Cementing the future for sustained growth

Heavy machinery makers from China find the grass is often greener in markets along the 'Belt and Road' countries, reports Zhong Nan.

Though many Chinese heavy machinery makers and infrastructure project providers are struggling due to industry overcapacity and stagnant market conditions at home, there are some like Northern Heavy Industries Group Co Ltd that have found new growth avenues along the "Belt and Road Initiative" routes.

The Silk Road Economic Belt and 21st Century Maritime Silk Road were initiatives proposed by President Xi Jinping in 2013, with the purpose of rejuvenating the two ancient trading routes and further opening up the markets in a mutually beneficial manner.

NHI, based in Shenyang, capital of Liaoning province, a specialist in heavy machineries and engineering, procurement and construction projects, a common form of contracting arrangement in the construction industry, plans to build a cement plant in Kazakhstan over the next three years.

The company has also won a bid to build power station facilities including coal material transport systems and utility boilers in Uzbekistan, and has delivered giant mine loaders to Russia, and concrete and power plant equipment to Tajikistan over the past six years.

NHI President Geng Hongchen said with business ties between China, Central Asia and Europe steadily improving, the nation wants to rebuild the ancient Silk Road to create a bigger business platform that provides more access for foreign infrastructure companies. That marks a shift away from the previous model, under which China focused on domestic and export markets to develop the economy.

The company also sealed a $7.37 million deal with Iran Pasco Steel and Iron Corp, the largest private steelmaker by revenue in Iran in January. The Chinese company will supply 5 million metric tons of iron products and related auxiliary project supplies every year to Pasco, its largest-ever overseas mineral processing contract.

Geng said the company will continue to focus on global expansion, particularly into Central Asia, Southeast Asia, South Asia, Turkey and Africa. It is also in talks with an Indian company for a $160 million deal.

Supported by 27 subsidiaries and more than 10,000 employees, NHI has secured contracts worth $50 million from the global markets in the first three months of the year. Most of the deals came from markets in Iran, Kazakhstan, Pakistan and Vietnam.

Geng said that the Central Asian market is "more flexible" when it comes to business practices and industrial development compared with Southeast Asia or Latin America.

"Infrastructure companies from China usually need to spend time to determine what kind of building materials or heavy machinery is required in Central Asia, or which industry should be treated as a priority. Once this done, then it is easy to complete the paperwork and get down to business," said Geng.

Restrained by the relatively weak industrial and logistics foundations in the region, many Central Asian and foreign construction contractors often had to use cement sourced locally for their projects. Not only was the local cement too costly, but supplies were also difficult to come by, often leading to project delays. Delays also occurred due to sub-standard road transportation facilities and bureaucracy, and delayed shipments from China, Russia and Europe often made matters worse.

"It appears we have found a new growth area in Central Asia's cement industry, and investing in this sector will be one of our focuses this decade," said Geng.

NHI's proposal to set up a material-handling plant for a power project being undertaken by Pakistan-based FFBL Power Co has completed the initial review process. The preliminary design for the project has also been completed.

Wang Xuemin, NHI's deputy general manager, said cement companies in China do not have much leeway to make profits at home, because the government has started to optimize the industrial structure of the cement sector and reduce the number of plants to cut pollution.

The Ministry of Environmental Protection has imposed pollutant emission caps on six industries, including cement, iron, steel and shipbuilding industries since 2013.

Other Chinese cement producers have already found the Central Asia and African markets to be lifelines. Since 2013, China National Building Material Group Corp, China Railway Construction Corp and Jidong Development Co Ltd have all invested in building cement plants in Uzbekistan, Ethiopia, Angola and South Africa.

"Many African and Central Asian governments have realized that developing a cement industry could accelerate the pace of urbanization and raise people's living standards through large-scale infrastructure improvement－and they are willing to attract Chinese investment and technology providers," said Wang.