DOMESTIC construction machinery maker Zoomlion Heavy Industry Science and Technology Co. told analysts it rejected some 15 percent of new orders for truck-mounted concrete pumps in the first half of this year for fear that China’s property market slowdown will hit customers’ ability to pay for them.

    The firm, which warned Monday that its first-half profit would drop 70 percent, also told analysts Tuesday in a briefing it is now requiring larger down payments for new contracts. Zoomlion is trying to rein in accounts receivable that surged 47 percent to 27.8 billion yuan (US$4.48 billion) as of the end of 2013 compared with the end of 2012.

    New home prices in China fell in June for a third straight month, which hurts demand for Zoomlion’s equipment. About half of its business is directly tied to the property market, with the rest linked to infrastructure among others.

    “First-half property sales and property investment have slowed,” said CLSA analyst Alexious Lee. “This will remain a drag on demand for construction machinery. No one dares to say which way the property market will be heading in the next three years.”

    Zoomlion, like many of its rivals, offers leasing and financing options to boost sales. While that was a successful approach when the housing market was booming, helping it compete against foreign players like Caterpillar Inc. and Japan’s Komatsu Ltd., it has left local equipment makers like XCMG Construction Machinery Co. and Sany Heavy Industry Co. exposed to the risk of bad loans.

    To rein in risk, Zoomlion has mandated 20 percent to 30 percent down payments for new contracts, analysts said, citing Zoomlion executives speaking during a conference call. CLSA analyst Lee said the previous industry norm was that customers didn’t need to make any down payment on machinery orders.

    Still, there is no sign of a major turnaround of China’s construction machinery sector, struggling with a supply glut in the wake of the massive stimulus program that began in 2008. Zoomlion’s rival Sany saw its January-March net income drop 47 percent year on year. (SD-Agencies)