter is more optimistic. The dispute is not technical, but economic. The industry is connected to many variables and nobody can envisage a precise projection for these variables. Doubts are cast not only to the macroeconomic elements, but consequently to specific sectors also. Modern econometric models never forget an old, wise saying: “When construction goes, everything goes”. First expressed in France in 1846, it implies that masonry tows the entire economy. When offices, residences and infrastructure are done, many bastions of the system enjoy the same benefits, e.g. cement, steel, iron, material, stones, hydraulics etc. The construction machinery industry, including earth moving and road construction equipment, is the cause and effect of this chain.
The level of investments is the reason of concern. Real estate and infrastructure construction apparently reached its peak in 2009, thanks to a huge injection of money by the Government. Its share of the GDP (35-40%) has been declining since then, a strong signal for the reduced growth of the entire country. Simply put, China has built too much over the last decade! High-speed rail network is probably beyond its necessities; corruption and accidents are nasty by-products of this euphoria. China has 11 of the 15 longest bridges in the world. Its ports are the busiest as far as container handling is concerned, with Shanghai being number one. In the world ranking, 5 of the first 9 ports are Chinese. The highways network is equivalent to that of US, which has six times the traffic on the road. With infrastructure over built, consequently, the market will move slowly with an overcapacity of the construction machinery industry.
However a less bleak situation might appear according to a more optimistic view of the market. Despite slowing market, investments will increase in absolute terms (20% in 2 years, until 2013). Additionally increasing labor costs and double digit salary increases in the last several years suggests purchasing more automatic, less labor-intensive machines.
In addition, export will grow, since Chinese companies are big and good enough to enter the international scene. Finally, the real estate should not reach the bubble burst, rather a more moderate growth. Likely, the government will use the public housing as a tool to balance the industry. So the differences in predicting, inevitably lead to examine the near future. The unanswered questions are the ones we know: Has China grown too much, too quickly? Does the country have the same margin to develop? So far, Beijing knew how to conciliate these issues. But now the country is more complex and different interests struggle on the field. The economic forecasts are more important than the guidelines of the 5-year plan. Interchangeable effects are difficult to decipher and authoritative projections may possibly lead to different conclusions. Daily ups and downs at the Stock Exchanges mirror this uncertainty. Ironically, it follows an old peculiarity of China: centralized forecast were by force majeure to be respected. Now, a market economy can be unpredictable and dangerous!