High-end equipment prices drop foreign investment in China to create

Two years ago, the quoted price of a 800-kilovolt transformer bushing from a foreign-funded company was about 900,000 yuan, and it is now about 400,000 yuan. The main reason for its price “diving” is that domestic companies such as China’s Xidian Group have independently developed and developed domestically-made casings that replace foreign investment products.

Many of the high-end equipment that had been dominated by foreign companies in the past had successively lowered their prices after technological breakthroughs in Chinese enterprises were achieved. The price war in China's equipment manufacturing industry is extending from low to medium-end products to high-end products. The monopoly profits of foreign capitals have gradually disappeared, and the profits of local companies have dropped significantly. This is a protracted war that tests strength and patience.

Foreign-funded enterprises' product prices "dive"

The change in the price of UHV transformer bushings is only a wave of foreign-funded high-end equipment price surges. Many high-end equipments in the equipment manufacturing industry, such as the name gargle and complicated technology, such as nuclear power K1 cables, long-life screw drilling tools, and large-caliber thick-walled seamless steel pipes, are experiencing unprecedented price declines.

For example, the cable K1 (highest explosion-proof grade) for nuclear power produced by a U.S. company has long been kept at around 10 million yuan per ton in the past, and domestic companies have developed alternative products and lowered the price to 5 million yuan per ton. The party immediately lowered the quotation to 2.8 million yuan/ton. The senior members of the China National Machinery Industry Federation expressed that “the fact that the foreign price cut exceeds 70% is beyond our expectation.”

A similar price “diving” phenomenon has also appeared in the transmission and distribution industry. As domestic enterprises made breakthroughs in the development of high-voltage circuit breakers, isolating switches, and GIS three major equipment, the bidding quotation of foreign-funded enterprises and their subordinate joint ventures in China continued to decrease. From the first centralized bidding of the State Grid in 2009 to the third batch of tenders completed in July 2010, in less than two years, the quotes of foreign-funded enterprises on the above three types of products have dropped by an average of 30%.

Prior to the price reduction, high-end equipment of foreign companies such as GE, Germany, Siemens, AREVA, and ABB was generally 30% to 50% higher than domestic similar products. After the price reduction, its quotation on some equipment is even lower than domestic products. This is mainly because the independent innovation of Chinese companies in high-end products has broken the pricing power of foreign companies, and their excess profits are gradually disappearing.

The gains and losses from price changes have begun to appear. Through continuous price cuts, foreign investors have retained some mid- to high-end markets. Those foreign companies that are unwilling to cut prices harvest the bitter fruits. For example, Henan Pinggao Toshiba High-voltage Switchgear Co., Ltd. (“Pinggao Toshiba”), a 50% joint venture between Pinggao Electric and Japan’s Toshiba, had no price cuts when it participated in bidding for power grids in 2009. As a result, it rarely won a bid. Performance fell sharply. Although afterwards changed its strategy and joined the price reduction camp, it still has not completely reversed the decline in performance. In the first half of 2010, the company realized operating income of 4.335 billion yuan and net profit of 30.01 million yuan, a sharp decrease of 48.94% and 79.08% respectively year-on-year.

Price war spread

The sharp price cuts of foreign-funded enterprises have dragged down domestic companies with a loss of price advantage into the ranks of price cuts. The price war that has emerged in the midrange equipment manufacturing sector is being staged in the high-end market.

Generally speaking, in the case of similar quotations, although the price of foreign-funded enterprises may be slightly higher than that of local companies, some customers who have a preference for foreign-funded products will still choose foreign companies because their products and services are more reliable. Both the quality risk and the political risk of decision makers are relatively small.

In order to win orders, the most effective way for domestic companies is to reduce prices to a lower level and to open up the gap with foreign investment. As a result, local companies that have just stepped out of the threshold of independent innovation have had to accept more severe tests in the coming price cuts.

Another result brought by Chinese and foreign companies competing for price cuts is that the price demarcation between foreign groups and local camps has become blurred. In the past, the quotation of foreign-funded enterprises collectively was higher than that of domestic-funded enterprises. Their competitors were other foreign companies within the same camp, but now they have been transformed into a price-fight between the domestic and foreign-funded enterprises.

According to experts from the China Federation of Machinery Industry, high-end products of foreign-funded enterprises have matured abroad. After domestic production in China, they basically do not need to devote more energy to research and development, and their costs are relatively low. Domestic companies, on the other hand, often have to pay a large price for independent innovation, including investing a large amount of R&D expenses and supporting technological transformation. Most of their products are in the early stage of mass production and need to be shared into research and development, and the cost is relatively high. .

Alert and complain

The large price cuts by foreign companies in high-end equipment are the reactions of their superior products when threatened by domestic companies. For some people in the industry, the reduction in foreign capital is meaningful and requires caution.

During the analysis of the economic operation situation of the machinery industry in the first half of 2010, the China Federation of Machinery Industry stated that a group of domestically-funded key enterprises had increased their independent innovation efforts for high-end equipment products, and made gratifying progress, but this has caused international competition. The unease of the partners, often after the domestic enterprises have paid a huge price for the development of independent innovation, they immediately changed their prices and rushed for users in an effort to block the pace of upgrading domestic companies. Therefore, the association expressed its concern about the reduction of foreign high-end equipment.

However, foreign companies cannot agree with this. An executive of a foreign-funded enterprise stated that the main reason for the price reduction of foreign high-end products is not that Chinese companies can produce alternative products, but that the localization of foreign companies in China is accelerating, making their costs down, and they can have greater price. Competitiveness.

In fact, changes in the domestic and international market conditions are also important drivers for foreign companies to use price reduction cards in China. Since the financial crisis, the demand in foreign markets has declined. Foreign investors have shifted their production capacity to China, which has substantially increased infrastructure construction. Market competition has become fiercer. However, since 2009, the growth of the Chinese market, especially the electricity market, has slowed down, and foreign investors have been forced to hold the market through price cuts.

According to public statistics, the investment plan for China's domestic power grids in 2010 was 260 billion yuan, which was 26% lower than the same period in 2009. The aforementioned executives of foreign companies stated that when foreign companies took part in bidding for the power industry in recent years, they were able to feel the intention of domestic customers to lower prices through bidding. At the same time, although there is no clear restriction on foreign investment in the bidding, foreign companies can often feel “unclear resistance”. For example, in the area of ​​UHV, China has retained a great deal of space for local companies, and the market has closed the door for foreign companies. very tight.

It is understood that the National Development and Reform Commission has stated that UHV equipment must fully realize its own R&D and domestic production. Except that some key technologies can be supported by foreign parties, foreign companies and their joint ventures are not allowed to participate in the development and bidding of equipment.

Foreign-funded companies have found that it is difficult to avoid the loss of market share even if there is a significant price cut in the mid- to high-end market. It is said that in the Chinese power transmission and distribution market, the market share of foreign companies such as ABB, Siemens, and GE is declining year after year. In the first half of 2010, almost all these foreign companies did not achieve growth. However, this statement has not been confirmed by the relevant company.