In recent years, the domestic construction machinery market has gradually shown signs of weakness, with market capacity approaching saturation. Against this backdrop, expanding into overseas markets has become an inevitable choice for construction machinery companies; and among the many overseas markets, Southeast Asia has consistently been the preferred destination for Chinese construction machinery companies' overseas expansion.
According to relevant statistics, in 2024, Southeast Asia accounted for four of the top 15 countries in terms of my country's construction machinery exports: Indonesia, Vietnam, Thailand, and the Philippines. Notably, Indonesia ranked as my country's third-largest export market, with exports reaching US$2.259 billion. Why are construction machinery companies choosing to expand into the ASEAN market?
ASEAN Market Demand
Huge Real Estate Potential
The ASEAN region has significant real estate market potential, mainly reflected in its urbanization process and population structure. In terms of urbanization, the average urbanization rate of the five major Southeast Asian countries-Indonesia, the Philippines, Malaysia, Thailand, and Vietnam-reached 55.7% in 2023, comparable to China's in 2014. China's urbanization rate in 2023 was 64.6%, about 10 percentage points higher than the average of the five Southeast Asian countries, while the US urbanization rate was 83.3%, indicating that the urbanization rate of the five Southeast Asian countries still has a growth potential of about 30%. In terms of population structure, the population of Southeast Asian countries in 2023 showed a "positive pyramid" shape, similar to China in 2000. Furthermore, the proportion of the population under 20 years old in Southeast Asian countries in 2023 was 32.4%, comparable to China's 32.9% in 2000. Therefore, strong housing demand is expected in Southeast Asia in the future.
Strong Infrastructure Demand
In recent years, ASEAN's urbanization has developed rapidly, with a large number of residents migrating from rural areas to cities. The urban landscape has been continuously expanding, leading to a surge in demand for infrastructure. Numerous projects, such as roads and bridges, have been launched, and the scale of construction has expanded. For example, in January 2022, Indonesia passed the National Capital Law draft, announcing a plan to build a new capital city with an estimated investment of US$34 billion; Malaysia launched the "12th Malaysia Plan" (2021-2025) to promote development in transportation and other sectors; and Thailand launched the Eastern Economic Corridor (EEC) plan to build modern economic zones to attract investment and promote industrial upgrading. These projects bring broad business opportunities to the construction machinery industry.
ASEAN Region Rich in Mineral Resources
The ASEAN region is rich in mineral resources. It has a significant global competitive advantage in nickel, tin, potash, bauxite, and rare earth minerals. According to relevant statistics, Indonesia ranks first, second, and third in the world in nickel, tin, and coal production, respectively, and its gold reserves rank sixth globally; Vietnam has the second largest rare earth reserves in the world; the Philippines ranks second in nickel production; and Myanmar ranks third in tin production.
Currently, the mining industry in the ASEAN region accounts for a relatively small proportion of the economy, which is disproportionate to its abundant mineral resources. Overall, the mining sector's share of GDP in ASEAN countries is not high.
Manufacturing accounts for the largest share of China's FDI in ASEAN, at 23.1%. Real estate: 15.5%. Wholesale trade: 5.1%. Finance and insurance: 6.9%. Information and communication: 15.2%. Construction: 19.4%. Others: 14.8%. ASEAN and China have been each other's largest trading partners for four consecutive years, and cooperation is expected to reach a new level by 2025.
Analysis suggests that the relatively low economic share of the mining industry is mainly due to differences in economic development levels and policy orientations among ASEAN economies, indicating significant room for growth.
Chinese companies have the capability
World-leading hard power
According to the "2024 Global Top 50 Construction Machinery Manufacturers" ranking published by *International Construction* magazine, a subsidiary of the UK's KHL Group, 13 Chinese companies are among the top 50, exceeding the 10 in 2023. XCMG Group, Sany Heavy Industry, and Zoomlion are among the top 10 globally. According to the rankings, the total sales of the 13 Chinese companies on the list reached US$41.826 billion, accounting for 17.2% of the total revenue of all listed companies.
