Growing Construction Machinery Rental Market in China

Although medias continuously downsizing the real estate market in China, its development has maintained a growing momentum. Meanwhile, the construction of public facilities in China has become increasingly hot under the PPP (Public-Private Partnership) model. With the growing of downstream market, the construction machinery rental industry is expected to run into a stage of rapid development.

Downstream Demand Brings Growth Space

The investment on China’s real estate industry during January and July in 2019 was about 1040.6 billion US dollars. Compared with the investment of about 940.9 billion US dollars in the same period last year, the growth rate is as high as 10.6%. Among the total investment of more than a trillion US dollars, the investment in the residential sector was about 763.8 billion dollars, accounting for 73.4% with an increase of 15.1%.

Under the huge investment, China's real estate construction area in the first 7 months in 2019 exceeded 7.94 billion square meters, with a rise of 9% compared with the same period of last year. The increase in construction area has brought a wide market for construction machinery industry.

Growing Momentum of China’s Real Estate Market

 

Another major downstream application of construction machinery is the construction of public facility. Under the support of the Chinese government and the assistance of social capital, the construction of public facility in China is in an increasing momentum, and the PPP project jointly built by the Chinese government and social capital is the main content of China’s current construction of public facility.

It is reported that in the first half of 2019, the number of Landed PPP projects in China increased by 1120, and this is 181 more than that of the same period in last year. And the capital invested in these 1120 projects was 228.5 billion US dollars, increased by 35.2 billion. As for the PPP projects already started, there were 1209 of them, and 285.7 billion US dollars has been invested on them. And the invested capital is 157.1 billion US dollars higher than that of the first half in 2018. These all showed that a large number of PPP projects have transformed from plans to reality, and the pace of public infrastructure construction in China is accelerating.

More and More PPP Projects Have Transformed from Plan to Reality

 

There may be hidden dangers when the construction of public facility is too fast, but the speed of China's PPP project construction is still under the control of government. Both the landed projects and the already started projects are from the PPP projects that the Chinese government has filed, so there are basic guarantees in terms of preliminary preparation and project feasibility. Meanwhile, as a result of the government's increasingly rigorous review, the number of newly filed projects has gradually decreased. In the first half of 2019, only 382 PPP projects were filed, a decrease of 230 from the same period last year.

Although the quantity of newly filed PPP projects is decreasing, plenty of PPP projects are waiting to be built in China. Since 2014, China has filed 9036 PPP projects, and 3322 of them have not yet landed, and 5590 projects are still stuck before the stage of construction. Among the 5811 landed projects, only 56% of them are now under construction. In the few years to follow, public infrastructure construction will be one of the most powerful drivers for the development of the construction machinery industry.

Plenty of PPP Projects are Waiting to Be Built in China

 

Rental Boom in Chinese Construction Machinery Industry

China's construction machinery market has shifted from an incremental market to a stock market. Since 2012, the demand of Chinese construction machinery market has been declining year by year, and most of the construction machinery market's incremental sales have basically maintained a growth rate range of -20% to 20%. While the sales of construction machinery of various categories have declined, the ownership of construction machinery in China has reached a historically high level. At present, the number of major products has exceeded 9 million.

In the case of reduced construction machinery sales, China's construction machinery rental market is rising strongly. Compared with buying the construction machine, renting has two significant advantages. On one hand, renting can improve the efficiency of equipment use, and at the same time reduce the capital investment of construction enterprises. On the one hand, renting is conducive to the realization of the special division of construction, thereby reducing the safety risks in the construction of the project.

Under these two advantages, China's construction machinery rental market is showing a hot scene. In 2006, China's tower crane rental market was about 2.1 billion US dollars, and the ownership of it was about 50,600 sets. In 2010, the size of the same market exceeded US$4.3 billion, with a compound growth rate of 18.97%, and the ownership of tower crane reached 141,000 sets, with a compound growth rate of 23.96%.

Most Sectors of Construction Machine are Increasing

In the development of China's construction machinery rental market, the increasing demand has led to the continuous improvement of the industry's overall standardization and service level, and the improvement helps the construction machinery rental industry to attract more downstream users. China's construction machinery rental industry is expected to form a virtuous circle.

China's Construction Machinery Rental Industry is Still Catching Up

China's construction machinery leasing industry is still in the early stage of development, and is relatively backward in many aspects. Since the essence of construction machinery leasing is to give full play to the scale advantage of the principal, and earning from the spread between rent and lease, net assets is one of the important factors for the profit of construction machinery leasing companies, and there is still a certain gap between China's companies and leading enterprises on the net assets.

Chinese Construction Machinery Enterprises are Still Small in Scale

China's current construction machinery leasing companies can generally be divided into financial leasing companies, industrial leasing companies and independent financial leasing companies. Among them, leasing companies funded by large equipment manufacturers or independently based on equipment are the most competitive. Such companies rely on their own technological advantages to provide tenants with more comprehensive technical support, after-sales service, parts supply and equipment recycling services. PY Rental, a leading enterprise in China's construction machinery leasing industry, is an industrial leasing company.

The parent company of PY Rental is Shaanxi Construction Machinery. The main business of SCM has been transferred from the sale of machinery and accessories to the leasing of construction products. The sales business accounts for only 24% of all businesses in SCM, and the remaining 76% are leasing businesses. However, the overall penetration rate of China's construction machinery leasing industry has not reached such a high level. 

In 2007, the penetration rate of China's construction machinery rental market was only 1.8%. Due to the advantages of the financial leasing business, the penetration rate of the construction machinery rental market has increased year by year. Although the growth rate has gradually slowed down due to marginal effects, the penetration rate of the rental market has now exceeded 50%. Although it is still lower than the construction machinery rental penetration level of more than 65% in developed countries, considering about the stock market status of construction machinery in China and the huge downstream demand, the prospect of China's construction machinery rental market is optimistic.

Growing Penetration Rate of Chinese Construction Machinery Market