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The constraints from the upstream industry include two aspects. One is the rise in the price of steel raw materials, and the other is the rise in the cost of import of spare parts. Both of these factors are related to the global inflation of the financial crisis.
There are two kinds of inflation. One is demand-pull inflation. This kind of inflation tends to have a positive impact on companies and promote rapid economic development. One is cost-push inflation. This inflation raises the cost of the enterprise, but it squeezes the profit space of the enterprise. It often has a negative impact on the enterprise and causes the economy to form stagflation.
Since 2008, the global economic inflation driven by the US dollar has caused the United States to weaken domestic demand, blindly stimulate investment, and the rapid expansion of capital and money. The subprime crisis in the United States is caused by the lack of repayment ability of US lenders and the tightening of demand. In order to resolve this crisis, the United States recently announced that it will continue to inject capital into its financial market in the subprime crisis, which further increases people’s expectations for the depreciation of the US dollar. Dragged down by the US dollar, other countries in the world have to keep up with the speed of US currency expansion, resulting in a relative depreciation of credit currencies. In a world where credit is seriously threatened, it is only natural that the prices of physical assets such as steel and other raw materials have risen.
Because this expansion is a stagflation property, and China's construction machinery is in a weak link in the global industrial chain, it will inevitably bear the cost pressures from upstream companies. Due to the increase in parts prices, approximately 70% of China's construction machinery industry's profits are eaten by imported components. According to the latest statistics from the Hunan Provincial Mechanical Engineering Association, import costs for parts and components and other components of mainframe products produced by large-scale construction machinery enterprises account for over 40% of manufacturing costs. Taking a leading domestic construction machinery company as an example, in its export products, the cost of purchasing foreign parts accounts for 30% of the export price. In 2007, the leading company’s exports earned 500 million U.S. dollars, and it took foreign companies to purchase foreign parts. 2 billion yuan, foreign parts and components accounted for 40% of export sales, but it accounted for 70% to 80% of profits.
Not only that, although the technical competitiveness of China's construction machinery products is still very weak, but the total amount of product exports is very large, which has caused the joint blockade of overseas counterparts. At present, the basic components imported by China's construction machinery industry include hydraulic components, engines, control components, and transmission systems. In particular, foreign suppliers of hydraulic components and special steel products rely on the market monopoly to begin the development of "overlord terms." Some international large-scale component manufacturers have also teamed up to design Chinese companies with the same-size parts and components, so that China's export products compete on the same quality. Some products produced by multinational component manufacturers in China are even products that have been eliminated in developed countries such as Europe. But even so, Chinese companies are not easily able to buy them.
In terms of the cost of steel raw materials, in 2008 China took a series of measures to control the export of the steel industry in order to reduce the cost of domestic steel materials, but in the case of global stagflation, it still could not hold up the increase in steel prices by 10% in 2008. Around expectations. With the introduction of iron ore negotiations, domestic and international steel prices have risen sharply. In Japan and the United States, the price of steel has risen by more than 10%, and individual types such as ship plates have even increased by US$200/ton. At present, in the comprehensive cost of manufacturing enterprises in the construction machinery industry, steel accounts for 40% to 70%, and different products and different models are different. Products that are insensitive to steel prices are pump trucks and trailers with relatively high unit prices; while steel machines such as loaders, road rollers, truck cranes, and forklifts account for about 20% of the cost of steel, while overcapacity in the construction machinery industry, products tend to be homogenous. The company has limited ability to raise prices.
There is reason to believe that the global stagflation situation will remain for one to two years. This will depend in part on the results of the US election. If the United States wins the Democratic election, its policy of favoring the people’s livelihood will help expand US domestic demand and restore the firm position of the US dollar, thus alleviating stagflation. If the Republican Party wins, it may stick to its existing economic policies and make stagflation further serious.
The global stagflation has had a severe impact on the export of Chinese construction machinery. In this impact, the way out for China’s construction machinery is to accelerate technological progress, form a relatively complete domestic industrial chain in China as soon as possible, and get rid of dependence on foreign key components. In terms of the consumption of raw materials, we should make a fuss about improving product quality and efficiency, and develop raw material-saving technologies. In this respect, Japan is a typical example. Japan itself is a country with extremely scarce resources. Every time the price of energy and raw materials rises, it will inevitably bring heavy cost pressures. However, with the development of Japan's high-material, high-energy and intensive economy, the price of each global energy and raw material has risen, which is when Japan's raw material saving and energy-saving technologies and equipment are exported in large quantities. In this way, Japan has earned a lot of profits in the raw material and energy crisis. Facts have proved that only by mastering the core technologies can we be invincible in any situation.
Global Stagflation and the Development of China Construction Machinery
Construction machinery passed the spring of 2007 and continued to maintain its high growth momentum in 2008. However, the worldwide financial crisis has had a negative impact on the development of construction machinery. This is the cost constraint from the upstream of the industry.