In 2016, many machine tool manufacturers in Europe were concerned about the significant slowdown of the Chinese manufacturing market. This also led to declining exports to the Emerging Asia market. Starting in the 4th quarter of 2016 and continuing in 2017 it seemed this trend has taken another direction. For many machine tool companies, exports to China and the Asian region are moving in just one direction - Up.
The reasons behind the Chinese revival in manufacturing and in this case, machine tools, are varied. The Chinese Government implemented an economic restructuring plan with the Made in China 2025 strategy. This plan aims to remedy China’s manufacturing problems by comprehensively upgrading the sector and making it more efficient and integrated so that it can reach the highest stages of the global production chains. By 2025, China aims to raise the domestic share in core components and materials to 40% by 2020 and 70% by 2025. Chinese government spending in infrastructure projects have also increased over the past months. The increase in machine tools demand is furthermore driven by a healthy growth in the manufacturing production, e.g. in the industrial machinery and transportation equipment industries. Another factor is the shift in the product mix towards high-end machine types such as machining centers, CNC machine tools, and multitasking machine tool, which helps to drive market development in value terms.
Increasing regulations regarding energy conservation and machine safety to meet global standards leads to growth in the demand for energy-efficient and safe machine tools. The increasing number of high-end machinery also helps to drive exports from China to import markets such as Mexico, USA, and Brazil. While China was a strong importer of machine tools in the high-end sector in the past, it is now starting to become a global player in this segment itself, resulting in an increasing demand for automation equipment that fulfill the high quality requirements of such machinery.
However, China’s trade deficit in machine tools will continue to grow in the foreseeable future. With imports rising during 2017, foreign suppliers will still benefit from a growing demand for highly precise and sophisticated machine tools, which are needed to manufacture advanced machines. Also, decreases in tariffs on imported machine tools are driving sales of imported products in 2017 and onwards. Demand for metal forming equipment is also expected to show a strong positive development in 2017, benefiting from strong growth anticipated in the passenger cars, shipbuilding, and the strongly increasing aerospace industries.
Germany, as a strong exporter of machine tools showed an 8 percent increase of exports to China during the first quarter of 2017 compared to the same period a year ago, according to the VDW (Germany machine tools association).
The question is how long this positive outlook and development will last. Assuming the Made in China 2025 initiative continues successfully, we might see some prosperous years. The electronics and semiconductor industries will also show rising demand for machine tools, as well as aerospace & defense due to China’s own passenger plane manufacturing, which has started in 2016. However, focusing only on China is not the best strategy as many other Emerging Asia economies, e.g. the South East Asian countries, also show good perspectives for European machine tool manufacturers.