Increase the Competitiveness of Machinery Equipment Industry by Virtue of Capital Strength
The machinery equipment industry is known as “the heart of industry” and the most basic, important and core part of the national economic system. In the past 30 years after reform and openness, the domestic machinery equipment industry developed continuously and achieved fast development after 2001. The Chinese machinery equipment industry became one of the largest industries in the world in the past ten years, surpassed Germany and ranked among the world’s top three in sales revenue and output scale, behind America and Japan.
However, to develop from the country with the largest machinery equipment industry to the country with the strongest machinery equipment industry, there is still a long way to go. How do you think about these problems?
Our journalist interviewed the person in charge of the investment of equipment industry from Jiuding Capital Mr. Xinan AI.
Weekly: There are quite a few PE investment firms engaged in machinery equipment industry. How do you think about the investment in this field?
Xinan AI: Jiuding Capital has laid emphasis on the “professional” operation of investment since establishment. Jiuding Capital selects several industries with the highest investment value as our key investment fields including machinery equipment industry.
By Febuary 2013, Jiuding Capital has held equities of more than 30 machinery equipment enterprises with a total investment amount of over 5 billion yuan in over 20 subdivided industries such as machine tool, combustion engine, instrument, engineering machinery, culture and office equipment, metal cutting tools, automobile and parts, general machinery parts, environmental protection machine, mould, bearing, hydraulic and pneumatic sealing elements, casting, forging and stamping, refrigeration air conditioners, petroleum and petrochemical equipment, food and packaging machinery, agricultural machinery, plastic machinery, printing and equipment, electrical appliance, electrical equipment, wire and cable, etc.
The machinery equipment is taken as one of the key investment industries due to the following five factors:
First, Jiuding Capital conducts deep analysis on the origin of this crisis during 2008 financial crisis in the USA.
Jiuding Capital thinks that the root cause for 2008 financial crisis in the USA is its industrial structure with severe “softening and hollowing” problems. During 2005-2007, the primary industry (agriculture and livestock husbandry) accounts for about 1.00%, the secondary industry (manufacturing industry) accounts for about 20.00% and the tertiary industry (service industry) accounts for about 79.00% in the American GDP.
Based on the whole social structure, the primary and secondary industries belong to the “production system” and create real wealth for the society. The tertiary industry belongs to the “consumption system” and doesn’t generate real wealth directly. As the Chinese saying goes, consume without producing. The American industrial structure cannot support the huge consumption system due to excessive “softening”, which results in debt crisis, i.e. “deficit spending”.
Based on the deep study on 2008 financial crisis in the USA, Jiuding Capital considers manufacturing industry as the pillar of social and economic structure.
Second, machinery equipment is the foundation and starting point of the whole manufacturing industry.
The machinery industry is the basic industry for supplying production and transportation equipment to the whole manufacturing industry system. Every manufacturing enterprise needs machinery equipment, which is of great importance. Agriculture also needs “agricultural tools”, i.e. agricultural machinery equipment; food industry needs food machinery; pharmaceutical industry needs pharmaceutical equipment; medical industry needs medical equipment; ……
The modern industrial civilization is the continuation of machinery equipment civilization. James Watt, the repairman for the teaching equipment of the University of Glasgow, invented the first steam engine in 1776, which became the starting point of the industrial revolution in Britain and Europe, provided “prime motor” for the whole industrial system and absolutely emancipated human labor. The modern industrial civilization stems from steam machine.
Third, the Chinese machinery equipment industry is “large, but not strong”, with good investment prospect.
From the viewpoint of sales revenue and output value, the Chinese machinery equipment industry ranked among the first echelon, surpassed the old industrialized countries such as Germany, France, South Korea, Sweden, Britain, Switzerland, India and Italy, and ranked the third, behind America and Japan. Currently, China has become one of the countries with the largest machinery equipment industry in the world.
In 1840, the south gate in Guangzhou was broken by the UK by virtue of its firm ships and armament (machinery equipment). In 1900, the Old Summer Palace was burnt by the Eight-Power Allied Forces by virtue of its firm ships and armament. At present, the Chinese machinery equipment surpasses all European countries among the Eight-Power Allied Forces in the aspect of scale.
However, from the aspect of the whole competitiveness of machinery equipment industry, China is still behind the countries such as Germany, USA, Japan, France, Britain, Sweden, Switzerland, etc. As we all know, Switzerland is a small and beautiful country in Inland Europe, but the whole competitiveness of the Chinese machinery products can’t catch up with Switzerland, a small country.
Based on the basic rule of philosophy, “Quantitative cause a qualitative change”. The Chinese machinery equipment industry features large scale now. Thus, it will enter the stage of qualitative change in the next ten years. “The next ten years” will be “the golden ten years” full of investment opportunities and a “great chance” in the development history of the Chinese machinery equipment industry, for instance, no investment opportunity in the European and American machinery equipment industry.
Fourth, the machinery equipment industry is the real “green industry”.
Based on the “production process” of machinery equipment, it is basically “cold machining”, which features few energy consumption and small adverse effects to environment.
The romantic and elegant France owns 21 machinery equipment manufacturers including Airbus SAS among the world’s top 500 manufacturing enterprises. Sweden, densely covered by forests, has 15 machinery equipment manufacturers including Volvo and SKF among the world’s top 500 manufacturing enterprises. Switzerland, a small and beautiful country, possesses 10 machinery equipment manufacturers including ABB power station, electric transmission and transformation equipment enterprises and Sulzer among the world’s top 500 manufacturing enterprises.
Switzerland, a small country in the inland of central Europe, has a land area of 40,000 sq. km. and a population of only 8 million, which is equivalent to a medium-sized “prefecture-level city”. Besides beautiful scenery, Switzerland is famous for “Swiss watch”. However, the marine diesel engine made by Switzerland has been used by ships in the Pacific, the Atlantic and the Indian Ocean all the year round owing to its reliable performance and enjoys a high reputation in the world.
Based on the Swiss case, the Chinese machinery equipment industry will have infinite bearing capacity.
Fifth, the machinery equipment industry features high technical barrier and ensures stable profitability of enterprises.
The Swiss consumer goods such as beer, breast and clothes can be imitated, but the imitation of Swiss watches is almost impossible. Even the country with highly developed machinery industry like Japan is difficult to reproduce Swiss watches, which also ensures the stable profitability of machinery equipment enterprises.
Based on the consideration of the above-mentioned five factors, Jiuding Capital decides to “increase the international competitiveness of Chinese machinery equipment industry by means of capital.
Weekly: You have ever worked as a bench worker, technician, engineer and deputy workshop director at Beijing Shougang Machinery Factory for five years. Afterwards, you received advanced education for master degree of management and doctor degree of technical economy and acquired Chinese Certified Public Accountant Certificate. You were engaged in stock issuance including IPO for many years at the investment banking department of Guangzhou Securities and management consulting at the strategic consultation center of ADFAITH for many years.
Is the life experience helpful to your investment in machinery equipment industry?
Xinan AI: It is certainly helpful. In fact it is of great help.
As the Chinese old saying goes, “The insider knows the ropes, while the outsider just comes along for the ride”, i.e. “the importance of professionalism”. The private equity investment fund belongs to equity investment in the “primary market”, while the share investors who purchased shares from the business department of securities companies are engaged in investment in the “secondary market”.