Manufacturing starts again: most afraid of over-expansion of homogenization capacity
June 20 07:40:55, 2025
Since the start of this year, both domestic and international market demands have gradually weakened. Issues that were previously hidden during the rapid growth of the manufacturing sector have now surfaced. For instance, the machinery industry, particularly sectors like construction equipment, power transmission, wind power equipment, and machine tools, has seen a downturn across several key metrics such as industrial added value, total output, realized profits, export revenue, product output, and fixed asset investment. Industry experts warn that the situation is becoming more complex, with economic operations becoming increasingly challenging.
According to data from the first nine months of the year, the machinery industry grew by 8.6%, which is 1.3 percentage points below the national average industrial growth rate. The industry’s performance ranked 10th among 12 industrial sectors. One of the main issues highlighted at the "2012 National Machinery Industry Economic Situation Reporting Meeting" was excessive investment in the manufacturing sector, leading to overcapacity. A senior official from the Ministry of Industry and Information Technology emphasized that the steel industry has seen particularly severe overcapacity, with production capacity expanding by approximately 50% over the last few years. Excessive production capacity expansion poses significant risks, as noted by Cai Weici, Executive Vice President of the China Machinery Industry Federation. He explained that while demand has grown annually, it lags far behind the rapid expansion of supply capacity, resulting in intense price wars.
A survey conducted among key enterprises of the China Machinery Industry Federation revealed that cumulative orders in the first nine months of the year fell by 0.35% year-on-year, compared to increases of over 20% in previous years. The demand remains weak, especially in industries that experienced rapid growth in recent years such as construction machinery, power transmission, wind power, and machine tools. Cai Weici noted that apart from technological limitations, many high-end equipment and critical components remain unlocalized, leading to overproduction and fierce competition. Industry analysts predict that only companies with strong innovation capabilities, rapid product upgrades, and distinct competitive advantages will thrive, while others may face declining efficiency or even extinction.
In fact, the real challenge in the machinery industry isn't a lack of demand but rather the overexpansion of similar capacities. As Cai Weici stated, "When supply exceeds demand, suppliers lose negotiating power. To avoid being marginalized in a competitive market, companies need to pursue differentiated strategies. By focusing on niche markets, they can create scenarios of 'short supply' and enjoy profit margins above the industry average."
Fortunately, some regions have begun to recognize the dangers of homogeneous competition and overcapacity. Li Sen emphasized that industry development should avoid blindly following trends and instead focus on leveraging local strengths and unique features. He mentioned plans to further develop the bearing industry, building on existing foundations such as ferrules, steel balls, and seals, aiming to reach the higher end of the supply chain.
Notably, some developed countries are monopolizing the high-end equipment market and expanding into mid-tier products, particularly in sectors like automobiles, CNC systems, and machine tools. This trend is growing, posing challenges for domestic companies trying to penetrate these markets. Cai Weici stressed that addressing these issues requires comprehensive reforms across the entire industrial chain, restructuring outdated systems, curbing blind expansion of similar capacities, and enhancing 'soft' skills. By focusing on quality over quantity—being "fine, delicate, and innovative"—the industry can break free from its current struggles and regain momentum.
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