Chinese Fortunes


September 2, 2012

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Chinese manufacturers have had a tough ten days.

Not convinced? Consider Goldwind’s recently reported 83% fall in net profits. Or Ming Yang’s quarterly loss and its subsequent 43% year-on-year revenue drop.

Or worse, consider Sinovel’s profits – that have taken an 96% dip in the first six months alone.

Grim reading. Particularly given that however the Chinese manufacturers choose to talk up future prospects, right now the interim results tell a different tale.

All three manufacturers cite varying reasons for the current commercial blues, although in the main the thinking boils down to three core challenges.

Namely; competition, project delays and a lack of demand.

All three areas present not insignificant headaches that evidently need to be overcome and addressed. However, more broadly the thinking and rationale presents an insight into Chinese commercial strategy and future market thinking that underlines a clear divide between East and West.

As a manufacturing powerhouse, China has gained ground over recent years through its ability to be able to compete both on volume and price. This in turn has helped drive down the cost of construction and supply and in doing so, has created healthy competition that improves developer margins and reduces the reliance on government subsidies and incentives.

However, as the market evolves, so too do the battles being fought within it.

The complexities of supply and demand (and to some extent individual unit price) are no longer the challenges that they once were. And while the issue has by no means disappeared, it’s increasingly evident that it now plays second fiddle to longer-term issues associated with operations and maintenance, peak performance, and engineering longevity.

Or put another way, it’s a move away from pure play manufacturing (quantity) and a step towards a more integrated service based approach.

In many respects, this is just one of the reasons why western manufacturers – who have traditionally sold units across multiple territories and have struggled to compete on price alone – have been faster in making the switch.

An ‘innovate or die’ line of thinking that was undoubtedly front of mind at when Vestas made it increasingly clear that the business was no longer in the market for simply selling turbines.

For Chinese manufacturers this strategic shift presents a problem.

Particularly during a time when they are battling high profile international court cases, are faced with escalating import duties and are under pressure to build new and existing relationships with key overseas developers and prospects.

Sure, there’s no doubt that the Chinese have the manufacturing muscle to compete. However, the ability to strong-arm opponents won’t wash with every western would-be suitor. Much to the frustration of the likes of Han Jan Oiang, the current chairman and former chief executive of Sinovel – a man who was ranked 879thin the 2011 Forbes billionaires list and a man who, according to industry insiders, has quite the temper, to boot.

For now, the results can be explained away and fingers can be pointed. But as investor pressure escalates, don’t expect these giants to stand still for long.

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