The large number of Chinese construction machinery companies on the global top 50 list demonstrates my country's strong industrial agglomeration effect and market influence. With its existing solid foundation, innovative vitality, and international vision, Chinese construction machinery companies are fully capable of gaining an advantage in the Southeast Asian market.
Policy "tailwinds": Belt and Road Initiative and RCEP
Based on the strong capabilities of Chinese construction machinery companies, the Belt and Road Initiative and the formal entry into force of the Regional Comprehensive Economic Partnership (RCEP) have provided a "tailwind" for companies to expand into the Southeast Asian market. For Chinese construction machinery companies, these favorable policies enable them to integrate more smoothly into the local market.
At the end of March 2024, the delivery ceremony of Zoomlion's 600-ton all-terrain crane was held in Jakarta, Indonesia. This is the largest tonnage all-terrain crane exported to Indonesia by the industry.
XCMG has participated in numerous projects in Indonesia, including Indonesia's tallest building project, the Java 7 coal-fired power plant project, the tunnel project for the Jatigedi Dam, and the Jakarta-Bandung High-Speed ??Railway Phase II project.
Sany Heavy Industry established its presence in the Southeast Asian market even earlier, setting up offices in the Philippines, Malaysia, and Singapore as early as 2007. In August 2022, Sany's first overseas "lighthouse factory" in Indonesia commenced production.
The ASEAN Mining Cooperation Action Plan continues to be implemented, providing investors with more mineral data and information.
From 2021 to 2023, the Association of Southeast Asian Nations (ASEAN) successively launched the third phase of the ASEAN Mining Cooperation Action Plan 2021-2025 and the first edition of the ASEAN Mineral Exploration Strategy. A significant change in these documents is the addition of the ASEAN Mineral Information and Database (AMDIS), which digitizes information to provide potential investors with geoscience, development, and production data on competitive minerals, aiming to provide accurate and reliable geological and resource information to attract investors. Due to the high risks of mineral development, obtaining accurate and reliable project information in advance can improve transparency, reduce investment risks, and enhance the attractiveness of ASEAN for investment.
Many countries have enacted new Mineral Laws, opening doors to further investment.
To effectively attract investors to the ASEAN mining industry, many ASEAN countries are gradually improving existing mineral regulations or enacting new laws. Specifically:
1. Indonesia has reissued its Amended Mining Law, providing convenience for foreign investors, such as relaxing license transfer regulations, allowing companies to transfer shares after approval from the Ministry of Energy and Mineral Resources.
2. Cambodia has enacted its National Mineral Resources Policy, with key changes including: promoting the development of small-scale artisanal mining; establishing export management policies and lists for mineral products and implementing trade facilitation policies; allowing wholly foreign-owned enterprises; and converting exploration licenses into mining licenses.
3. Since the Prayut government came to power, Thailand has provided a more relaxed policy environment for potash mining, simplifying application conditions, reducing approval difficulties, and allowing investors to obtain potash exploration licenses in specific areas.
The RCEP (Regional Comprehensive Economic Partnership) continues to advance, expanding market access for foreign investment.
RCEP member countries (including the ten ASEAN countries, China, Japan, South Korea, Australia, and New Zealand) have adopted a negative list approach, making significant commitments to openness in the mining investment sector, enhancing policy transparency, and expanding market access for foreign investment.
Trade liberalization will eventually lead to zero tariffs on the vast majority of goods trade.
Under the RCEP framework, it is expected that over 90% of goods trade among the 15 member countries will eventually be subject to zero tariffs. Data shows that ASEAN countries export 91% of their total non-ferrous metals and 68% of their rare earth exports to China. If mineral trade is subject to zero tariffs, China's import costs of mineral products from ASEAN will decrease significantly, which will encourage China to increase imports and potentially drive further expansion of the ASEAN mineral resources market.
Chinese construction machinery companies favor the Southeast Asian market due to both strong demand for construction machinery in the region and the policy benefits brought by the Belt and Road Initiative and the RCEP agreement. Although developing the Southeast Asian market is not without challenges, Chinese construction machinery companies will not be deterred by difficulties. Looking to the future, my country's construction machinery companies will surely write a new chapter in overseas expansion.
