1. Chinese Machinery Sector
Until 1978, the machinery industry in China was dominated by large state-owned enterprises
(SOEs), built between 1950 and 1980. During the 1980s and particularly with privatisation
attempts increasing in 1999, the structure of China’s secondary industry modified basically.
Private Chinese entrepreneurs and foreign investors increasingly lent to the exceptional growth
in the manufacturing output.
The machinery industry is extremely dependent on the investment actions of their industrial
customers and is therefore very sensitive to developments in the economy as a whole. In the
last 10 years, China became a force to watch, mainly due to heavy investments to widen its
industrial base. Therefore, it is not surprising that in the course of China’s investment into
further production facilities, machinery expenditure raised 32% per year from 2001 to 2006. In
2005, machinery worth USD 267 billion was consumed in China, 31% more than the year
before. In 2004 and 2005, 22 % of the machines produced in China were exported. Foreign
imported machinery always had a extraordinary market share in China, but a change of the
pattern happened in past years. While domestically sourced machinery in 2001 had about 40%
market share in China, in 2004 this share had declined to 32%. Here one of the trends in the
machinery market becomes seeable: Import substitution.
Interestingly, foreign manufacturers support this trend by continuously supplying Foreign steer
Investment (FDI) to establish their own manufacturing presence in China. They are likely one of
the greatest adding factors in substituting imported machinery, reach to higher value-added
technologies. As mentioned earlier, the inflow of FDI into China has remained strong since the
mid 1990s, as foreign manufacturers saw the advantages of low production costs and China’s
big home market. In 2005, China’s inflow of FDI amounted to USD 60.3 billion, staying
approximately at the same level as in 2004. A majority (70%) of the FDI went into the

2. manufacturing sector. Within the manufacturing sector, the machinery and equipment market
drew USD 4 billion of FDI in 2005. In terms of countries of origin, roughly 7% of the total FDI in
2004 originated from the European Union. However, funds invested in China via offshore
vehicles in locations such as the Cayman or Virgin Islands or even Hong Kong cannot be
tracked back to the original investing country, hence the real investment by the EU-25 is likely to
be higher.
http://machinery.furkey.com/en-US/turkish-machinery-news/1645-chinese-machinery-sector.html