China’s year-over-year GDP has slid from 9.7% in Q1 2011 to 7.6% in Q2 2012 and industrial production has slowed to 9.5% according to China’s National Bureau of Statistics. According to the 2012 Industrial Fractional Horsepower Motors Study published by IHS, the Chinese market for industrial fractional horsepower motors (FHP) motors is expected to grow at merely 6% in 2012 and decrease further to 5.7% in 2013. Although these figures of declining growth in the overall economy seem very alarming, there is good reason to believe that the industrial FHP motor manufacturers will still be able to benefit from the growth in China.
This period in declining economic activity in China is due to two major factors. While much of the world was crippled by the global recession in 2009, China continued to maintain high growth by turning towards domestic development through a $586 billion stimulus plan. Now that China’s stimulus projects have come to an end, new demand is being addressed by the excess capacity created during the stimulus which has reduced the need for current expansion. The second factor placing downward pressure on China’s growth is the slow and steady growth of international export markets. However, these factors should resolve themselves as the global economy continues to promote higher exports and demand catches up to supply in major industries impacted by the stimulus in China.
Despite the recently declining growth rate in China, China’s economy is still growing at a rate between 4 and 5 times faster than the United States, and many industrial FHP motor manufacturers are not changing strategy. Moreover, declining growth in major industries such as construction and mining are having a relatively small impact on industrial FHP motor sales into some industries such as industrial automation and medical applications. For example, growing demand for industrial automation equipment and machinery such as machine tools and medical pumps are presenting more opportunities for motor manufacturers in China. This uneven impact of China’s slowing economic growth on the industrial FHP motors market has allowed us to see just how important product diversification is in China. Suppliers selling predominantly into Chinese industries that are standard consumers of industrial FHP motors such as electronic point-of-sale, building automation and commercial office equipment are not doing as well.
The 2012 Industrial Fractional Horsepower Motors study by IHS indicates that the growth rate of the market for industrial FHP motors in China will once again increase in 2014, but will the year-over-year growth rate of the market for industrial FHP motors in China ever exceed 10% again? Although it is possible for some industrial small motor suppliers’ sales to grow by more than 10%, the Chinese industrial FHP market is not expected to reach double digits in the near future due to the impact of the weakened Chinese economy on the overall industrial small motors market. Suppliers that are best positioned to experience double digit growth in this environment are the larger local industrial FHP motor suppliers serving the high-growth segments. However, the majority of Chinese suppliers are expected to experience high single digit growth levels within increasingly cost-competitive industry sectors.
China may not have the extremely robust economic growth it had throughout the recession, but it remains a source of growth and opportunity for industrial small motor suppliers around the globe. Although high single-digit growth may be the rule in China for the foreseeable future, there is an opportunity for industrial FHP motor suppliers to capture market share by targeting high growth industry segments with system solutions, and strategically expanding their customer base in China. Simply relying on selling to distributors for growth may no longer be the best strategy for the majority of industrial FHP motor suppliers in China.