With its seemingly limitless supply of lower factory costs, more determined discipline in their factories and rapid acquisition of technological prowess, the Chinese pumps market appears to be unstoppable. In emerging Asia markets, with growth rates of more than 20.0 percent a year in 2006, the Chinese market offers huge potential. Transport and other infrastructure in China is also in better shape than many other Asian countries and the quality and availability of suppliers is improving all the time, enabling highly integrated supply chains to develop within the country.
The Chinese industrial pumps market (including centrifugal and positive displacement pumps) is currently witnessing a positive trend, which is driven by infrastructure development in related processing industries and mega project launches like the South-to-North Water Diversion Project and West-to-East Natural Gas Transmission Project. Both of these initiatives provide considerable opportunities for revenue growth.
In 2006, the focus was on key end-user applications like water and wastewater treatment, the chemicals and petrochemicals industry, power generation industry, and oil and gas industry. These important industries each account for between 15 percent and 25 percent of the overall market (see Figure 1). This trend is expected to remain for the next 7 years.
Overview
The total Chinese industrial pumps market is considerably large, but a fragmented market. The revenue generated by this market reached $5.06 billion in 2006, with an annual growth rate of 24.9 percent. Between 2003 and 2006, this market witnessed rapid growth driven by the huge demand from industries such as water and wastewater treatment, power generation, oil and gas, and chemicals and petrochemicals.
This market is expected to witness continuous growth, with a decline in growth rates, which is mostly due to the tightened control on investment in many industries and successive completion of relative projects. By the end of the forecast period in 2013, the revenue from this market is forecasted to be $14.96 billion, and it is anticipated to grow at a relatively high compound annual growth rate (CAGR) of 16.7 percent.
Competition
There are more than 3,500 participants in the total Chinese pumps market. According to the characteristics, the companies can be roughly divided into three segments: multinational companies, state-owned enterprises, and private-owned enterprises.
Although multinational companies, including joint-venture companies, occupied a share of less than 15.0 percent in terms of number, this group of participants contributed more than 20.0 percent toward the revenue of this market in 2006 by providing high value-added, high-tech products of advanced international standards and value-added services.
For domestic companies, most are privately-owned in the form of shareholding enterprises, which experienced rapid development. These enterprises are noted for their flexible managerial mechanisms and stable sales networks.
Competition is expected to intensify, which is represented by price wars among medium-small companies in the mid-range and low-end market. After witnessing the rapid growth in China, more multinational companies are expected to enhance their penetration of products and brand name in the region by local manufacturing through acquisitions and mergers, which are expected to result in increasing market consolidation.
Investment Policy - Impact on Energy Industry
China has been the world's largest recipient of foreign direct investments (FDI) among the developing countries since the early 1990s. Since 2001, the Chinese energy industry has been one of the promising industries, which has attracted considerable inflow of foreign direct investments.
The massive inflow of foreign investments into the Chinese economy could also be attributed to the country's WTO accession, which has opened the huge Chinese market for leading countries such as Japan, the United States, South Korea, and Taiwan, and the countries of the European Union.
Investment in the energy industry was insignificant until the year 1995 when the Chinese government encouraged foreign direct investments (FDI) for onshore oil exploration and allowed joint venture developments with the CNPC. However, since 2000 the Chinese government has liberalized the norms for FDI in the energy industry. In addition to oil exploration and production, the Chinese power generation sector was open to foreign direct investments, and many companies like Russia, France, and Canada took an active part in the construction of nuclear power plants.
Although the Chinese energy industry is dominated by the state-owned enterprises (SOEs), foreign investments are encouraged with the aim of expanding the infrastructure and introducing new clean energy technologies.
Environmental Regulations
Sustainable development is a national strategy, and the implementation of environmental policies and measures is likely to generate climate benefits. China has promulgated a number of laws on environmental protection, energy conservation, and the development of renewable energy sources, which promote sustainable development and create a positive impact on the environment.
In response to the growing concerns toward the rise in greenhouse gas emissions, China has taken efforts in making environmental protection the top priority in its policy agenda. The 11th Five-Year Plan has set targets for the plan period (2006-2010), including reductions in energy consumption per unit of GDP by 20.0 percent and the level of pollutant discharged by 10.0 percent.
However, the targets of the Kyoto Protocol are considered a challenge due to the increase in the level of air and water pollution in China. Due to the rapid economic growth rate, China's energy production and consumption have increased drastically. The energy industry has witnessed rapid development with the increase in the number of coal and nuclear power plants with attendant negative environmental impacts.
State Environmental Protection Administration (SEPA) of China, appointed under the State Council, is responsible for the supervision and management of environmental protection according to the laws and regulations. The SEPA helps in maintaining a pollution-free environment in order to achieve a sustainable and robust development of the economy. The government has formulated over 50 regulations since 1996 to encourage environmental protection, such as control of water pollution, prevention and control of air pollution, and evaluation of environmental impact.
The European Union (EU) is now planning to invest funds worth $52.0 million for developing China's energy infrastructure. The funds are mainly directed toward projects that focus on climate change and environment. The EU has also proposed setting up a European Energy Technology Center in China to foster the exchange of research and technologies including clean coal, energy savings, and renewable energy.
Strategic Conclusions
There are around 3,500 participants in the Chinese positive displacement and centrifugal pumps market. As of 2006, the top ten Chinese pump manufacturers together accounted for less than 23.0 percent of the revenue share. This market is highly fragmented.
The centrifugal pumps segment contributes the major market share in the total Chinese pumps market.
Due to limits in technology and capital, domestic pump manufacturing companies can only serve the medium-end and low-end markets. However, multinational companies see tremendous business opportunities in the high-end market and are planning mega projects.
The applications that have a major revenue share, in order of revenue share, are water and wastewater treatment, chemicals and petrochemicals, and power generation. The other application segments such as oil and gas and agriculture are also expected to offer more opportunities for revenue growth.
Price remains the most important competitive factor in this market. Throughout the forecast period, the average price is expected to slightly decline, due to overcapacity in the low- and medium-end market, end users' high price sensitivity, and the increasing bargaining power of buyers.
As rapid development in the Chinese market is being witnessed, many multinational pump manufacturing companies are planning to enhance the penetration of their products in China by establishing manufacturing bases through mergers and acquisitions.
With increasing competition, small-sized pump manufacturers are expected to either merge or be acquired, or be forced out of the market in the next few years (2008 to 2013). As a result, the market consolidation is forecasted to increase.
Pumps & Systems, January 2008