Excavators have become a "thermometer" for a certain aspect of the Chinese economy.

Through big data and Internet of Things technology, the index formed around excavators can serve as an important reference for the State Council in formulating economic policies, while also allowing observation of the cold and hot trends in China's infrastructure construction, especially in the PPP-type infrastructure sector.

Before September 2016, excavator manufacturing companies faced a sales performance low; afterwards, signs of stabilization and recovery began to appear. In the first two months of 2017, sales were booming, with a single production team at SANY Heavy Industry reaching a daily production task of 70 units. However, even with this production intensity, it still could not keep up with the sales speed, leading to a situation where "excavators are hard to come by." What is the reason behind this?

SANY Heavy Industry's Secretary of the Board, Xiao Youliang, told First Financial 1℃ reporters, "These are all clear signals of the start of infrastructure construction." He explained that based on sales analysis, infrastructure construction in regions such as Yunnan, Guizhou, Guangxi, Guangdong, and Chongqing mainly involves roads and bridges, which primarily benefit from the national investment in PPP construction.

Sales are booming.

On February 24, SANY Heavy Industry's official website posted a message titled "Orders multiply, customers urge for orders: SANY workshop is busy and lively": "Currently, the sales situation of SANY excavators nationwide can be described in two words - 'out of stock'." Currently, the company's data for February shows a nearly 300% year-on-year sales growth.

According to data compiled by the China Machinery Industry Federation, the total sales of excavators in the industry for the entire year of 2016 reached 70,320 units, a year-on-year increase of 24.8%. This marks the first positive growth rate for excavator sales since 2013, with 11,354 more units sold compared to the lowest point in 2015, and a staggering year-on-year growth of 75.0% in December.

Data shows that in 2016, the added value growth rate of the national machinery industry showed a month-on-month upward trend, with a year-on-year growth of 9.6% from January to December, an increase of 4.1 percentage points compared to the previous year, and higher than the national industrial growth rate of 3.6% during the same period.

According to the above data, in 2016, the national machinery industry achieved a cumulative main business income of 24.55 trillion yuan, a year-on-year increase of 7.44%, which is 4.12 percentage points higher than the same period last year, and 2.53 percentage points higher than the national industrial average during the same period. From the annual trend, the growth rate has been increasing month by month and has always been higher than the national industrial average level during the same period.

Excavator sales welcomed a good start in 2017. Recent data released by the China Construction Machinery Association shows that in January 2017, 25 excavator companies included in the statistics sold a total of over 4,500 excavators, a year-on-year increase of 54%.

The sales data for February is even more surprising, with total domestic excavator sales reaching 14,530 units, a year-on-year increase of 297.65%. Among them, SANY Heavy Industry's excavator sales exceeded 3,600 units, with a year-on-year increase of over 360%. Other brands such as XCMG, Caterpillar, Hitachi, Komatsu, and Doosan also exceeded 1,000 units.

SANY Heavy Industry stated that based on the current "busyness" of various production lines and dealers, the company's product sales are expected to reach a new high in five years, moving from a "good start" to a "full-year success."

Where are the main sales destinations for excavators?

According to a research report from Dongwu Securities, in January 2017, based on sales volume, the eastern region sold 1,436 units, the central region sold 1,033 units, and the western region sold 1,478 units. The eastern region had the fastest year-on-year growth rate, with a year-on-year increase of 77%, the central region increased by 49%, and the western region increased by 51%.

Data from the China Machinery Industry Federation shows that in January 2017, Jiangsu, Shandong, and Yunnan ranked in the top three in sales, each exceeding 300 units, and these three provinces were also the top three in total sales for the entire year of 2016.

"Leaders urge production, managers urge for goods, and some customers from Jiangsu even come directly to the workshop to check the equipment and urge for orders," said Yang Shaoyong, deputy manager of the assembly department at SANY Heavy Industry. To ensure supply, the workers in the factory have been extremely busy recently.

Underlying reasons.

As is well known, excavators are mainly used in municipal construction such as real estate, rail transit construction, highways, mining, and infrastructure construction such as water conservancy and hydropower. Currently, a model that is being vigorously promoted nationwide, which aligns with the main uses of excavators, is the PPP model. The so-called PPP (Public-Private Partnership) is a project operation model in public infrastructure where the government collaborates with social capital.

Excavators are not only a "thermometer" for observing the popularity of the PPP model, but they have also become one of the important reference indicators for the State Council in formulating infrastructure construction policies.

Initially, to address issues such as excavator malfunctions, SANY Heavy Industry utilized Internet of Things technology to collect data on whether equipment was operational, how long it operated, the workload, parts wear, and fuel consumption, among other factors. Through continuous technological updates, each machine connects to a vast network via onboard controllers, sensors, and wireless communication modules, ultimately forming a large database. These are the core data at the most fundamental level, closely related to the construction volume of infrastructure.

After visiting SANY Heavy Industry's big data platform, relevant leaders from the State Council requested monthly reports on the operational data of related construction machinery, and the reporting cycle has now been shortened to once every half month. It can be said that the State Council and relevant departments' understanding of the PPP model and the introduction of related policies are closely related to the excavator index.

