Caterpillar sees China stimulus helping in 2013

VLADIVOSTOK, Russia: Caterpillar , the world's largest maker
of construction equipment, expects a $157 billion Chinese
infrastructure spending drive to feed through to its sales next year,
boosting its operations both locally and in North America.
China
has given the go-ahead to 60 infrastructure projects as it seeks to
export weakness resulting from Europe's debt crisis and a slow U.S.
recovery that have dragged its economic growth to a three-year low.
President Hu Jintao
pitched the stimulus plan in a keynote speech on Saturday to business
leaders attending an Asia-Pacific summit, drawing an enthusiastic
response from Caterpillar's top regional executive.
"It's very
good news," Richard Lavin, who oversees Caterpillar's China business,
told Reuters during the Asia-Pacific Economic Cooperation (APEC) summit
in Russia's eastern port of Vladivostok.
"To have President Hu
... talking about infrastructure and the role it plays in ongoing
stable economic development ... I thought that was really exciting."
Highlighting
increasing downward risks to global growth, Hu said in his speech that
China would "leverage the role of infrastructure in boosting domestic
demand, creating jobs and improving people's livelihood".
Hu
reeled off a list of areas where China needed to upgrade its
infrastructure - in agriculture, energy, water conservation and
information technology.
He also called for a buildout of transport networks, listing railways, highways, waterways, airports and pipelines.
Lavin
said he expected details of the infrastructure spending plan to become
clearer in the next few days or weeks, but Hu's comments suggested
"it's going to be very broad in its application".
"He talked
about roads, bridges, airports, sewage systems, energy - all of these
are areas that we play in, it's the core of our business," said Lavin,
who is Caterpillar's group president and chairman and is based in Hong
Kong.
"I think we can expect a fairly broad and significant impact across our business."
CHINA OVERCAPACITY
Caterpillar,
based in Peoria, Ill., posted record earnings in the second quarter,
and forecasts 2012 revenues of $68-$70 billion this year and earnings
per share of $9.60 - which would also be records.
The company
has, however, suffered a slide in China as the far larger stimulus
package - put into effect in response to the global financial crisis of
2008 - created a raft of bad debts that weighed on the construction
sector.
Chinese economic growth slowed to 7.6 percent in the
second quarter of the year and, in his speech, Hu cautioned that growth
was facing "notable downward pressure".
Chinese sales as a share
of Caterpillar's overall business slipped to 3-3.5 percent last year
from 6 percent in 2010, and should roughly hold pace with overall sales
this year, Lavin said. He predicted a positive impact from the stimulus
in 2013.
The company, which has 18 plants in China and nine
under construction, has suffered from overcapacity and has started
temporarily exporting machinery made there to the Middle East and
Africa, but expects its bet on the long-term China growth story to work
out.
"I would fully expect that the heavy focus on earth
moving-type work - roads, airports, bridges - that it'll have a very
positive effect on our China manufacturing," said Lavin.
"We
don't serve China 100 percent from China - we import machines for
construction, also for mining, from outside of China, principally from
North America. We expect to see a boost from North America, as well as
in China." - Reuters