After the Third Plenary Session of the 18th Central Committee proposed to "allow social capital to participate in urban infrastructure investment and operation through franchising and other means," the PPP model began to be promoted. However, "PPP reform still faces urgent problems and challenges such as inadequate changes in concepts, unbalanced reform and development, low participation rate of private capital, non-standard implementation of some projects, and inadequate legal protection and policy coordination." The head of the Ministry of Finance's PPP Working Group, Vice Minister Shi Yaobin, has openly stated the five major difficulties faced by PPP. This has led to many chaotic phenomena in the promotion of the PPP model.

By 2016, Premier Li Keqiang of the State Council repeatedly emphasized issues related to PPP at executive meetings. In the executive meeting on July 7 of that year, four items were deployed, all related to PPP.

The fifth quarterly report recently released by the Ministry of Finance's PPP Center shows that at the beginning of 2016, the number of PPP projects and investment amounts were 6,997 and 8.1 trillion yuan, respectively, while by the end of December, these two figures had risen to 11,260 and 13.5 trillion yuan, with both project numbers and investment amounts significantly increasing by 61% and 66%, respectively.

The aforementioned fifth quarterly report from the Ministry of Finance's PPP Center shows that in terms of the geographical distribution of implemented projects, Shandong has 222 projects, accounting for 16.4% of the total number of implemented projects; Xinjiang has 146 projects, accounting for 10.8%, ranking second; followed by Zhejiang with 88 projects, Sichuan with 81 projects, and Henan with 77 projects.

In terms of the number of projects in the database, Shandong ranks second with 1,087 projects, while Guizhou ranks first with 1,788 projects. The remaining provinces, Xinjiang, Sichuan, and Inner Mongolia, have 852, 848, and 828 projects, respectively, ranking behind Shandong.

Yunnan's PPP project investment amount ranks third in the country. The aforementioned quarterly report shows that in terms of investment amounts for projects in the database, Guizhou, Shandong, Yunnan, Henan, and Sichuan rank in the top five, with amounts of 1,603.4 billion yuan, 1,222.9 billion yuan, 1,030.2 billion yuan, 953.8 billion yuan, and 918 billion yuan, respectively, accounting for a total of 42.4% of the total investment in projects in the database.

In spring, the water warms and the duck knows first. This "duck" refers to the excavator.

Since the second half of 2016, many companies, especially those with social capital, have clearly felt a warming in the infrastructure construction sector. This warming trend is first reflected in the sales of excavators.

Wang Jinxing, deputy secretary-general of the China Construction Machinery Industry Association, analyzed to reporters that excavators showed a growth trend in 2016, one reason being that excavators had experienced a continuous decline for four to five years since 2011. After several years of digestion and the elimination of some excavators, sales began to increase. Another reason is that from the end of 2014 to the beginning of 2015, the State Council and the National Development and Reform Commission successively announced documents for the construction of PPP and other infrastructure projects and began to promote them vigorously. By July 2016, this trend had transmitted to manufacturing enterprises like excavators.

Haitong Securities analyzed that the heat of urban infrastructure and PPP in China has driven the rapid sales of excavators. One reason for the explosive growth in excavator sales since the second half of 2016 is the concentrated commencement of PPP projects, including municipal engineering and rail transit.

Dongwu Securities analyzed that SANY Heavy Industry benefited from the industry's recovery, and the outlook for 2017 is relatively optimistic, mainly because government investment has not yet ended, the demand for excavator updates is about to explode, and the government is supporting PPP projects.

At the beginning of 2016, China Merchants Securities raised SANY Heavy Industry's investment rating to "strongly recommended" because the operating rate of existing construction machinery steadily increased after the Spring Festival in 2016. Due to the sudden increase in excavator sales in the second half of 2016, China Merchants Securities stated in their research report, "Excavators started to sell out in August."

Zhonglian Heavy Industry also clearly felt the industry's recovery. Dongwu Securities analyzed that in 2016, Zhonglian Heavy Industry's construction machinery related to infrastructure performed well, with excavator sales recovering and monthly growth rates exceeding 70%. For Zhonglian Heavy Industry, the previous years were all about adjustment, and they have now passed the adjustment period.

Zhonglian Heavy Industry's 2016 performance report shows that with the recovery of excavators and other construction machinery, the company preliminarily expects that in the second half of 2016, Zhonglian Heavy Industry's revenue will increase year-on-year, and profits will turn positive in the second half of the year, achieving the first positive operating cash flow in nearly three years, significantly improving compared to 2015.

According to the information on the official website of the Yunnan Provincial Department of Finance, at the "2017 Yunnan Province PPP Project Promotion Conference" held on February 14, a total of 106 projects with a total investment of 399.6 billion yuan were displayed, covering 14 fields including transportation infrastructure, municipal public facilities, medical and health, water conservancy projects, affordable housing projects, and ecological environment protection. Therefore, Yunnan has also become one of the main sales areas for excavators.